When you borrow money, it really is important to keep track of what you do. It is usually the question of quite a lot of money in total if you choose to include all interest costs, etc.
Especially for loans that are a bit larger, which is for example private loans and home loans. In this article, we will therefore take a closer look at what a private loan is and how it works.
A small calculation example
To illustrate how important it really is, you can look at the cost of a private loan during the entire loan period. The fact that you have to repay the loaned amount is not very surprising and there is the repayment. In our example here, we expect a private loan of 350,000 for 10 years. The interest rate we expect is 6%. If you look at the amortization, it amounts to USD 2,916 every month, provided that it is the question of straight amortization. In addition, there is then interest that is highest for the first month and then goes down when the debt is amortized. The total interest cost during the entire loan period is about USD 106,000, which would be an average of about USD 880 each month for 10 years.
If it is instead an annuity loan, you will always pay the same amount to the lender, which in our case would be USD 3,886 per month. Annuity loans are probably more common when it comes to private loans and it really means that you always pay the same amount every month. In the beginning, a larger part of the payment goes to pay on the interest rate, but when you repay a portion each time, the remaining debt also decreases, which means that for each repayment there will be more money going to the amortization. The first month in our example you would pay USD 2,136 and the last month USD 3,866.
It is therefore quite a lot of money each month that you have to pay if you have such a large loan. If we then put in a little more interest, the cost would also go up. Calculate approximately USD 150 extra in interest cost per month per percent. If there is straight amortization, this will be quite accurate this month, but if it is annuity, the cost will be higher per month the more percentages are added. But use iaf 150 USD per month as a small guideline.
What is a private loan?
Now that we have looked at how much money it really is, the next step is to go through what a home loan really is. The first thing to say is that the name private loans is used often but there are several names. Blank loans are one and there is no difference in the type of loan at all. Tragically, words are also used as bank loans to actually describe a private loan, even though a bank loan is actually a loan obtained from a bank, which can then, for example, be a mortgage loan or a car loan.
The big thing with a private loan is that this loan has no form of collateral. Compared to a mortgage where the home is the collateral for the loan. The bottom line is that you can use the borrowed money for anything when nothing needs to be bought that should be collateral. Security which means that the lender may require that this particular item be sold to receive money for the loan if the repayments are not paid.
Since the money can be used for anything, you also call a private loan a consumer loan. If you want to borrow USD 350,000 and buy clothes for all the money, it goes well, provided that your finances are good enough for you to pass the credit check. Now this is not to recommend but that is what a consumer loan means. It is better then to use the money for things like renovating the home or the like.
Size and maturity
The traditional has been that a private loan extends up to USD 350,000. However, this applies far from all lenders, but it is usually only the larger banks that lend so much. There may be some smaller lenders who have this as a maximum amount, but more commonly there is that the largest sum is somewhere between USD 25,000 and USD 50,000. If you look at the lowest possible loan amount, this also varies as usual. The banks have about so that half have USD 10,000 as the lowest amount and the other half USD 20,000. If we look at other lenders, there are those who lend as little as a few thousand kronor. This is then the same lender who has a low maximum amount. It should also be said that it is generally more expensive to borrow if it is from a small loan.
The term of a private loan is somewhere between 1 – 12 years. It is also here that the larger lenders offer the longer maturity. This is not illogical since a loan of USD 20,000 is hardly repaid best in 12 years. Expect that the lenders who lend up to about USD 50,000 also have rules that say that the loan cannot be longer than about five years. However, it is possible to borrow that amount for longer with those who have the maturity to choose from. You can usually choose for yourself how long to borrow the money as long as it is within the range that can be chosen.
Who can borrow?
As always, with a loan, you must fulfill a number of basic conditions in order for the lender to consider lending money. First, you must always be at least 18 years old. Sometimes there may be rules that say that a borrower must be 20 years or something similar but never less than 18 years old when one must be of legal age.
To be able to repay the loan, an income is also required. This money can come from, for example, a regular job or pension. The exact amount required in pay per month is variable, but you can expect it to be around USD 10,000 at the very least. Then this does not mean that you will automatically be approved as it may very well be more demanding if it is a large loan. The monthly cost differs markedly if you borrow USD 50,000 or 350,000 and this is also reflected in the income requirement.