A loan is a loan of money from a bank or other financial and credit organization under certain conditions: terms, goals, repayment procedure, and interest rate. A cash loan that is issued to individuals for large purchases, payment for services, or travel is called a consumer loan. What distinguishes them from mortgages or car loans is that consumer loans are usually issued without collateral. With a mortgage, the collateral is the purchased home, and in the second case, the car.
What is low consumer credit?
Low cost consumer credit is a form of financing that is provided to individuals to purchase goods or services. This type of loan usually has a relatively low interest rate compared to other types of loans, such as credit cards or quick loans. However, specific terms and requirements may vary depending on the bank providing the loan.
Types of low consumer credit
By purpose:
- Targeted – a loan for a specific product or service. This is how, for example, point-of-sale lending works, where a buyer can apply for a loan from a store’s partner bank for a selected product. In this case, the money is transferred directly to the seller and cannot be spent on anything else.
- Non-targeted – a consumer loan that can be spent at your discretion. As a rule, the bank clarifies why you are taking the money, but does not control it. Unlike a targeted loan, a non-targeted loan usually has a less favorable rate and implies more stringent requirements for the borrower.
In both the first and second cases, you can find the best personal loan with low interest by selecting a suitable bank.
By provision:
- With collateral – for example, using movable or immovable property as collateral, as well as with the participation of a guarantor. This is an additional guarantee for the bank and reduces the risk of non-repayment when lending. Therefore, secured loans are usually approved faster and on more favorable terms. The bank may also ask the borrower to insure the collateral.
- Without collateral – the most common lending option. Here, the bank’s risks are much higher, so borrowers are subject to more stringent requirements, the amount may be smaller, and the conditions may be less favorable. To increase your chances and take out a loan with minimum interest, you can insure your life or health (for example, in case of disability) or confirm all sources of income.
By timing:
- Short-term – up to 30 days. Most often, such terms are found in microcredit, where small loans are issued with minimal requirements, but at a high interest rate.
- Long-term – from several months to 5 years. With such loans you will receive a small interest loan, the maximum amount is higher, but the requirements for borrowers are stricter. The longer the term, the greater the final overpayment for the same amount if you repay the loan with annuity payments.
By payment type:
- Annuity – when the monthly payments are the same but are aimed at repaying the principal debt (loan body) and interest in different proportions. As a rule, at first, most of the payments go towards paying off interest, and only then towards the principal debt. This option is most often found in non-targeted lending.
- Differentiated – when payments are different and decrease over time, while the share of the principal debt remains unchanged. This option is suitable for those who are willing to first pay more and then repay the loan early to keep the overpayment to a minimum.
Requirements for the borrower
Requirements for clients in consumer lending may vary and depend on:
- Purpose and type of low cost personal loans.
- Countries, cities, and regions.
- Bank and a specific loan product.
But we can identify universal criteria that the borrower must meet:
- Age is usually from 21 to 65 years.
- Citizenship or permanent residence permit.
- No criminal record.
- Good credit history – you should not have any outstanding debts or arrears.
- Income level – each case will have its own limit, but your official income should be such that you can make regular payments without skimping on basic needs.
- A feasible debt load – when issuing consumer loans, it is taken into account that after all payments on current loans and other debt obligations, you have at least 50% of available funds.
- Availability of movable and immovable property in the property – including for non-targeted lending.
A package of documents – in the case of consumer lending, this is a passport with registration, a certificate of income and taxes for individuals, or a bank form. In some cases, they may ask for a foreign passport with recent stamps, documents for a car or apartment, a copy of the work record book, or a certificate from work. For the self-employed – a certificate, and for individual entrepreneurs – a certificate of registration with the tax office.
How to apply for a low cost consumer loan?
If you have taken into account all the requirements, collected documents, and selected suitable loan terms, you can fill out an application for a consumer loan – targeted or non-targeted. This can be done online or at a bank branch. The application must indicate:
- Registration and actual residence address.
- Place of work and position.
- Education.
- Income level.
- Additional sources of income – for example, renting out an apartment or tutoring;
- Your contacts and phone number of someone who can confirm the information you provided – a close friend, colleague, or relative.
You will be asked to attach copies of the required documents to your application and to show the originals at the branch. Also, at the bank office, a photo of the borrower is taken and asked to undergo a biometrics procedure – identification using fingerprints.
In addition, an application for a targeted or non-targeted loan can be submitted through aggregator sites. You fill out a standard online form and attach scans of documents, and the system automatically selects suitable products and sends the application to several banks at once. This method is convenient if you need a consumer loan at low interest rates from any bank and on any terms. But be careful: mass mailing of applications leads to mass refusals, which may affect your credit history. In addition, your data may end up in several microfinance organizations that will start sending spam with loan offers.
Loans with low interest rates
Average consumer lending rates are approximately the same, but there are exceptions:
- Targeted loans. You can purchase directly from a retailer or service provider, such as an electronics store, dentist, travel agency, or online airline ticket service.
- Personal conditions. Often banks offer more favorable rates and approve a larger amount for clients who receive their salary on the card of this bank or have taken out and repaid a loan for a large amount from it.
- Security. Even if you take out a non-targeted loan, collateral in the form of an apartment, car or guarantor will increase the chances of approval and a low rate.
- Additional services. Sometimes banks offer to reduce the rate if you purchase insurance from a partner company: against non-payment, disability, serious injuries, and illnesses.
