How do loans work?

A personal loan is, perhaps, one of the easiest ways to get that money you need and be able to face an unforeseen event or buy something you want. People often turn to them to change cars, take a well-deserved vacation or remodel their home. But do you know how loans work?

What is a personal loan?

What is a personal loan?

A personal loan is a financial product whereby a person, who can be legal or physical, lends an amount of money to another, in exchange for interest. He who receives the money, therefore, acquires a debt with his lender; and has the obligation to settle it within the agreed period, including the interest fixed for that period.

You can say that personal loans are the most requested product in the financial industry. But many people who request it do not really know how it works.

What should be taken into account when requesting a loan?

What should be taken into account when requesting a loan?

The first thing you should keep in mind when applying for a loan is the base capital you need. In addition, interest rates, repayments, APR, repayment term, commissions and penalties in case of not being able to repay it within the expected term.

How personal loans work?

How personal loans work?

Unlike what happens with a mortgage loan, when applying for a personal loan you must have a guarantee against default. In a mortgage loan you have your personal guarantee and your property. While in a personal one, in some cases the goods must be put as a guarantee of payment.

The most important characteristics of a personal loan are that they have a smaller repayment term against a mortgage and a higher interest rate. This means that it is more expensive, you must return it before and you are granted less money.

The interest rate is usually calculated based on the debt, on a daily basis and a monthly charge. Therefore, the payment will not always be identical. Monthly payments are calculated based on the debt, its due date and the interest rate. In most lenders you can establish a monthly, weekly or biweekly payment.

If you need, for example, a loan of ten thousand dollars with an annual interest of 9%. If during the first year you return 1000 dollars, 900 will correspond to interest and only 100 to pay off the base debt. For the second year, the debt will amount to 9,900. Therefore, by paying another thousand dollars, 109 dollars of base debt and 891 interest will be paid.

Now that you know how loans work, hire them when you need them. It is very important to do it the right way and always ensuring that you have the ability to pay in the established time. We compare that best suits your need; since we have the best lending entities.

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