A personal loan is a form of consumer credit. Not assigned to a particular purchase and for an amount of 200 to 75,000 euros, it is reserved for individuals.
What is a personal loan?
A personal loan is a consumer credit that the borrower uses to buy what he wants, without having to justify the allocation of funds to a specific project. It is thus opposed to assigned credit, another form of consumer credit. The personal loan can, therefore, be taken out for any type of use: cash needs, purchase of capital goods (furniture, household appliances, automobile, etc.), or services (works, travel, etc.). Its amount must be between 200 euros and 75,000 euros.
Do you have to take out insurance for a personal loan?
Lending institutions generally offer their insurance, but the interested party can completely compete and conclude a contract with an insurer.
It is especially important to know that the regulations do not oblige the borrower to take out insurance. In practice, however, it sometimes happens that a lender makes it a condition for granting the loan Note that the APR presented in the commercial offers of personal loans does not take this into account.
Early repayment of the personal loan
The personal loan can be repaid in advance, totally or partially, under the same conditions as the assigned loans. The contract may provide for an early repayment indemnity to be paid to compensate the lender.
This indemnity cannot exceed 1% of the amount of the reimbursement (or 0.5% if the remaining duration of the contract is less than 1 year) if the amount of the early reimbursements exceed 10,000 euros per period of 12 months.
However, any compensation may under no circumstances exceed the amount of interest that the borrower would have paid if he had not made this early repayment.
What rate for my loan?
Advertisements, any pre-contractual information document, as well as the loan offer must mention the annual percentage rate of charge (APR). The latter represents the total cost of the credit, and as such includes all the costs related to it (nominal rate for interest, administrative costs, etc.). This makes it easy to compare different offers.
The APR offered to the customer will first depend on the amount borrowed and the repayment period. Thus, a few monthly payments will lower the rate. Conversely, low monthly payments spread over several years will inflate the cost of credit. Establishments will also tend to offer attractive rates to customers in a comfortable financial situation.
In any case, the APR cannot be higher than the wear rate, a maximum threshold put in place by law to protect consumers.
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Depending on the amount of the personal loan and the risk assessment that will be carried out by the bank, guarantees may be required to ensure the proper repayment of the loan. Since it is an unallocated loan, these guarantees will not relate to the goods financed, but to other goods or assets of the customer (pledge of term account, mortgage, etc.). The guarantee of a person close to the borrower (parent, spouse, etc.) may also be requested.
Personal loan or assigned credit: what are the differences?
Unlike the personal loan, the assigned credit links the purchase of a good or service with the loan, such as a car or work loan. He thus benefits from specific provisions: cancellation of the credit if the sale is not carried out, obtaining in justice the authorization to suspend the refunding in the event where the bought good would prove to be defective or in the event of absence of delivery.
The personal loan should be used in cases where the use of an assigned loan is not possible or would be more expensive. Some concrete examples of financing:
Acquisition of equipment (wood, tiles, glue, etc.) to do the work yourself ⇒ personal loan required.
Carrying out work by a craftsman ⇒ the credit company requests an estimate and it will have the choice of offering an assigned loan (it will pay the craftsman) or a personal loan (the borrower will receive the loan amount and make the payments).
Purchase of a new vehicle from a dealership ⇒ affected loan granted by the manufacturer’s credit company (most often) and registered (rare) or contractual pledge. But it is possible for the borrower to approach another establishment that may prefer to set up a personal loan (therefore without a pledge).
Purchase of a used vehicle from an individual ⇒ personal loan obligatorily.
Reimbursement of an overdraft on a current account ⇒ personal loan obligatorily. However, if the need is punctual, the revolving credit is more flexible than a personal loan (we have a line and we repay when we want without prepayment penalties).
Generally, credit companies prefer to distribute personal loans rather than earmarked loans, because:
- they do not have to pay potential suppliers directly. The management of allocated work loans is cumbersome because the lender must make payments to the craftsman (or even to several of them) and process them in the accounts;
- there is no risk of suspension of deadlines in the event of a dispute (poorly done work, vehicle not delivered, or not corresponding to that of the order form, after authorization by the Court of Justice).
Note that if the amount of the loan is paid directly by the lending institution to the seller of the property or to the author of the provision of services, it is not a personal loan but a loan allocated.
New vehicle loan
Some credit institutions offer a personal loan to finance the acquisition of a vehicle. In this case, the funds will be paid into the borrower’s account, the vehicle will not be pledged and the borrower must continue to repay the loan even if the vehicle delivered does not conform to the one ordered. For affected loans, taking a pledge on the financed vehicle has become rare. This procedure is expensive and its cost increases the APR.
The personal loan can also be used to finance work in real estate. In this case, the credit institution may request to provide proof, such as an estimate, certifying that the site will be carried out by a professional and not by the borrower himself.