The widespread use and popularity of personal loans are due to the ease of obtaining them, which is usually due to the small amount of my loan and its relatively short term. That is why the number of such loans does not decrease even during the financial crisis, and many banks make personal lending the main focus of their own work. However, not all borrowers take full advantage of personal loans, so it would be logical to consider the question in more detail.
About personal loans
A personal loan is usually a loan that is given mainly to individuals for the purchase of any consumer goods or services. A mortgage or car loan can also be considered a personal loan, however, they are considered separate types of lending. The main features of personal loans are their short duration, which rarely exceeds 1.5-2 years, as well as an insignificant amount.
Quite often, a personal loan is issued in the form of installments, when interest on the loan is not actually allocated, being included in the cost of goods. In this case, the loan, in fact, is issued directly by the point of sale, not by the bank, not being a full-fledged loan, as there are no formal features in the form of interest for the use of borrowed funds and the conclusion of a loan agreement.
Types of loans
Currently, there are several types of personal loans that can be classified according to their various parameters:
- Non-purpose loans. Such loans are issued in cash or by credit card. Important features of such loans are a higher interest rate than the target, as well as a smaller loan size. Despite this, according to many financial analysts and banking market experts, this type of personal loans is the most common;
- Purpose loans. They are issued by the bank for the purchase of a specific product or service. Often the registration takes place directly in the store, where the borrower has already selected the purchase he/she needs. This type of loan is often used to pay for various services, such as medical treatment or a tourist trip;
- Express loan. This is a relatively new type of lending, which is provided in most cases online. In fact, it is an improved and more profitable version of microloans. The main features of such loans are the high interest rate and small loan size;
- Credit bank card. This version of the loan is rapidly gaining popularity. The reasons for this are the simplicity, security and convenience of the procedure of crediting funds in combination with the ever-increasing number of cards in the hands of individuals.
Of course, in addition to those described, there are many other types of personal loans, however, the above are the most common and often used in practice.
Requirements for the borrower
In most cases, banks make fairly loyal claims on potential recipients of personal loans. This is due to the small size and short duration of the loan, which is the main feature of such loans (if you consider mortgages and car loans as separate types of loans). Another factor that allows credit institutions to reduce the level of personal loan requirements is a higher interest rate, which also offsets some of the risks of such financial transactions for banks.
As a result, the usual conditions for approving a personal loan are:
- U.S. citizenship and age over 18;
- good credit history;
- a regular source of income (except for loans for very small purchases).
Quite often, banks’ claims on potential customers applying for a personal loan are limited to the above three conditions.
How to apply for a personal loan?
Until recently, a personal loan needs a visit to a bank. The procedure for filling out and submitting the necessary documents was quite fast and simple, which is not surprising given the high level of competition in this market segment. The client simply would not work with a bank that makes inflated demands or slowly prepares the necessary paperwork to obtain funds.
Is it possible to apply online?
However, in the last 3-4 years, an increasing number of applications for personal loans are submitted online. This is due not only to the convenience of such a procedure for the client but also a serious increase in the volume of online commerce. As a result, the purchase of a product can occur almost entirely online.
Interest rates on personal loans
One of the most important parameters of any loan is the size of the interest rate. Obviously, it can fluctuate quite a lot depending on the type of loan and the organization issuing it. At the same time, it is important to understand that the often declared interest rate is markedly different from the real one, which takes into account all the additional commissions and payments of the borrower associated with obtaining a loan for personal needs.
Another option for lowering the interest rate is to hide it in the value of the goods. That is why, choosing a suitable loan, you should carefully study the terms of the loan, paying particular attention to hidden interest and payments, as well as prices for similar goods in other stores.
Pros and cons of personal loans
Like any other banking product, personal loans have both obvious advantages and disadvantages. Pros are:
- low requirements for the borrower by credit institutions;•
- obtaining goods or services that would be difficult to purchase without borrowing funds
- the ability to submit several online applications in different banks; quick consideration of the application;• the ability to repay the debt early, usually without penalties.
The disadvantages of personal lending include:
- relatively high interest rate on such loans;
- increase in the final value of the goods due to interest paid;
- increase in the financial burden, especially negatively affecting the borrower during the crisis;
- the need to pay penalties for late payment on the loan.
Refinancing of personal loans
The large number of personal loans issued before the onset of the next crisis has led to the fact that quite often today one bor-rower has several loans, payments on which make up a significant part of his/her income. Naturally, this situation has led to a significant increase in the level of defaults and arrears. As a result, refinancing of personal loans has become extremely popular and in demand in the banking market recently.
The purpose of such actions is the desire of the borrower to obtain a loan on new, more favorable terms, the funds of which are used to repay old personal loans. The consequence of refinancing is to reduce the financial burden on the borrower and restore its solvency. Today, refinancing services are provided by almost all major banks.
Personal loans without guarantors and certificates
Quite a large number of banks offer the opportunity to issue a personal loan without providing certificates of income or registration of surety agreements. However, the lack of collateral leads to severe restrictions on the loan amount and an increase in interest rates.
Is it possible to get a loan without income and collateral?
Some banks issue personal loans without imposing on customers the level of income or the mandatory provision of credit collateral. Of course, in this case, we can only talk about small amounts and short-term loans. Another option for obtaining money for consumer needs is to contact various MFIs, whose requirements for potential borrowers are much less stringent than those imposed by banks. However, in this case, you will have to pay a much higher interest rate on the loan, sometimes reaching 1-2% per day.
For how many years can you take a personal loan?
The most common duration of a personal loan is 6-12 months. In some cases, its term is extended to 2 years if it is a more serious purchase. Long-term loans for personal needs are quite rare in practice.
Is it possible to get a cash loan?
Today, there are two main options for obtaining a personal loan. The first of them involves crediting money to a card already available to the customer or specially made for this purpose. This method has recently become increasingly popular, due to its convenience and safety for the borrower.
The second option involves receiving cash directly at the bank’s cash desk. Until recently, it was the most popular, however, today it is used less and less. This is due to several reasons: the cash commission, which is set in many banks, and the inconvenience of carrying a large amount of money.
How is a personal loan repaid?
Today, almost all banks offer customers a choice of several repayment options:
- by means of terminals or ATMs;
- postal transfer;
- transfer of funds from the card with the help of Internet banking;
- transfer of funds from e-wallets, etc.
Early loan repayment
Repayment of the debt to the bank ahead of schedule allows the borrower to save some money by reducing overpayment on the loan. At the same time, the credit organization, in accordance with current legislation, has no right to charge for early repayment of the loan any penalties, which was often practiced before.