Personal loan is a form of short-term loans to individuals to meet their consumer goals, not related to business.
The lender can be not only a banking institution, but also credit unions, as well as trade and service organizations.
The main differences between personal loans are:
- simplified underwriting procedure;
- the minimum package of documents from the borrower (identity card, income statement);
- the highest interest rates compared to traditional bank lending;
- short term of crediting – from three months to five years. On average, about a year;
- the object of personal loan can be not only money (cash or non-cash), but also the goods for the purchase of which the client asks to issue a loan.
- securing a loan, insurance or surety – this term is met only if we are talking about large loan amounts issued in cash for the maximum possible period, or in the case of buying expensive property (for example, a car).
Forms of personal loans
There are two main groups of personal loans: targeted and non-targeted.
Targeted lending is a commodity loan. The main difference: the loan representative who draws up the transaction knows the client’s ultimate goal – what kind of goods he wants to receive on account of future repayment.
- loan processing is carried out at the point of sale of household goods;
- the loan application is at the same time a purchase and sale agreement;
- the client receives the desired product immediately after signing the contract without a down payment;
- simplified and accelerated application processing – up to one hour;
- there is no collateral for the loan and at the same time the purchased goods are not collateral.
Non-targeted loan is a cash loan. Funds come in the form of cash or by issuing a credit card. Among non-targeted loans, there are:
- personal loan for urgent needs;
- one-time issue of the required amount.
- the borrower does not confirm for what purposes he intends to use the funds received;
- the loan is issued in a stationary branch of the bank;
- preliminary preparation of a certain package of documents, in particular insurance;
- lower interest rate, which decreases upon collateral.
maximum loan term in comparison with other types of consumer loans.
- The possibility of renewing the credit limit in case of financial discipline of the client. That is, this credit card can be used in the same way until the end of its validity period.
- The presence of a grace period (usually the first few months after the card is issued), when interest on the loan is not charged.
- It has a spontaneous character, not always planned due to the minimum package of documents.
- Providing small amounts for a minimum period.
- The possibility of registration not only at the bank branch, but also at mobile points of sale.