What is a personal loan?
A personal loan is a loan for consumer purposes. Consumer goals are non-business goals. For example, it can be loans for the purchase of durable goods: mobile phones, furniture, household appliances, cars. A perspnal loan is also possible to be approved to pay for different services (medical, educational, travel). It is possible to provide a cash consumer loan, which the borrower uses at his own discretion. The lender can be either a trade and service organization or a credit organization. The borrower is an individual (consumer). In practice, consumer loans are provided mainly by banks.
What are the types of personal loans?
Personal loans are divided into 2 types by their nature: targeted and non-targeted. Targeted loans are issued, as a rule, at the place of purchase of goods (in a store). A non-targeted loan is issued directly at the bank. On the basis of the presence (absence) of collateral, personal loans are secured and unsecured. Depending on the terms of the loan application processing, these loans are divided into express loans (the decision is made in a short period of time, from 15 minutes to 1 hour) and the so-called “classic” loans (the decision is made in a period of 2 to 14 business days).
Who can get a personal (consumer) loan?
A personal (consumer) loan can be issued for an individual who meets the set banking requirements. Depending on the bank, these requirements may vary, but there is a universal requirement applied by all banks: a loan can be obtained by an individual with a permanent source of income. The main source of income for most borrowers is wages. However, there are banks that provide loans to non-working pensioners. There are other sources of income: dividends from securities, income from renting out real estate, etc. Banks generally take into account other sources of income only if there is a permanent source of income in the form of wages. Alternative sources of income must be documented (for example, when renting out real estate, a tax return must be submitted confirming the payment of personal income tax).
From what age are consumer loans issued?
Usually, the loans are issued for individuals over 21 years old. However, there are banks that provide loans to people over 18 years of age.
What is the maximum age limit for a borrower applying for a personal loan?
Depending on the bank, the maximum allowable age of the borrower ranges 55 to 70. At the same time, it is necessary to distinguish between the concepts “the maximum permissible age of the borrower at the time of applying for a loan” and “the maximum permissible age of the borrower at the time of the loan agreement expiration”. For example, you want to apply for a loan for 2 years, you are now 59 years old. The bank A. has established that the age at the time of applying for a loan must be less than 60 years old (in this case, you can count on getting a loan). The bank B. has established a rule according to which at the time of the loan agreement expiration the age of the borrower must be less than 60. At the time of the loan agreement expiration, you will be 61 years old, in Bank B. you cannot count on getting a loan, although the age limit in one and in the other case is set at first glance the same: 60.
For how long are personal loans issued?
Personal loans are issued for terms from 3 months to 5 years.
Consumer mortgage loan, what is it?
There are loans that combine the features of both a mortgage loan and a personal loan. For example, some banks provide big loans for any purpose, including consumer loans, from $300,000 to 25 million dollars secured by the property owned by the borrower.
What is the effective interest rate?
According to the current legislation, banks are obliged to disclose to consumers the size of the effective interest rate. The effective interest rate is the annual interest rate taking into account all possible bank charges (fees for creating a loan account, for servicing a loan account, etc.). The effective interest rate is specified directly in the loan agreement. The real effective interest rate may differ from the declared by the bank by 2-3 times, therefore, before signing the agreement, it is better to carefully read the paragraph concerning the size of the effective interest rate. However, in practice, only one in 50 borrowers really knows the size of the effective interest rate and understands what it means. The point is not only in the general financial illiteracy of borrowers, but also in the marketing tricks of banks: the text of the loan agreement is printed in small print, the bank does not mention the average size of effective interest rates in advertising, bank managers are well trained in behavior with borrowers who are interested in effective interest rates.
What is more profitable – get a loan in a store or get a cash loan for any purpose?
You need to understand that the sooner the decision to issue a loan is made, the greater the risks for the bank. Risks have to be included in the loan cost, therefore, consumer express loans, the decision on which is made within 15-30 minutes, as a rule, turn out to be more expensive than a loan approved within several days. The more the bank requires documents, the lower the interest rate in the end will be. But any rules have exceptions, so it is better to carefully read the terms of issuing loans in various banks, compare them. Rarely, but it also happens: the bank requires a large set of documents, considers it for a long time, and as a result, the effective interest rate turns out to be higher than that of the bank, which made a decision within 30 minutes.
If you need a small amount loan and do not have time to pick up documents, we advise you to choose a bank that will only require an ID and will consider the application in a short time: the difference in the final overpayment will be insignificant (compared to a bank that has a lower interest rate, but which will take several days and will require other documents).