No one is immune from unplanned spending. Health problems, a broken phone, the loss of a loved one — situations can be different, but there is only one way out. We urgently need to get money somewhere. We can only hope for help from various financial organizations. Here a choice arises: is it better to contact an MFI or a bank? So, how do personal loans work?
How do personal bank loans work? The main parameters or features of such loans include a small amount, a short repayment period, a high-interest rate, and quick issuance. Either financial organizations (FOs) or banks look after the issue. At the moment, there is an increase in demand for this type of lending. The microloan interest is calculated every day. If the interest per day is 1–2, then the annual rate will be approximately 730. Of course, microcredit organizations run a high risk by issuing money only upon presentation of a passport, hence the large percentage, it acts as insurance.
It is difficult to decide to go to a bank branch for a loan. The amount of information required for registration scares customers. Without a certificate of income, the borrower’s chances of getting money fall sharply, with a negative credit characteristic – they are minimized. Thanks to microcredit, you can make a loan application without leaving your apartment.
How Personal Loans Work: Types of Loans
What are the personal loan interest rates? There are loans with a fixed rate, there are – with a personal one. The size of both depends on inflation, legislation, competition, and other factors. When calculating the individual rate, the financial condition of the borrower is additionally taken into account. Personal loan interest rates are beneficial to customers. Now almost all loan application rates are calculated individually to vary degrees. The financial condition of the borrower is taken into account when calculating rates on mortgage, car, and even educational loans.
There are two types of loans:
- Unprotected — does not require guarantees and collateral to be sure that you have repaid the loan. In the case of non-return, the creditor has no right to demand the collateral as compensation. But at the same time, the credit history suffers completely.
- Protected — in this option, a pledge is still required, and as a non-return of credit funds, the submitted assets, securities, are subject to confiscation. At the same time, interest rates are much lower, because the loan agreement is tied to assets. Credit power of attorney is growing, because not the solvency, but the property will be assessed.
To avoid credit card debt don’t delay credit card payments. Your credit history depends on it. A good credit history guarantees the approval of a large loan if the need arises.
Until the end of your loan period, be sure to keep all payment receipts, and after fulfilling your loan obligations, do not forget to take a document confirming that the loan has been repaid. Store it for at least 3 years.