If you are thinking of taking out a personal loan, this guide has useful information. We also analyze the best personal credit for January 2023.
Personal credit is legislated by the consumer credit regime, the rates have maximum ceilings and generally have shorter repayment terms, since this type of credit aims to satisfy credit needs in the short/medium term.
In addition to being a very flexible and simple access financing solution (since it involves little bureaucracy and can be contracted online), it is a credit that has several purposes.
However, if you need to take out a personal loan, it is important not to forget that you are making a financial commitment and, therefore, you must be well informed. We have prepared a guide that can help clarify the framework of this financing solution and the care you must take when hiring it.
What is personal credit and how does it work?
Personal credit is a financing agreement. That is, you request a specific amount of money from a credit institution and you will have to repay it through fixed installments during a certain period, through the payment plan agreed between the parties.
The amount, the term and its reimbursement are defined from the beginning. Keep in mind, however, that the amount to request in the personal loan has a minimum and a maximum limit depending on the bank where you want to process it
What are the purposes associated with personal credit?
The purpose is how you will use the money you borrow. There can be a defined purpose, such as credit for vacations, work at home, education, household appliances, among other projects, but it can also be contracted without a specific purpose.
The definition of the purpose for which the credit is intended, as well as the evidence thereof, is important in contracting credit, since it will influence the setting of the maximum rate that entities can apply to it.
Care to consider
The granting of personal credit will be formalized by the signing by both parties of a contract written on paper or in another durable medium.
The contract must include all the information contained in the process that was delivered to you before contracting the credit, and for this reason, we advise you to review it carefully. Also know that the contract must include the right to proceed with the revocation of the credit.
What would be the best personal credit for this current year?
Imagine that you need a credit of 5,000 euros to buy household appliances and furniture for your home.
The first step is to run several simulations at various institutions. You can also use some simulators available on the Internet, but keep in mind that they may not represent the latest offer from the institutions.
Mistakes to avoid when hiring a personal loan:
1. Beware of easy credit
Surely you will receive, through social networks for example, tempting offers of easy and fast credit. Be careful, many of them are fraud attempts. Thus, before contracting personal credit, make sure that the entity to which you are going to request the credit is authorized by the Bank of Portugal.
2. Pay attention to your effort rate
Before applying for credit, pay attention to your effort rate.
The effort rate is the portion of your monthly income that goes toward credit charges. You should never exceed 40% of your income so that you have a budget available for the remaining monthly expenses.
So, before contracting a loan, calculate your effort rate. Add the monthly payments that you already have with other credits and the estimate of the amount of the credit installment that you want to contract. Divide this amount by the sum of your monthly household income. The result is your effort rate.
To calculate the rate of effort you must use the following formula:
Effort Rate = (Monthly Finance Charges / Income) x 100.
3. Evaluate if you really need the credit
Before applying for a loan, evaluate if you really need what you are going to buy. If it is not a priority, do not ask for credit.
4. Do not ask for credit to pay another credit
If you have a loan with a very high interest rate, do not ask for a new loan to pay what you already have. Consider, instead, restructuring the credit. Talk to your bank, together you will find an adjusted solution. Remember that the bank also has an interest in recovering the amount it lent you.
5. Don't accumulate credits
If you accumulate credits, your effort rate will increase significantly and you may be at risk of over-indebtedness. Thus, if you already have more than three personal loans, consider credit consolidation. Talk to your bank and review the available solutions.
