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Loans are a financial transaction by which a natural or legal person (usually a bank) grants a given amount of money to another in exchange for the interest that will be paid together with the money that is granted, usually in monthly installments.
In exchange for the money obtained through the loan, the holder of the loan undertakes to return the amount in a certain period of time, together with the interest accrued and other expenses associated with the operation. The specific conditions of the loan are detailed in the contract signed between the parties.
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Main differences between loans and loans
Although the concepts “loans” and “credits” are often used as if they were synonymous in banks, financial institutions of credit or newspapers, the truth is that loans and credits are two different financing products. We explain their characteristics and differences so that when looking for financing we know which one to turn to:
|The entity transfers the money in its entirety that we have requested to finance a specific project to our account, such as financing a trip.||The entity puts at our disposal in a credit account a certain amount of money according to our profile and we can use a part or the total of that money when we want for any purpose|
|The repayment installments are fixed and monthly until the loan has been fully repaid||The way to return it can vary depending on the amount of money we have used or we have already reimbursed|
|Interest will be generated on the total amount granted||Interest will only be generated on the money used, not on the total money available|
|The refund is made to the lender and we will not be able to make it available again||As we reimburse the money, we will have that money available to use again|
What types of loans and credits are there?
Within the Spanish financial market, a great variety of loans and credits are commercialized, from the conventional bank loans used to finance projects to the innovative private fast loans designed to grant us financing on the same day and with little paperwork. Below, all types of loans and credits that we can access in Spain:
Personal bank loans
With personal loans we can obtain relatively high amounts of money, from 3,000 to 75,000 euros. Its repayment period usually ranges between 12 months and 10 years, depending on the amount requested, and are returned in monthly installments of the chosen amount. Its cost is currently 8.69% APR on average according to the latest data published by the Bank of Spain. These types of loans are designed to finance large projects. Currently, in addition, it is possible to find loans for ecological projects.
Banks offer a large number of very different and different types of financing to be able to adapt to each client. Here you can get more information on all types of financing in the current market
Quick personal loans
These are loans granted by non-banking entities that will allow us to obtain amounts of between 100 and up to 5,000 euros in less than 24 hours. These quick loans can be contracted completely online and without the need to change banks or contract related products, as it is one of its advantages and one of the reasons why we can obtain them so immediately. Its cost is usually between 3% and 5% per month. Your return period is between 3 months and 3 years and your refund is made in monthly installments.
P2P loans (‘crowdlending’)
P2P loans are mainly loans for individuals managed and granted through the so-called crowdlending platforms, although there are also platforms from which grant financing for companies. These platforms of “collaborative loans” put in contact individuals or legal entities that need financing with independent investors who want to lend them money to obtain a certain profitability. The interest of these products may be different depending on the credit rating of each project. Therefore, the better our profile is, the lower the assigned interest will be.
This type of financing is new, although more and more people are encouraged to try a loan that does not require a bank. Do you want to know more about P2P Loans?
Mini quick credits
Online mini-credits are the fastest product and in recent years they have become one of the most popular products. With these credits we can get from 50 euros and up to 300 euros if we are new clients or up to 1,000 euros if we are already clients of the entity. Its application and grant process lasts only a few minutes and is reimbursed in a maximum of 30 days in a single payment consisting of the money requested plus all the interest generated at the same time. Its cost is around 1.1% daily.
Video answer: what type of loan should I choose?
Is a mini-credit or a credit card better for our urgency? Should you opt for a pre-approved loan or a P2P loan? In the following video by Lanty Hones, our credit expert explains what to take into account when choosing a type of credit or another and when to opt for each option according to our individual situation, the amount we need to finance or the term to reimburse it.
Thus, according to our profile, the amount of money we need, the term, the cost or the purpose for which we need it, such as a loan reform or a scholarship advance, we can choose the type of credit that best suits us.
Who can grant me the financing I am looking for?
In Spain banks are the most common option to get loans and credits, especially the entity of which we are already clients, since that is where we have seniority and relationship. Likewise, with the application of new technologies, banks are not the only entities to turn to for quick loans:
- Private capital companies. Private entities can grant us, basically, six types of loans: mini credits (of less than 1,000 euros), fast loans of up to 6,000 euros (granted in a few hours), personal loans with characteristics very similar to bank loans, loans with mortgage guarantee of up to 300,000 euros, lines of credit and for companies. According to the entity, they will offer one type of credit or another.
- Non-financial companies. These are companies that sell products with high prices, such as cars, mobiles, appliances, etc. and that allow you to finance your products directly in the store. According to the company, we can find our own financial institutions or agreements between department stores and banks to offer financing adapted to their products.
- Crowdlending platforms. These platforms connect people who need a loan with investors who want to make their savings profitable. P2P loans or loans between individuals have requirements more flexible than those of banks and apply an interest rate that will vary according to the profile of the person requesting financing.
Interest rate applied on credits
The interest rate of the online loans is the percentage that is applied to the money that we must repay and, therefore, is what establishes “the price of the credits”. When establishing the cost of a loan, the interest applied by the entity may be one of these two:
- Fixed interest. In this case, the percentage applied remains unchanged throughout the life of the loan, that is, it will be the same from the first month and until we finish reimbursing it and this is on average around 7.5% according to the data of the Bank of Spain. Fixed interest is the most common interest in virtually all personal loans used to finance projects.
- Variable interest. It is a percentage (known as differential) to which the value of a reference index is added, such as Euribor or IRPH. In this case, interest will vary according to the ups and downs of the benchmark plus the fixed spread. The variation of the interest will be by periods (quarterly, half-yearly or annual) and the reference interest will be an average of said period.
Differentiate between TIN and APR when requesting credits
The two percentages to consider when looking for loans are the TIN and the TAE, each one of them will give us a vision of the cost of the credits that we want to hire and knowing both will be key to contract the financing that we are looking for at the best price:
- What is the TIN? The Nominal Interest Rate will be the percentage that will indicate the cost of the loan, that is, the price of the money that the entity sets to be able to contract the loan. This percentage is annual and around 7% in consumer loans.
- What is the APR? The Annual Equivalent Rate (APR) which is a percentage that will indicate the total cost of lending us money. This percentage includes both loan interest (TIN) and other additional loan costs such as commissions or certain linked products in addition to the frequency of payments. In this way an interest-free loan (0% TIN) may not be free due to commissions and liabilities, this will be reflected in the percentage of the APR.
Example of two loans to differentiate the TIN and the TAE
To better understand the difference between a TIN and the APR in the following table you will see two examples of real loans with an identical TIN, but with an APR that changes according to the commissions that each one has.
|Example A||6.95%||7.18%||€ 0|
Why is the TIN and the TAE different if there are no other costs?
As we have seen, the APR will take into account the TIN plus the commissions and bindings of a loan. But then why is not the TIN and the APR the same if a loan has no linked products or commissions? The answer is simple: the frequency of payments.
While the repayment of the loans is monthly the APR is calculated with an annual frequency, so unless we pay the loan in annual installments, these two percentages will not coincide.
Essential dictionary to apply for loans
The specific vocabulary used in contracts and advertising is not always easy. Therefore, from Lanty Hones we explain the meanings of the most important words you will hear or read in your contract:
- Lender A lender or creditor will be the person or entity (bank) that will grant the loan, that is, who will leave a certain amount of money to a person who agrees to repay it, the borrower.
- Borrower or debtor is the person who receives the money from the lender and who agrees to return the money at a previously agreed time, with fees set in the contract that will be made up of the money borrowed along with the interest generated.
- Capital. It is the amount of money that the entity will lend us to be able to carry out a particular project.
- Reimbursement period. It will be the time during which we are paying the loan installments. The longer it is, the lower will be the monthly installments and vice versa. It is usually measured in months and the way to repay the loans will be through installments that will be paid each month.
- Commissions. They are additional costs to the interest of the credit that the entity will be able to charge us for different operations like to study our request, for the opening of the credit, to amortize before the term or to change some condition of the contract.
- Reimbursement fees. It will be a percentage of the total debt that we will reimburse with an agreed frequency, which is usually monthly. These fees are composed of part of the money to be returned and another part of the interest generated.
- Early amortization. Also known as early cancellation. It is about returning part or all of the money that remains to be repaid before the original term.
- Aval. It is a person who will act as a guarantee of payment. A person whose economic stability allows the lender to trust that, if the loan holder can not meet the payment of the installments, the guarantor will do so for this.
- Warranty. It is a physical good of value (car, house, jewelry…) that will serve to assure the entity that, in case of not being able to face the payment of loan installments, that good will serve to settle the debt incurred.
- Lack. It is an option by which we may not pay part or all of one or more loan installments. This allows us to have “rest months” to avoid defaults and restructure our economy.
- Extension. It means extending the repayment period for a few days or months, depending on the type of credit we have contracted. It serves so that, by lengthening the time during which we will reimburse the credit and thus the monthly payment will be lower and more affordable.
- Withdrawal By law all contracts of financial products must have a time of 14 calendar days from the signing of the contract during which we can cancel the contract of credit without penalties, this is known as the right of withdrawal.
If you have doubts about any meaning of any word in your contract, it is best to ask and resolve them before signing anything. At the Lanty Hones forum our experts will be happy to answer any questions about financing or any financial issue.
Most usual fees applied to loans
The interest applied to the borrowed money will not be the only expense of a financing operation. Entities usually charge different types of commissions associated with different transactions that we make with the loan. The cost of these commissions will be defined by each entity and these are the most common:
- Study commission, which ranges between 1% and 3% and is paid together with the first fee
- Opening commission, just like the study fee is paid at the beginning of the life of the loan
- Commission for early repayment, will only be paid if we decide to return a part of the loan ahead of time and, by law, will not exceed 0.5% or 1% according to the term
- Commission for modification of the contract
We must remember that these commissions are not present in all offers, since although many are limited to a maximum by law it is possible to find current offers of loans without commissions.
How are the loans repaid?
Generally, the loans are returned through monthly installments composed of one part of capital plus another part of interest for a specific term. To make this refund effective, the entities will ask us to direct the payment of the fees in our current account so that the transfer of the monthly payment is made automatically on the indicated date. Each month we will automatically discount the amount of the credit monthly payment from the indicated account.
Although other entities that offer mini-credits or other financing may allow other forms of reimbursement such as debit card payment, cash deposit or bank transfer to your account.
Can I return a credit ahead of time?
Yes The current regulation on consumer credit contracts establishes that we have the right to return a part or all of the money granted before the agreed term expires. Of course, in return the entity has the right to charge a commission that compensates, in part, the loss of income that will cause the operation.
This penalty is limited by the same law: it can be a maximum of 1% on amortized capital if the reimbursement occurs when there are more than 12 months left until expiration or up to 0.5% if there is less than one year left.
Although the law establishes the maximum limit of the commission, the truth is that it is a commission that not all credits have included in their offers. Thus, we can find a wide variety of loans and credits with which we can make early repayments without cost.
What is the lack of credits?
A deficiency in a credit allows us not to pay or pay only part of the monthly installments during a period previously agreed with the entity. There are two types of lack:
- Total lack l. The credits that have a total grace period give us the possibility of not paying neither the capital nor the interests of the product during a certain time, which can be from a single month to several years.
- Partial or capital lack. It is the alternative to only pay the interest generated and not the loan capital, so the fee will be lower during a certain time to rebalance us economically.
This option is very comfortable, since it allows us a time of respite to balance our finances without falling into a default. However, it will also cause more interest to accumulate, since interest will be generated on the money owed. It is best to calculate both financing options and decide which of the two suits us.
Analysis prior to loan approval
To approve a financing request, the entity where we request the loan will analyze several factors of our profile that will allow us to determine if we comply with the general requirements to consider our profile valid and grant us the loan.
- The credit history. When applying for financing to a bank, it will consult how many loans we have had in force throughout our lives to find out what other loans we have in force or the credits we have requested and returned correctly. This information can be found in the database of the Risk Information Center of the Bank of Spain (CIRBE).
- The history of defaults. Another check that all entities will make will be to see if we have other unpaid loans. To find out if we have any outstanding payments with any type of entity, consult the databases of the delinquency files as Financial Credit Institutions. Appear in these files when we seek funding will significantly reduce our chances of obtaining financing.
- The ability to pay. Another of the fundamental aspects that entities value is our capacity to face the payment of loan installments we request. The ability to pay will be calculated with our net income and usual expenses such as invoices, other loans, rent, etc.
The time it can take a lender to perform this evaluation will be more or less extensive depending on the kind of credit we request. For example, if we ask for loans without a low-end guarantee to a mini-credit company, the definitive answer will be obtained almost immediately.
Necessary requirements to contract credits successfully
For an entity to lend us money, it must be sure that we have an adequate profile that guarantees that we will be able to face the reimbursement without problems. To do this, they demand that credit applicants comply with a series of conditions that will generally be the following:
- Have a good level of income. In order to approve our credit application, the entity must ensure that we have sufficient and stable income that will allow us to pay the full amount of the loan without neglecting other financial obligations. There are loans without payroll that we can obtain if our income comes from other sources.
- Provide guarantees. Depending on the type of credit and the lender, the guarantee may be:
- Personnel, the set of our present and future assets.
- A real guarantee like a house, a car or any object of value that we own.
- The endorsement of a third party, that is, another person with a stable and sufficient income that guarantees the lender who can take charge of the repayment of the credit in case the holder can not do it.
- Be a resident in Spain and have a valid DNI or NIE to certify it. In addition, some of the companies that give us credit will request a proof of residence as the rental contract.
These are the basic conditions that entities will ask to approve our application, although depending on the entity and the type of loan we go to, we can find additional conditions.
Documents required to request credits
When making a request to obtain financing we must provide a minimum of documentation so that the entity verifies that we comply with the conditions and that the data with the application form coincide. According to our profile, the documents that they require will vary in order to analyze our income:
|WORKER COUNTS ABOVE||AUTONOMOUS||PENSIONER|
Three last payrolls obtained (or Quarterly Declarations)
Last declaration of the Rent / Certificate of withholdings
Annual summary of VAT / VAT returns for the current year
Payment of the autonomous receipt
Last settlement to Social Security (or the last three)
IRPF annual deduction on account
Certificate of being up to date with tax obligations
Accreditation of being retired or pensioners
Proof of receipt of the pension
Last received payroll (not always requested)
We must bear in mind that each entity may request more or less documentation in accordance with its risk policies and the aspects that must be analyzed. For example, in the event that we request loans with a purpose such as one to finance a car, the personal loan entities may also request that we provide proof of the purpose.
Contract loans and credits responsibly
One of the key points when looking for a loan is to understand the product, as well as its advantages and disadvantages to be able to hire them, knowing all their characteristics. Another key point is to compare, at least, three different offers of loans to get an idea of how the current market is and to be able to choose the one that offers the best conditions.
To contract loans or credits it is necessary to know all our rights and obligations, as well as the proper functioning of these products. That is why from Lanty Hones we have created a free guide to inform us about all these aspects before hiring a personal loan.
Do you need a personal loan to finance a project? Discover what you must take into account to get it at the best price.
With the new free guide of Lanty Hones you will learn:
- What should you ask the bank when you ask for a personal loan?
- How should good consumer credit be?
- What aspects you should compare to know what is the best offer
- What are your rights as a consumer
Give us your e-mail and you will receive free of charge in your email the guide prepared by the experts of Lanty Hones with the 25 questions that you must ask the bank to know if the personal loan that offers you has good conditions.
Why have they denied my loan request?
To be able to contract a loan or a credit, the entities will ask us to comply with a series of requirements that guarantee that we will be able to face the repayment of the installments without problems. If our request has been denied, it will mean that we do not meet one or more of these conditions. The most common reasons are usually:
- The main reason why our credit applications are denied is because the entity considers that the applicant’s income is not sufficient or stable enough to be able to meet the payment of the fees during the entire life of the loan. So, I might think that at some point in the life of the loan we will not be able to cope with the repayment installments, as well as the rest of our personal expenses.
- The second most common reason is because the person requesting financing is registered in a delinquency file and has outstanding debts. Being in this type of files as Financial Credit Institutions will reduce our chances of obtaining a loan in practically the majority of loan entities and we will only be able to access some mini-credit entities.
Many times if our application has been denied many entities offer the possibility of being able to get loans with guarantee or guarantee in exchange
For security reasons, entities will not tell us the concise reasons why our request has been denied. Likewise, according to our profile we must know how much capital we can request so that our profile is suitable and our application is approved.
Compare and find the cheapest offer in minutes
Recognizing good credit offers is not always easy. In addition to the TIN and the APR there are numerous factors that will affect the total cost of financing. If we want to find cheap loans, it is important not only to pay attention to the interests, but to all the variables that will directly or indirectly affect what we will pay in total for the financing we hire.