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Personal Loans

How Do Personal Loans Work?

A personal loan is money that you borrow from the bank to buy goods and services for yourself or your family. It can be issued only to individuals, and the company can not arrange it. They can be taken at microfinance organizations. 

Types of Personal Loans

They can be divided according to several criteria:

  • Purpose. Personal credit can be taken as a specific purchase or without specifying the upcoming spending. For example, if you arrange a POS-loan in a furniture or electronics store, the bank will transfer money directly to the seller. If you take a loan and do not report on what it is going to be spent, it is considered non targeted. Rates may be lower for targeted loans, especially if it is an affiliate program of a store and a bank.
  • Security. When you take a large amount, the bank usually needs additional guarantees that you will return it. Loan security is often collateral, such as a car or other property, or a guarantee of others. If the item is pledged to the bank, you can continue to use it, but you cannot sell or donate it. In addition, the bank may ask to insure it. But interest on secured loans is usually lower than on unsecured.

What Conditions Must Be Met For a Personal Loan?

Each bank or other organization sets its own rules. For example, for a personal loan online, you usually need a passport only. A bank can set a lot more conditions before granting you a significant amount. 

Provide Documents

There are only two required documents: a passport and a loan application. When making a personal loan, consultants often ask to show a second photo document, for example, a driver’s license. This is necessary so that fraudsters could not collect credits and loans on other people’s documents. Banks may require other documents proving your financial viability. A full list of documents can be found on the website of the lender or in his office.

Report Your Income

You do not always need to document your salary, pension, or scholarship, but you usually need to report income. The maximum loan amount depends on it. If you have guarantors, you are ready to leave the property as a pledge or to insure in favor of the bank, then the amount of the loan may be even greater.

Get Insurance

Often there is a clause that obliges you to insure the collateral, your life or health. By law, you are not obliged to do this, but insurance will reduce potential credit risks, for example, to save mortgaged property if you suddenly lose your job and cannot pay the loan. With such insurance, the bank can offer you more favorable terms on the loan size, term or interest rate. 

All conditions should be indicated in a special table at the beginning of the contract and should be clear to you. The contract itself can be considered concluded if you and the bank have reached an agreement on all points.

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