Personal loans are one of the most popular financing tools on the market since they are easy to manage through the banks’ digital channels. However, before giving the final click it is important learn about all aspects that involve the granting of a credit of this type.
As a first step, it will be necessary to evaluate in detail the financial situation you are going through and thus be able to make a better decision. In this way it will be possible to prevent, in addition to a headache, the interest that perhaps could have been avoided.
The first question anyone should ask themselves before getting into debt is “what for?”. Making a time commitment for something that is not necessary is not only harmful to our budget, it will also be a burden that we will find it difficult to pay.
What is a personal or consumer loan?
It is a contract by which the financial institution advances a amount of money to another personwith the obligation that that person return the money initially requested (principal) and also pay the agreed interest and expenses derived from the operation.
Many times the names of these loans are usually identified with the object to be financed, such as loans to buy a car or pledges, vacation loans, etc.
The amount what banks usually offer varies depending on the person requesting itdepending on their credit history and the guarantee they offer as clients and that arises from the analysis of the assets they have, the level of stable income, the seniority of work, among others.
What should be taken into account before requesting a loan?
As detailed from the Central Bank (BCRA)when applying for a loan, regardless of its type (mortgage, pledge, personal, etc.) you must identify which entities grant them and among them, determine those that are of interest to you.
Once this selection has been made, it is convenient to gather all the available information on the costs that must be faced once the loan is granted. For this, the information published by entities on their websites can be useful.
But to compare loans it is not enough to look only at the interest rate, since it is not the only extra thing that financial institutions charge. They also charge commissions and other amounts associated with the loan, among which are included the expenses of opening and maintaining the account, the cost of cancellation, etc. This set of values is called Total Financial Cost (CFT).
In this sense, the financial analyst Christian Butler explained to Clarionthat “the first thing a person has to look at when they want to take out a loan, to really know what they are paying is the Total Financial Cost (CTF)”. This includes the interest rate plus fees and charges that apply to the credit. The CFT tells us how much the loan will actually cost us.
Meanwhile, he stressed that “all banks and financial companies have the obligation to publicize or publicize the Total Financial Cost“.
Finally, to compare loans, it is necessary that the CTF be similar in terms of the rates they chargelos years that the credit lasts until it is canceled (amortized), the amount of fees which is paid per year. Because a loan that is paid monthly is not the same as one that is paid once a year. The interest rates that will actually be paid will be different.
In summary, when applying for a loan it is necessary compare offers and for that it is necessary consider the Total Financial Cost (CFT).
What are the 4 most common mistakes made when requesting a personal loan?
1. Asking for more than is needed. There is an erroneous belief that the more, the better. A personal loan is a responsibility that must be paid with interest and commissions, within a certain period.
And the less we request, the less we will have to repay and, therefore, the less time we will be in debt, so it is convenient to request only what is needed for a justified cause.
2. Choose a loan with a very long term, to pay smaller installments. In reality, you will be paying more for the loan in interest in the long run, plus you will be in debt for a long time. It is necessary to be realistic and think about the possible term in which the installments can be returned without causing financial difficulties.
3. Not being informed about the existence of products linked to the loan. This usually happens with bank loans, where the granting of aid sometimes requires the contracting of other products such as a credit card, an insurance policy or a pension plan.
4. Do not compare similar products to the same term to see which one can be more profitable, is another of the most common mistakes when hiring a loan.
As a next step, taking into account everything that must not be done, before making a decision one should ask oneself: Is it essential to have this money? What other ways do I have to fix it?
The consultant and educator in Financial Emotional Intelligence, Val Laco He maintained that “we will have to take a good look at the finances and see if they are they can cut some expenses that are not essential, and even evaluate, even, if extra money can be generated through the sale of some good that is in disuse, or take an additional job”.
If even so, the only possible alternative is to take out a loan to get out of the crisis, then it will be essential to know the basic recommendations that must be taken into account when doing the process.
Should you take out a loan today?
For the analyst Buteler, unless it is very necessary, “today is not a good time to borrow with a loan. Due to high inflation, interest rates are currently very high, as they can range from 110% al 160% in some banks and more than 200% in other financial institutions.
“Although today inflation is 100%, the reality is that when the credit is taken out, the rate is fixed, and if inflation later comes down, there will be no modifications to what was agreed. The same as if the salary does not end up adjusting to inflation, or you directly lose your job. In those cases, you will have to continue paying a very high cost for the debt that was taken,” he said.
LN