Personal loans: the good and the bad of applying for a loan

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Personal loans are easy to obtain due to the number of bank branches and ATMs available.

 What is a personal loan?

The life of an individual takes place under the idealization and execution of goals; however, it does not always have the resources to put them in motion. But modern economies are reversing this scenario. Thanks to the granting of personal loans , Spain is one of the countries in the European Union with the greatest access to banking entities, according to Eurostat data.

Buying a house, buying a car or financing academic studies is not utopian. Financial institutions give the green light for the acquisition of goods and services. 

According to the study conducted by Eurostat, in 2008 about 98.7% of Spanish households had savings accounts, current accounts or deposits in financial institutions, while 63.1% had a credit card, being the reference person over 65 years of age.

But each personal loan works under a particular requirement; in the case of a type of credit it implies a series of pros and cons in which the financial situation of the borrower intervenes. Therefore, it is very important to define some concepts:

What is a personal loan?

A personal loan , also known as a consumer loan , is a contract through which a bank distributes an amount of money to a person known as a borrower. Said person has the obligation to return that amount plus the payment of the interest already agreed, in addition to other derived expenses.

How to apply in the process to apply for a personal loan?

To apply for a personal loan, banks carry out a feasibility study to determine the payment capacity of the debtor . It is a study similar to a personal budget that includes a record of monthly income and its commitments to previous debts. For example, credit cards – which will serve to assess whether the borrower can honor the monthly installments of the loan – and their assets such as real estate, bank accounts or investments will be guarantees.

Otherwise, if the banking institution handles doubts in relation to the credit history or considers that the equity is not profitable, the borrower will need a guarantor who agrees to comply with the payment of the debt. In this way you can get the personal loan.

What are the requirements to opt for a personal loan?

  • Pro forma invoice or budget of the service, product or good that you want to acquire.
  • Rental agreement for the house.
  • Copy of the employment contract.
  • Proof of monthly income.
  • Payment receipts for public services.
  • Receipts from other loans (if requested).
  • Current relation of the patrimony at the time of requesting the personal loan.

What is involved in a personal loan?

  • The interest rate on a personal loan is the amount that the bank will charge the borrower for lending him the money.
  • Personal loans are differentiated from mortgage loans by the guarantee that they merit . For example, the totality of assets -current and future, few or many- will serve as collateral in case of default with a payment.
  • Personal loans have a much higher interest rate than a mortgage loan . Even, they give less time to return it.

Another modality: advantages and disadvantages of a personal online loan

Advantage:

  • In personal loans the money is obtained much easier and with little paperwork. For example, in the modality of online personal loans the same thing happens. The process is carried out from any device such as a tablet, a laptop or a mobile phone. The borrower fills in a form, selects the deadline to return the money and then processes it on the lender’s website.
  • Through obtaining a personal credit the money can be used to honor various commitments such as paying a large purchase or making small payments.
  • The interest rates of personal loans are lower than those that would generate a purchase by credit card.
  • Fulfilling the monthly installments of personal loans builds a positive credit history.

Disadvantages:

  • In the case of online personal loans the amounts are not very high. For this reason, digital platforms handle figures that range between 500 and 6,000 euros . Although in a bank the amounts to be preferred are higher, the procedures are also more exhaustive than with this online method.
  • If you pay a late fee or lose a full fee, this will generate a negative credit history report. This also affects the obtaining of other credits with better rates.
  • Handling several personal loans can be counterproductive . High hidden expenses are one of the main setbacks. In fact, you can file an extra fee if a non-payment occurs.
  • To request a personal loan online it is necessary to analyze under which parameters the platform works . This type of credit has its benefits but if not managed properly, it can become a double-edged sword.

The advisable thing : before requesting a personal loan as financial support , it is worth investigating the benefits of the bank or the platform if it is a personal online loan . Preliminary planning of monthly income and expenses will help determine how much money is feasible to lend without having to reflect bad credit performance.