How to get a consumer loan and avoid falling into a debt trap | Financial markets

A personal loan can be a way to make ends meet in case of unexpected expenses, pay for a vacation or carry out home renovations. But if certain precautions are not taken into account when concluding a loan, the loan can also become a nightmare, tying the client to the bank for years due to the resulting debt.

The first thing experts recommend is to let the client understand that…

A personal loan can be a way to make ends meet in case of unexpected expenses, pay for a vacation or carry out home renovations. But if certain precautions are not taken into account when concluding a loan, the loan can also become a nightmare, tying the client to the bank for years due to the resulting debt.

The first thing experts recommend is to let the client know that he can repay the loan. Sometimes you ask for liquidity because you can’t make ends meet and need money to make payments. In this situation, the client asks for a loan, thinking that he will subsequently receive additional income with which he can return the money. But if this income does not arrive and the loan is not repaid, debt may arise, resulting in the client being listed as a defaulter.

Another general recommendation before taking out a loan is to request only the amount of money that is needed. Sometimes a bank may offer customers the opportunity to accept higher financing than originally planned, but this results in unnecessary costs that do not generate profit and can lead to excess debt.

After calculating the amount, it must be compared between offers from various financial organizations. Usually the main bank offers the best conditions, since it is the one who has access to data and movements and knows the client’s financial capabilities. However, banking competition in Spain has led to businesses offering better deals to attract new customers, so it is advisable to compare prices offered by other banks. “You will also have to look at what partial or full repayment options the bank allows and that they are free, since in most cases it is convenient to repay early,” explains Antonio Gallardo, head of research at the consumer association Asufin.

Request an APR to avoid surprises

To avoid over-indebtedness, it is important to adjust your repayment terms. On the surface, signing long-term terms with lower fees may be attractive, but longer terms also mean paying higher interest. Experts advise sticking to the rule: the loan payment should never exceed 30% of monthly expenses.

When researching prices, you should pay attention to the annual equivalent rate, which is the actual interest rate on the loan. Sometimes banks offer loans at 0%, but then charge a high opening fee, and the loan ends up being much more expensive than market prices. In this sense, the annual percentage rate includes all the costs of the loan, and the client can calculate the amount he is going to pay without any surprises.

Asufin also recommends not entering into financing contracts directly at the point of sale. “Shops or travel agencies usually offer credit cards and financing when paying, with terms that may sometimes seem very attractive, but what you don’t know is that they are much higher than the market price. If the client has planned expenses, it is better to review the options in advance before going to the establishments,” explains Gallardo.

Likewise, it is advisable to review the fine print of the terms and conditions as they may include clauses that incur more costs than expected. “This type of contract typically includes quite a few abusive terms, ranging from misstatements of interest rates, training or management fees, associated payment security products and other basic information that is sometimes not offered. The best way to detect them is to have a contract proposal, be able to read it and compare it with other objects,” explains the Adicae association.

Avoid revolving loans

There are many credit products available, but a traditional personal loan is not the same as a credit card or credit card. mixing. The latter is a much more complex product and usually has much higher interest rates, around 20%. In this sense, experts recommend taking out a consumer loan and avoiding mixing.

“Without a doubt, the most abused product at the moment is the card or credit. mixing, where you have a limit and you can take advantage of it by setting the minimum deposit at too high a percentage. Unfortunately this is a bank recommended product. Getting a credit card would not be a problem if the consumption made during the month was taken into account at the end of the month,” explains Adikae.

On the other hand, many financial services companies have expanded beyond traditional banks. Microlending firms and “buy now, pay later” companies offer exorbitant interest rates that typically range from 3000%, 4000% and can reach as high as 59,000%. As long as organizations are registered with the Bank of Spain as a financial institution and provide pre-contractual, contractual and post-contractual information, problems should not arise. Of course, in general, banks tend to offer better prices. “Financial institutions tend to be more expensive. Our regular bank should offer better conditions,” concludes the head of Asufin research.

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