Personal credit, who has never heard of? Whether in the media or even among friends, there are people discussing this subject almost every day. However, has anyone ever explained to you exactly how each personal credit works, what are the risks involved and the fees charged? Probably not, right? In fact, you may be frightened by some of the fees charged.
Given this context, today I decided to write a little about the subject. The goal is for you to be more clear about what personal credit is and how the major types work. Interested? Then follow the article!
What is personal credit?
Personal credit is a type of loan that does not require proof of the purpose for which the money will be used. That is, unlike other modalities, in this option financial institutions do not ask where the credit amount will be applied. For them, it does not matter if you will use to buy a good, pay off a debt or even lend to a third party.
For this reason, personal credit is often offered to those who need emergency capital or to pay off overdraft or credit card debt (two alternatives that may also be considered personal credit modalities).
It is also widely used by people who want to avoid store credit, as the interest rates on these services are often quite high.
It should be borne in mind, however, that this ease of personal credit also often causes it to be accompanied by high interest rates, depending on the institution and the specifics of the loan. An example of personal loans is the pre-approved loans that various banks offer in their own checking account.
Ever wonder why you need credit?
Many people live in need of personal credit for not programming themselves financially. When we have no planning and are undisciplined with our money, the need for a overdraft, for example, will always be part of a life without purpose and without financial discipline.
Another very common reason a person always needs credit is immediacy. Want an example? You walk past a store and see that beautiful refrigerator that suits your kitchen, or look at your car and realize it’s time to change it.
You analyze the price, the term interest, how much you have already saved for this purchase and how long it will take to gather the rest of the money. So yes, you buy in cash and even get a great discount. Right? No! Definitely, most people don’t do that. So what do they do? They buy on time using credit.
It is not a sin for you to use personal credit to acquire a good. The problem is that we do this with a huge recurrence and without any planning. This is where the danger of personal credit lies. Many people do not know about the interest involved, the risks and other aspects that involve the use of a simple and “harmless” personal credit.
What are the 7 main types of personal credit?
Below you will know the 7 main types of personal credit and learn more about how each of them works. Check out!
1. Credit Card
Opening our list, we have credit card as one of the most widely used personal credit sources today. Be very careful with him! The card gives you a false sense of being able to buy. So if you don’t have a fixed monthly income to pay for incoming bills, take a pair of scissors and cut all the cards you carry in your wallet.
Overdraft is by no means an income supplement, as many people imagine and do. It should only be used in situations of extreme urgency. The big problem is that when there is no planning, there will always be urgencies.
Like the credit card, overdraft has very high interest because it is a line of credit where loans are released without any guarantee. Run away from her! If, on payday, the money is not in your account, you can be sure that you will pay high interest and a fine.
3. Personal Loan
Applying for this type of credit is simpler than applying for a loan to buy a home or car, for example. But do not think that everything is easy, because they are all good. Of course not!
The easier it is for you to get credit, the higher the interest rate – and the higher the fine if you can’t handle it. I’ve seen people borrow to pay for plastic surgery. Not worth it! Don’t fall for this hole.
4. Educational Credit
If you are going to need this type of credit, my advice is: research as much as you can about it. There are 3 things that you can’t help but look very carefully at: credit terms, interest rates and how you will pay it after you graduate.
Even for an educational credit you will need good planning. In this case, you have two credit options. The first is with banks, which would be very similar to personal credit. The second option is with universities, which usually get a bit more interesting rates from banks and pass them on to students.
Organize your expenses and save money now. After all, in our country, being graduated does not guarantee an income.
5. Payroll loans
It is that credit that is deducted from your salary. Payroll loans have grown significantly over the past 2 years, so employers are concerned that the employee has a good financial life.
Everyone knows that an unhappy person in finance will let this reflect on many areas of their life, including work.
Payroll loans have been widely used by those with higher debts. The good part is that the interest rates are lower. Like I said, this type of credit is charged to your salary or pension, so pay attention before applying for credit.
You will not have the opportunity to negotiate the installment and, if you are not careful, you may need to apply for other credits to cover the month’s expenses. The famous snowball.
6. Real Estate Financing
One of my biggest questions is whether it’s worth financing a property. There are no absolute truths. There are things we cannot do just because everyone is doing. To talk about a mortgage or mortgage is, undoubtedly, to stir the Brazilian culture of owning a home.
It is not the focus of this article to present numerous calculations about real estate acquisitions, but it is worth reflecting. When it comes to buying a house, most people just think of the good old parcel that fits in their pockets, and don’t care about the entrance. That’s why we pay such high interest rates.
In general, this is not the best way to purchase a property. This credit will take a lot of money out of your pocket in the end. If you decide today to buy a property of $ 500,000 to pay in 360 months, ultimately you will pay about $ 120,000 more.
Did you know that with this money you buy a franchise, for example, with a net return of up to $ 20,000 per month? From there you can start gaining freedom to think about buying what you want. So, the time is to invest in assets that bring this possibility, and not to acquire credit to buy a home.
First of all I will make it clear that consortium is not an investment. It is like a collective savings: participants commit to paying a monthly amount. To access your share of this “savings,” it must be by bidding or drawing. To acquire a consortium you can not be in a hurry. Who enters is in installments a credit.
Looking at all the costs, it is cheaper than a loan because it has no interest, only an administration fee. Before buying any quota, a very important point is to check if the company is reliable as there are several scams. On the Central Bank website there is a channel in which you can do this.
What interferes with personal credit?
It is true that one of the characteristics of personal credit is that it is more practical, but that does not mean that everyone has access to it. Here are some points that interfere with your request and negotiating ability.
What all the institutions have in common is that you must prove that you are you (by presenting an ID) and that you have the resources to pay the installments (through your proof of income).
In addition, they ask for your proof of residence (so you can be found if necessary) and documents stating that your income is not fully committed to other loans or financing.
Depending on the institution, there may still be a need to present other documents or go through bureaucratic processes. Therefore, it is valid to do a detailed research about the requirements of each one before hiring the services. Ah, remember that the loan can be applied for only on your behalf – after all, it’s personal.
Credit Analysis and Score
Before granting credit, the financial institution evaluates your data and documents. Then she decides if she has a credit offer for her, what is the maximum she can afford and the interest rate charged. Because each institution has its own criteria, you may receive different rates on reviews from different entities.
Another factor evaluated by the institutions is the consumer’s score, that is, the “fame” he has to the financial market. The score is a note that summarizes if you are a good payer. This note is calculated in different ways at each bank or institution, and is the main indicator of whether or not to release credit to the person concerned.
Lately, financial institutions have been looking for alternative means of customer verification in an attempt to understand more clearly how the credit applicant handles money. For example, the analysis of data captured by social networks.
In some cases, in a matter of seconds and as soon as the bank account is connected, the consumer’s entire financial profile is analyzed. This way, it is possible to find interest rate loan offers that make sense to the client’s reality and are more likely to approve. However, it is essential to always evaluate the conditions to see if they really are advantageous.
What practices to adopt to have a positive personal credit?
Having a positive personal credit means being able to borrow and raise capital. This is directly related to your financial market “fame” as mentioned above. Want to understand better? Follow the practices below to facilitate credit applications.
Clear your name
As you may already know, the person who does not pay an account by its due date receives a debit notification. From this notification, the individual has a period of 10 days to pay off that debt. If you do not, after this deadline and according to the Consumer Protection Code (CDC), the person may get the dirty name in the market.
In cases like this, you, as a consumer, are negative in institutions such as Serasa, Credit Protection Service (SPC) and notary publics for a period of five years or more. This will surely count against you when applying for personal loan. Therefore, paying off previous debts is the first step to having a positive credit.
Increase Your Credit Score and Score
Credit score is the rating given to the user, calculated based on their credit history. Financial institutions, banks and stores consult this score to decide whether or not to approve your credit application.
As I mentioned, Credit Score is another factor used in credit assessment, which serves as a parameter for entities to determine the likelihood that you will not repay the loan you requested.
These indicators guide financial institutions’ assessments of their lending. Again, paying off old debts and maintaining good financial habits helps the score go up.
Search for lending institutions
If you are no longer able to repay your debt installments, it is recommended that you first consult your bank or financial institution to discuss your situation. Show that you are interested in paying off debts and propose a renegotiation of the total amounts and / or interest rates.
For the lending institution, it is much more convenient to renegotiate debt with the client, setting new rates and terms, than to risk receiving no money at all.
These scenarios are also valid for secured loan cases. It is more advantageous for the bank to renegotiate debts than to get the legal body to file a lawsuit and take the property offered by the person as collateral.
When is it really valid to apply for personal credit?
I could say never, because I don’t like to pay interest at all, or to commit to installments or installments. Today I make financial pots for everything I need to buy.
When I bought my apartment I didn’t have enough financial intelligence to know that this was not a good deal. When I started to study and specialize in the subject, I quickly created a recurring income type just to pay for my property.
So I don’t have to worry so much about working to pay a portion and I don’t risk paying the fearsome interest.
No one is emergency free, maybe at some point in your life you need to use a personal credit. But think with me: some emergencies come from lack of planning or prevention.
So if I can afford good insurance, why would I expect the car I use to work to be stolen to apply for a loan and finance another? Does it make sense to you?
What if you had the opportunity not to depend so much on personal credits?
Remember I said I make financial pots to get everything I want? I have never worked in a formal contract. I am an entrepreneur for 15 years. So when money goes into my account, I like to have freedom of choice, I don’t want to go out paying for a lot of things I bought and don’t use anymore or until I regret it.
Then I will teach you something that I teach my clients and it gives supercert. It even worked for me, I was always immediate and wanted everything “for yesterday”. It is the technique of the financial pot.
Imagine: You have a party to go to in 3 months and you know you will need new clothes. You have the chance, on weekday of the party, to get your credit card and buy those wonderful clothes that you will only wear once and keep paying for another 10 months. But you also have the chance to make a financial pot to get this outfit in sight and without making a debt for it.
If the laundry costs $ 300, your pot will have this value as a goal. Remember: when we buy in cash, we have greater bargaining power and may ask for discounts. The financial pot is like a savings: you will save an amount every week, every month or even every day until you get the amount you need.
You can have several pots: the clothes, the apartment, the new car. There are no limits as they are short, medium and long term. When my youngest son was 4 years old, he had a financial pot for racing cars that he loves.
So I always asked myself, “Mommy, can you buy 4 now?” I’m teaching him the magic of spot buying and that we can always re-educate ourselves to escape the temptation of personal credit.
Research by a group of students in the United States proved what I had known for a long time. We ask for credits to quench our soul’s will or to maintain a status we cannot yet afford.
I can’t see any sense in asking for credit for getting married and joining life already in debt in the name of throwing a movie party to friends and family we hardly even see. When we have our emotions in check, we also control our money – and our financial lives flow more lightly and responsibly.
Your financial freedom begins when you stop spending and starts raising money. Saving is the first step to the long-awaited free life.
This financial freedom takes you from the addiction of using personal credit to even the simplest things in life – like buying a shoe – and makes you a programmer for new acquisitions. Plan and schedule. Here is a way for those who want and need to master their finances and not rely on personal credits for a living.
If you enjoyed understanding what personal credit is, share it on your social networks! This will help friends and family use loans more consciously.