According to the latest annual report from the French association of financial companies (ASF), credit institutions and banks granted personal loans in 2013 for a total amount of 11.045 billion euros , against 10.672 billion during the previous year. That is significantly more than the “allocated” credits, which capped at 9.95 billion euros!
In fact, the flexibility of this type of credit appeals to both borrowers and lenders themselves. The personal loan requires less management fees. Be careful, however, to borrow only for valid reasons!
The personal loan: a definition
As its name aptly suggests, the personal loan is above all… personal. This means that the borrower does not have to justify the use of the loaned funds: unlike an application for assigned credit (car, motorcycle , works, etc.), it is therefore not necessary to produce an estimate, a purchase order or any purchase invoice. Indeed, the borrower can use the funds as desired. For example, to meet a cash need, finance a car, complete the vacation budget, etc.
Be careful though. Most often, the customer advisor will seek to inquire about the purpose of your approach . You are free to answer or not, and in any case this information will remain verbal.
Some characteristics of the personal loan
Imperatively drawn up in writing, the personal loan contract must comply with certain obligations common to all consumer loans, including the display of a box containing all the essential characteristics of the loan, such as the overall effective rate (APR) , the cost total credit, the repayment period and the amount of the monthly payments. The borrower has at his disposal a withdrawal coupon valid for 14 days.
The amounts lent vary greatly, and cannot exceed €75,000 according to the provisions of the Lagarde law . The repayment period is corresponding, with amortizations over a period of 3 months to 7 years. Personal loans, in their vast majority, are characterized by a fixed rate and monthly payments.
The personal loan: an essential choice for certain types of financing
You can choose a personal loan out of comfort or, on the contrary, out of necessity , when you have not been able to take out assigned credit. We can cite, in the latter case, the situation of an individual who wishes to carry out the work himself and simply needs the loan to buy the necessary equipment: he will then not be able to produce any estimate drawn up by a professional and will therefore have to turn to the personal loan. Another typical example: that of the purchase of a used vehicle. Because it is necessary to be responsive and to be able to have funds quickly, it is much easier to take out a personal loan upstream rather than to suspend your decision to obtain an assigned credit.
This increased flexibility has some trade-offs . Failure to deliver the purchased good or service, for example, will not result in the cancellation of the loan. This would have been the case with an assigned credit.
The personal loan: an advantageous formula for the lender
Credit institutions and banks are happy to promote their personal loan offers. These formulas are often the most profitable for them insofar as the management costs are reduced : the money is paid directly to the borrower, by check or transfer, and not to the final service provider (craftsman, dealer, etc.) as sometimes happens with affected credit. The lender, likewise, no longer has to worry about controlling the actual use of the funds. Finally, the borrower being less protected, the risks of a suspension of the payment of the installments are lower.
As part of a personal loan, borrower insurance is entirely optional . This is also the reason why its cost is not included by default in the APR of the credit. For large amounts or long repayment periods, you can take out a minimum insurance policy. This includes, in particular, cover for death and permanent disability.
The conditions for early repayment of a personal loan are set by the same regulations as for other forms of consumer credit. For all contracts signed as of May 1 , 2011, no penalty may be demanded by the lending institution below a threshold of €10,000 repaid in advance and per year. Beyond this amount, a penalty corresponding to 0.5 or 1% of the amount reimbursed may be applied.