Personal loans: questions
It is defined as an agreement in which the lender X (may be X: a financial institution, a platform of investors, an individual) anticipates an amount of money to a borrower who agrees to return the principal amount quoted, plus interest, in a period already set in advance and under the contractual conditions agreed by both parties. Traditionally, credit institutions have been calling such products as consumer loans, the purpose of which is of all kinds: loans to study, travel, buy appliances, purchase a vehicle, etc. The main difference that distinguishes these types of loans from mortgages is the fact that they do not need a real estate guarantee, since the natural person guarantees with all their personal property (present and future) guarantees the fulfillment of the contract.
What types of personal loans exist?
First, we point to traditional bank loans, contracted with a banking entity. More advantageous are usually loans between individuals, as both parties have the possibility of agreeing to the conditions and are usually therefore much more flexible than the baccaries. In recent times a multitude of mini loans have emerged, which do not require virtually any collateral, focused on resolving any specific eventuality, however, the main disadvantage is the high interest to be paid as well as the short life of the loan. Another borrowing modality is the new crowdlending and / or crowdfunding platforms, whose purpose is to negotiate and combine private investors with loan applicants. Finally, it is worth mentioning government loans, both national and European, which tend to offer tangibly lower interests and better contractual conditions for the user, however their achievement is often very difficult and in most cases, a project is required, feasibility studies, etc.
How much money can you grant a personal loan?
Given its characteristics (in principle, a mortgage guarantee is not required) its amount is usually lower than those credits destined for the acquisition of a home: from 600 to 60,000 euros.
According to the amount granted, the life of the loan usually ranges between 1 and 8 years as the deadline for repayment. There are also no grace periods and payments are formalized through monthly installments.
Like the points above, the interest rate accrued on a personal loan will depend on the amount requested and the life of the contract. Another decisive factor is the applicant’s risk ratio, calculated by the lender, which will charge more or less interest according to the borrower’s greater or lesser ability to return the credit. To get an idea, in Spain a APR is paid that ranges between 10% and 25% for personal loans of an applicant with average regular income (1000 euros).
Requirements to apply for a personal loan
Depending on the borrower, either a banking entity or a private investor, we will have to fulfill, in broad strokes, the following requirements:
- Have Spanish nationality or residence.
- Proof of income: the employment contract and the last three payrolls are normally required (in the case of employed persons). For the self-employed: statement of the Treasury of the last years as well as of the current year (with annual VAT and IRPF summaries), last quarterly statement to the Treasury, last payment to the Social Security, registration document as autonomous and proof of regular income.
- List of assets: that is, all real estate owned at the time of requesting the loan; houses, car, investments, etc.
- Declaration of other loans (if any).
- Loan application forms.
- Opening of a checking account in the name of the holder of the loan in the entity where it was requested.
Personal loans, as a rule, do not include the possibility of reunifying debts of other loans, for which a mortgage loan is required. However, to obtain more detailed information on the subject:
Banks do not usually extend the repayment terms or the amount of a personal loan (this process is carried out with mortgage loans). The only existing possibilities would be either to cancel the current credit and request a new superior or to hire the services of an intermediary agency.
Cancellation or early redemption
The amortization can be total (100% of the amount owed) or partial. In both cases the entities usually charge a commission, which acts as compensation for not having collected all the interest that was planned, of a percentage X that is usually around 4%.
The bank does not have the right, under any circumstances, to change the contractual conditions unilaterally without the express consent of the borrower. Then they cannot charge us any commission, insurance contracted, or extra interest that we have not signed beforehand.
Can my assets be seized in case of default?
If the entity has notified the default order, if no agreement has been reached by both parties, yes, the bank has the power to seize the debtor’s assets, even if they are future assets not declared when applying for the loan.
Commissions to consider
- Opening commissions
- Commissions for cancellation or early repayment.
- Type of interest.
- Amount of the monthly fee.
- Non-payment fees.
- Commissions derived from other products: these may be insurance policies. We recommend paying special attention to this point, as there are numerous owners who, unknowingly, have contracted private insurance along with the loan and then are forced to defray expenses even though they do not want such services. Therefore, it is necessary to sign the contracts having fully understood each clause thereof.