A personal loan is a type of lending to individuals, when funds issued by a bank or a lender at a certain rate. They are used for personal needs. Loan funds are used for the purchase of goods or services, education, vacation or other needs. As the name implies, such a loan is used specifically for the consumption of services or goods.
Most often, people take out a loan for the following purposes:
- urgent purchases of household appliances, repairs;
- tuition fees;
- holidays or medical treatment when funds are not enough;
- coverage of financial difficulties (job change, income seasonality);
- more significant investments (for example, buying a car on credit or taking out a loan for repairs).
Types of personal loans
Personal loans are subdivided depending on their purpose and the availability of collateral.
Based on the purpose of lending, a loan is:
- target loan – spent for specific purposes. For example, for the purchase of household appliances. In this case, the lending company can transfer funds directly to the seller.
- non-target loan – money is used for various personal purposes, for which you do not need to report to the lender.
Depending on the collateral, a personal loan is:
- unsecured – issued, as a rule, for a small amount without collateral as a speedy loan.
- secured – the issuance of a larger amount of funds on security, which will become a guarantee of the return of borrowed funds. Sometimes, instead of a pledge, a surety of individuals or legal entities acts. The subject of the pledge cannot be sold or donated until the full speedy loan repayment.
What is the difference between targeted and non-targeted loans?
The key difference is how exactly the borrower can dispose of the money received. If the bank has approved a targeted loan to an individual, the client has the right to spend the money received only on a specific purchase.
One of the most popular targeted loans is a mortgage, and also a car loan. Another type of targeted loans is also very popular with borrowers – for the purchase of strictly defined goods.
In turn, a bank client can dispose of a non-target loan as he pleases, without notifying the credit institution of his intentions.
Subtypes of non-targeted loans
The lender can offer the borrower several options for lending for any purpose:
Suitable for those who need money as quickly as possible. Usually, the term for the provision of services is no more than 1 hour. In some cases, the funds are transferred to a bank card instantly. Speedy loans are distinguished by a minimum set of requested documents, a relatively low loan amount and fairly high interest rates.
A traditional cash loan that is in high demand. To receive money, the client provides a certificate of income, sometimes an income certificate is required. Due to the extended package of documents, the possible amount of issue increases, rates are reduced. The loan can be issued within 1-3 business days. Such a loan is suitable for borrowers with a stable monthly income.
Loan with surety
Usually, these are loans for the highest amounts that only a lender can approve. Very often, such loans have lower interest rates, while the requirements for the client and co-borrower increase.