When you need to make a large purchase, and there are not enough savings, a consumer loan can be a logical solution to the problem. A consumer loan is money that you borrow from a bank to buy goods and services for yourself or your family. A consumer loan is issued only to individuals, even low income earners, and it cannot be issued to a company.

What are the types of consumer loans?

Credit can be divided according to several criteria:

By target

A consumer loan can be taken both for a specific purchase or without specifying the upcoming expenses. For example, if you take out a POS loan at a furniture or electronics store, the bank transfers the money directly to the seller. This is a targeted loan. If you take out a loan and do not report what you spent it on, it is considered inappropriate. For targeted loans, the rates may be lower, especially if it is an affiliate program of a store and a bank.

By providing

When you take out a loan for a large amount, the bank usually needs additional guarantees that you will return it. A loan is often secured by a pledge, such as a car or other property, or a surety from others. If the item is pledged by the bank, you can continue to use it, but you cannot sell it.

By timing

The division by terms of loans is usually very different. The term greatly affects the interest on the loan. Usually, the longer the term, the lower the rate. But not always – you need to study the conditions of a particular credit institution.

How to choose a loan?

Calculate how much loan you need and for how long. But keep in mind that you will have to return not only this money, interest and possible additional payments will be added to it.  If about half of your annual income is spent on paying off all loans and borrowings, there is a risk of not being able to cope with the debt repayment. It is optimal when payments do not exceed 30% of monthly income. Consider the upcoming large expenses, one-time and regular, such as paying for children’s education or annual check-ups, car insurance. Or a planned decrease in income, for example, if you are going on maternity leave.

Check if your contract includes any additional paid services that you do not need: credit card, SMS informing, voluntary life and health insurance, remote service, or notary services. Check if these items are mandatory or you can opt out of them.

Please note that the bank should not include in the cost of the loan services for which you did not give your consent and those that it provides in its own interests: consideration of an application, preparation of documents for a contract, maintaining a loan account. All conditions must be indicated in a special table at the beginning of the contract and must be clear to you. The agreement can be considered concluded only if you and the bank have reached an agreement on all points. When concluding an agreement, pay attention to the payment currency and interest rate.

What do you need to know about the repayment of a consumer loan?

If you took out a loan, but for some reason cannot pay it off, it is better to immediately inform the lender about it – most likely, the bank will help you find a solution:

• you can restructure the loan together with the bank – change the terms of the agreement to make it easier for you to repay it. For example, to lower the monthly payment amount by increasing the loan maturity, or to change the payment currency;
• or to refinance the debt – to issue a new loan in this or in any other bank on more comfortable terms for you in order to repay the previous loan

The bank has the right to demand early repayment of the loan in some situations:

• if you constantly violated the terms of the contract for six months: for example, you paid the loan with delays of more than 60 days or did not pay the entire monthly amount;
• if you took out a targeted loan, but spent the money for purposes that were not specified in the contract (for example, you took out a loan to buy household appliances, but spent it on vacation);
• if under the contract you were supposed to be the subject of the pledge but did not do so within 30 days.

You can not postpone your dreams until tomorrow with a competent approach to finance. The main thing is to carefully consider the choice of a lender, to carefully assess your financial capabilities, and to calculate a comfortable monthly payment amount so that a consumer loan does not become a heavy burden for you and your budget.