A personal loan is a cash loan issued to individuals for the purchase of household goods with a long and limited period of consumption. Loans for various needs are issued to citizens in the form of cash loans or finished products.
Each product has additional fees, interest rates that increase the real loan cost. These funds cover the salaries of sellers and bank employees, pay for the rent of premises of financial organizations, compensate for “problem loans”. Knowing what the commission is charged for, how payments are formed, you can find a profitable consumer loan without significant overpayments. Only you need to rely not on advertising, but on your own attentiveness.
Pros and cons of personal loans
Personal loans are provided by various organizations – banks, microfinance organizations, microcredit companies and consumer credit unions. The advantages of getting such products are as follows:
- Relatively fast processing. It takes about 5-60 minutes to get a cash loan. The procedure is performed using a remote method faster. The deal is made via the Internet, and access to the service is available around the clock. The registration of the service is delayed when visiting to a bank or microfinance organization. Time is spent waiting in queues, filling out an application, processing data, signing a contract.
- High rate of applications’ approval – many companies have eliminated their requirements for borrowers. They lend to individuals with open loans, damaged reputation. Thanks to this, the probability of getting loans is close to 95%.
- The minimum package of documents. If the size of the loan is small, then only an ID and SSN are required to issue it. For a large loan, more stringent requirements are established. In this case, certificates of income and official employment are required, and the personal loan itself is issued against the security of real estate or a car.
The disadvantages of personal loans include:
- Significant overpayments – they are hidden in rates, commissions, insurance;
- Short grace periods.
Personal loan: types, differences
All personal loans are divided according to their purpose and the way they are issued. Based on this, they are divided into:
- credit cards;
- express loans.
Targeted loans are issued for the purchase of specific goods or the implementation of specific plans. When signing a transaction, funds are often transferred not to the borrower’s account, but to a third party who provides a product or service. With the help of targeted loans, expenses related to repairs, tuition fees, the purchase of household appliances, cars, and real estate are covered. Loans are issued for a period from 3 months to 10 years or more. Lending terms in the developed programs are softer in comparison with other products, since financial institutions constantly monitor cash flows. In cases of agreement violation, the lender can tighten the requirements by raising the rate or imposing a fine. Therefore, you should take targeted loans deliberately, adhering to all agreement clauses. Target loan rates often have a grace period without interest. The term varies from 1 month to 1 year, less often – up to 2 years. Such terms are mainly developed for the sale of mobile, household appliances, cars. In the lending sector, this is almost the only opportunity to purchase goods in installments without overpayments. In other cases, the rate ranges from 12-20% per annum.
Non-targeted loans are cash loans issued to individuals for a short or long period. When signing a transaction, the borrower does not need to indicate the purpose of spending the funds. And this is the main product advantage. Non-targeted loans are issued by both banks and private credit companies at an interest rate above average – at 15-35% per annum.
Credit cards are a payment and settlement product issued by banks for their clients in the form of a plastic card. The cards are designed for cashing out funds, carrying out non-cash payments, buying goods and services in installments. Most cards have a grace period that allows you to use the established balance for free. After this period, if the card balance is not replenished, interest is charged on the amount spent – on average, from 20 to 50% per annum. Many banks charge cards.
Express loans are small cash loans that are provided by private microfinance organizations, microcredit companies and consumer credit unions for a limited period, mainly before payday – from 3 to 30 days. Funds are issued online by transferring to a card or bank account, as well as through stationary branches. The service is issued within a few minutes having only an ID. In microfinance organizations, clients can get a consumer loan with a bad credit history. In return for fast service and loyalty, they pay high rates. The borrower must reimburse the company from 1.5% to 2.2% of the amount received per day, respectively, the annual rate ranges from 550% to 800%.