Loan: understand the main differences

If you are looking for loan information , you have most likely come across conflicting data, which caused doubts or did not make you comfortable choosing the best option for you, is it not?

The truth is that the market offers several possibilities for personal loans . Hence the importance of getting to know each one better. Only then will it be possible to make a smart choice that will actually help you achieve your goals without the chosen credit line becoming a problem in the future.

To help you make the best decision, we have listed important information and some of the differences between the main loan types available on the market. Check out our post!

After all, how does a loan work?

After all, how does a loan work?

When opting for a personal loan, you make a commitment to the bank or financial institution in which the credit was requested. In exchange for the money you need, the financial institution offers certain conditions so that this amount is always returned with interest rates established during the analysis of your application.

That’s where the importance of a good choice comes in. In view of the different existing credit lines, it is natural to find variations in interest rates and the way in which the amounts will be returned. For this, knowing more about the types of loans is what will determine the best option for your profile.

Types of Personal Loan

Types of Personal Loan

1) Revolving loan

The revolving loan is the one related to the credit card. It is used when the total amount of the invoice cannot be paid or cannot be paid within the due date. This type of loan is open to both individuals and companies. To use it, just make the payment of any amount of the invoice between the minimum and the total. The rest will be automatically financed by the bank and charged to the next month’s invoice, plus interest rates.

The revolving loan is considered the most used form of credit on a daily basis, as it is an emergency and does not need conventional bureaucracies to be acquired. However, what many fail to consider is that the credit card has one of the highest interest rates on the market. Because of the convenience, it is widely used, which is a mistake when there is no planning and when not considering all the characteristics of this credit line.

If you choose not to pay the full amount of the invoice, you must keep in mind that the following month interest and accrued charges must be paid. Thus, the revolving loan is a modality that requires total care and planning so that the debt does not accumulate or take on a much larger proportion than the initial value.

The most recommended is to regularize the outstanding amount as soon as possible, preventing the debt from becoming a “snowball”. According to a survey, the credit card is the reason for default for half of the people who are negative or who have been in this situation in the last 12 months.

2) Overdraft

2) Overdraft

The overdraft is nothing more than the limit available in your checking account. Because it is a value that can be used very easily, people usually incorporate it into their own money in their accounts and often see it as a supplement to their income.

But that is exactly where the error is. Because it is an easy to use loan, financial institutions have no guarantees that it will actually be repaid. Thus, they raise interest rates to the maximum as a form of security in cases of default.

In relation to charges, the overdraft is very similar to the revolving loan. If it is not paid quickly, it can result in a debt with twice the initial amount. For this reason, it is a credit line that should only be used in cases of extreme need, with solid planning so that it is paid off as soon as possible.

Evaluate this type of personal loan very well , an amount that seems low and simple to pay can get out of control and cause your name to be included in the credit protection agencies.

3) Payroll Loan

Corresponds to the personal loan discounted directly from your monthly income. It is aimed at retirees, pensioners, civil servants and workers in the private sector. This credit line is one of the most used by those who have high debts to be paid or even by those who have an old project that was postponed due to lack of resources.

The payroll loan creates a “conditioning” of monthly payment, since the installments will necessarily be deducted from the payroll and, thus, the risk of default is much less. Precisely for this reason, interest rates tend to be lower compared to the rest of the market because there is greater guarantee that the loan will be paid.

But be warned, this type of loan is more restricted than the others, both in terms of the applicant’s profile and in the way of paying it.

As mentioned, to request a payroll loan, it is necessary to have a fixed monthly income, proven through a portfolio or payroll. In addition, for workers with a formal contract, it is only possible to make this type of loan if the private company or public agency where they work has an agreement or partnership with any bank or financial institution that offers the product.

In order to apply for payroll loans, it must be borne in mind that the loan amount cannot exceed 30% of your monthly income. This credit line allows the installments to be divided into as many times as is best for the applicant and, generally, the money falls directly into the consumer’s bank account. However, if there are difficulties in paying one of the installments, negotiating it again is often complicated and offers greater resistance.

Another important point that must be taken into account is that, when choosing the payroll, your monthly income will no longer be obtained in full during the period in which you are paying the installments. They are discounted before payment is received. So it is worth evaluating very well before deciding.

4) Personal Credit

4) Personal Credit

The personal credit – or personal loan – is the main line of credit to individuals, offered directly by banks or financial. It is aimed at consumers who have some kind of link with the services of the financial system, such as checking account, salary account, check or credit card. This type of loan is usually used for more immediate occasions, such as medical expenses, payment of other debts, expenses with renovation or purchase of assets.

For personal credit to be granted, it is necessary that the applicant has a good payment history, in addition to not having a negative name in credit protection agencies. All this because consultations will be carried out before the loan is released.

Precisely because of this consultation with the consumer’s history, personal loans allow interest rates to be more variable. The credit will be granted only if the applicant is approved by the credit protection agencies and, therefore, better able to meet the debt. In addition, there is no need to offer collateral or disposal of an asset. The hiring is accessible and agile, made by signing a contract. Each case will be analyzed in a different way, according to the consumer’s needs and their financial situation.

Another positive aspect of personal credit is the varied ways in which it can be paid. Current account debit are the most used forms. You choose the way that best fits what you need. But be careful, as with any form of loan, interest will be added to the installments and the best way to keep your debt close to the amount you borrowed is to pay it off with the least amount of installments possible.

Have you been able to better understand how the main types of personal loan work? Count on Personal Loan to help you achieve your goals and continue to follow our blog. Soon, more guidelines on financial education for you to plan better.