Personal loans are a special category of loans that do not have a very specific purpose. They may be required to source any kind of need. They are distinguished from the finalized loans which, on the contrary, are required to make the purchase of a specific good or service. Personal loans, therefore, can be requested to carry out any type of expense: from a gift, to holidays to medical expenses or to expenses for wellness and for particular ceremonies. Once the loan, the bank or other credit institution is accepted, it delivers the capital directly to the client.
Personal loans: the guarantees required by the bank
Credit institutions and banks, before granting a personal loan, require a series of guarantees necessary to protect themselves from the risk of customer insolvency. The most important and common guarantees required by banks are:
- a certain and provable income;
Furthermore, some banks may also require the installments to be repurchased: this is an additional guarantee that protects the provider from the risk of insolvency.
Furthermore, if the applicant has a recent seniority or if he asks for a very high amount, the bank could also request the signature of a third guarantor or a guarantor who undertakes to return the sum in the event that the applicant defaults.
Personal finance: interest rates
In order to calculate the total cost of personal loans, the TAN and the APR are the two indicators to consider. They indicate the total expenditure that the applicant will have to bear during the course of the loan. In particular:
– TAN (Nominal Annual Rate) is the pure interest rate that is applied to the capital obtained with the loan. It is expressed as a percentage and does not include any incidental expenses that the applicant must incur during the loan. The Tan calculates the amount of interest that the applicant must pay to the bank or credit institution. In particular, the Tan is calculated based on the value of the amount financed and based on the duration of the loan. Tan, alone, is not enough to calculate the amount of underground financing.
– TAEG (Global Effective Annual Rate) is a much more complete indicator than the TAN as it provides the applicant with the total cost of the loan. It includes all the ancillary costs (such as, for example, the preliminary or insurance costs) that the applicant will have to bear during the course of the personal loan. Expenditure on government stamp duty, default interest, non-compulsory insurance and notary fees are excluded from the calculation of the APR.
It ‘important to note that the lenders have discretion in determining the APR. The law allows them to decide to include or exclude from the calculation of their expenses rather than some other.
Personal loans: What happens in case of non-payment of installments?
In the event that the applicant is unable to pay the monthly installments and, therefore, in the event that he becomes in default, there are some very important consequences. First, the interest you pay will be increased and will be charged a late payment. The debtor’s name will also be entered in the list of bad payers and will be reported to the bodies that protect the credit.
This is a very important consequence since all the data of bad payers are shared on the financial and banking system: in this way, the debtor will have difficulty in obtaining credit.
Furthermore, in the event of default, the bank may decide to terminate the personal loan contract unilaterally. Here too the consequences are relevant:
- the debtor will lose the personal loan;
- will have to pay the expenses of protest and bank;
- must also pay any penalty.
Personal loans: contract requirements
The law provides that the personal loan contract contains a series of elements and indications. In particular, the contract must contain:
- indication of the interest rate applied;
- the number, the amount and maturity of the installments;
- the methods by which the loan is granted;
- the APR;
- expenditure not included in the calculation of the APR;
- any other condition or price applied in the loan;
- insurance coverage not included in the APR;
Personal loans can also be repaid early. In this case, the applicant will only have to pay the remaining capital. In some cases it is possible to apply a penalty for early termination established and required by law.