A loan is the issuance of funds in the agreed amount by transfer to an account, card or in cash. Terms for issuing loans: payment, urgency and repayment. This means that you will have to pay interest or commission (or both) for the service provided, as well as return the funds taken within a certain period. The simplified procedure for obtaining and the short term of the agreement are the differences between loans and credits.
Loan types
General types of loans in MFIs:
- PDL (Pay Day Loans) – short-term;
- POS (Point of Sale) – loans at points of sale, from several months to a year or two;
- Installments are usually long-term, with repayment in equal installments throughout the entire term.
By the method of issuance, loans are distinguished:
- in cash – the issuance of the loan amount through the lender’s cash desk or depositing by transfer;
- to a card – funds are transferred to the specified details of the card account;
- through payment systems;
- to a current bank account – for the convenience of borrowers.
By the way of servicing:
- unsecured – for the purchase of goods or payment for services. For example, to purchase furniture or equipment, to pay for studies or special events, for treatment;
- with the surety – a separate agreement is signed with the surety (relatives or third parties can act);
- secured – lending with the collateral provision (except for residential real estate, the use of which as collateral is prohibited by law). The pledge or surety will be the guarantor of the loan repayment. As a rule, they are issued upon agreement of an increased loan amount for a long period.
By payment option:
- annuity – repayment in equal installments every month;
- differentiated – interest is calculated on the debt balance.
By the way of registration:
- online loans – the entire registration procedure from submitting an application to transferring the loan amount occurs via the Internet at any day time;
- classic – they are issued at the MFI office with the personal presence of the borrower.
Online loans without collateral or surety take the lead.
Advantages and disadvantages
Like any loan product from payday loans Kankakee IL, loans have their positive and negative properties.
Pros:
- efficiency – it can take only 10-15 minutes from submitting the application to transferring the loan amount;
- minimum of documents – it is possible to issue only an ID;
- filling out an online application form – you don’t even need to leave your home or office to get a loan;
- often the first loan can be obtained without paying interest for use (the amount will be small, and the term is minimal);
- loans are available to students and retirees;
- you can find companies that will issue loans to clients even with a bad credit history – the risk of non-repayment is already included in the increased interest for use;
- various options for getting money and debt repayment.
Cons:
- higher interest rates and penalties for non-compliance with the terms of the contract (compared to loans);
- there is no recalculation of interest in case of early repayment;
- for many cases, a shorter loan term will be a disadvantage;
- upon the first application, the loan amount will be minimal;
- the danger of fraud – it is necessary to carefully study the available information about MFIs and reviews of real borrowers.
Loans can be: with or without collateral, with or without guarantors. As a rule, microfinance organizations issue only relatively small loans unsecured and without guarantors.