A personal loan is, perhaps, one of the easiest ways to get that money you need and to be able to face an unforeseen event or buy something you want. People often turn to them to change cars, take a well-deserved vacation or remodel their home. But do you know how loans work ?
What is a personal loan?
A personal loan is a financial product by which a person, who can be legal or physical, lends an amount of money to another, in exchange for interest. The one who receives the money, therefore, acquires a debt with his lender; and you have the obligation to pay it off within the agreed term, including the interest set for that period.
It can be said that personal loans are the most requested product in the financial industry . But many people who request it do not really know how it works.
What must be taken into account when requesting a loan?
The first thing you should take into account when applying for a loan is the base capital you need. In addition, the interest rates, amortizations, APR, the term for repayment, commissions and penalties in case of not being able to return it within the expected period.
How personal loans work
Unlike what happens with a mortgage loan, when applying for a personal loan you must have a guarantee against default. In a mortgage loan, you have your personal guarantee and your property. While in a personal one, in some cases the goods must be put as a guarantee of payment.
The most important characteristics of a personal loan are that they have a shorter repayment period compared to a mortgage and a higher interest rate. This means that it is more expensive, you must return it earlier and you are awarded less money.
The interest rate is usually calculated based on the debt , on a daily basis and a monthly charge. Therefore, the payment will not always be the same. Monthly payments are calculated based on the debt, its due date and the interest rate. In most lenders you can set a monthly, weekly or biweekly payment.
If you need, for example, a loan of ten thousand euros with an annual interest of 9%. If during the first year you return 1000 euros, 900 will correspond to interest and only 100 to pay off the base debt. For the second year, the debt will amount to 9,900. Therefore, paying another thousand euros, 109 euros of base debt and 891 of interest will be satisfied.
Now that you know how loans work, hire them when you need them. It is very important to do it the correct way and always ensuring that you have the ability to pay in the established time. In Ideal Loans we compare the one that best suits your need; since we have the best lenders in Nigeria.