Work loan definition
Thanks to the development of the Internet, establishments specializing in consumer credit have emerged on the web. Today these establishments have almost supplanted the banks which were the traditional lenders. For certain types of loan, the consumer does not hesitate to do his research on the Internet
Consumer credit is granted to households so that they can finance purchases of consumer goods or services. The work loan falls into this category in the same way as the auto loan for example. Although it is not suspended from the purchase of a specific good or service, the work loan has the characteristics of a consumer credit.
Thus, if a household wishes to carry out work and find a means of financing, it can turn to its specialized organizations which will have solutions to offer it. The work loan is intended for individuals whether they are owners or tenants. It is used to finance work such as expansion, embellishment, attic development, etc. of real estate. The household can turn to this type of financing when it does not have the necessary funds in full or if it does not wish to use all its savings on this item of expenditure. It is important to keep a cash fund for other items in case of unforeseen circumstances and not to degrade your financial situation.
Like other consumer loans, limits and ceilings will apply. Depending on the different lending organizations, different limits will be used. On average, the borrower will be able to borrow between $ 3,800 and $ 75,000 for terms ranging from 36 months to 120 months (10 years). The amount can be freely chosen by the borrower. He will also choose the amount of his monthly payments and the duration of his credit. However, he must make his choices according to his repayment capacity. Before any loan request, consumers are advised to calculate their debt ratio. It is a question of calculating what the expenses of the household represent on its income. Specialized sites are present on the Internet in order to calculate it for the consumer. If this rate is higher than 33%, it is not advisable to borrow. In general, loan applications from consumers with a debt ratio greater than this ratio will not be accepted by lending organizations. The consumer must take responsibility and not make loan requests with too large monthly payments that he will not be able to repay later. Certain unforeseen events (financial, family, professional, etc.) may occur, leading the borrower to no longer be able to repay his monthly payments. The latter must therefore keep a margin when making requests in order to be able to remedy these situations.
The various websites provide credit simulators. These simulators in no way bind the consumer. He is free to carry out as much research as he wishes, for current situations or not. The consumer will only have to indicate the reason for his loan (here work loan) and then enter the desired amount. Depending on the establishment chosen, the consumer will choose the monthly payments before the result of the simulation or after. The consumer will then be able to know the different rates applied according to the amount chosen and the lending institution.
During the simulations, the consumer will see that the longer the term of the credit, the higher the interest rate applied.
Indeed, let us remember, the interest rate is the remuneration of the lending institution. For example, if the consumer borrows $ 1,000 at the rate of 3%, the establishment's remuneration will be $ 30. The longer the term of the loan, the greater the risk of not being paid. The risks for the borrower of not being able to pay their monthly payments are much greater over a long period than over a short period. For example, the borrower is more likely to lose his job over a period of 5 years than over a period of one year. Thus, credit institutions try to counter this risk by increasing their remuneration, thus reducing their losses if the borrower does not pay his debt in the future.
The result of the “works” credit simulation will enable the essential elements of the loan application to be taken up. It will be indicated the amount chosen, the duration of the monthly payments and their amount, the APR applied and the total amount owed by the borrower.
The APR corresponds to the annual percentage rate of charge. It takes the interest rate set by the organization, to which will be added the costs, remuneration and various commissions (application or registration fees for example). This rate allows the borrower to know the real cost of his credit and to be able to compare different offers. This rate is freely set by each establishment. However, it cannot be higher than the “wear rate”. This rate is published quarterly by the Bank of United States and is different depending on the type of loan (consumer, real estate, etc.). Legal proceedings and sanctions are planned for professionals who do not respect this rate. In the third quarter of 2016, the usury rate is set at 12.91% for fixed-rate consumer loans in the amount between $ 3,000 and $ 6,000 and 7.40% for loans in the amount of exceeds € 6,000.
The work loan generally benefits from a higher loan rate than other rates charged on other loans. Indeed, on affected loans, the rate is more attractive insofar as the loan is directly linked to obtaining a particular property. It could be for example a car. In this case, the risk incurred by the lender is very low since it is aware of the exact object of the loan request. In addition, the loan being suspended upon delivery of the good, the funds will not be delivered if the good is not delivered or does not comply. The establishment is committed to a specific and certain situation.
With regard to work loans, the situation is not as framed and safe for lending institutions. The latter grant sums of money for individuals to carry out work. The delivery of funds is not suspended from the delivery of a particular good. The issuance of funds is suspended in a situation which may not be that which was foreseen by the borrower. Indeed, delays in the work for example can generate unforeseen expenses leading the borrower to not be able to repay some of his monthly payments. Sometimes, the latter will have to regularize his monthly payments while his work will not be finished.
In order to be prepared for any eventuality, organizations specializing in loans prefer to apply a higher rate on this type of loan than on another. The “work” situation is likely to change, get worse and lead to increased household expenses. By charging higher rates, establishments compensate for any non-reimbursements incurred.
It is important for the consumer to pay particular attention to the solution offered by the lending organizations. Although they are legally obliged to offer the personal loan (here work loan) as a priority, some do not hesitate to highlight the revolving credit. In this eventuality, it is a question of making available to the borrower a determined sum of money that he can reuse as the repayment progresses. For example, if the borrower is loaned $ 3000 and uses $ 2000, he will only have $ 1000 available. But as the amount of $ 2,000 is reimbursed, the amount available will increase again. Revolving credit can be an adequate solution when the household has one-off cash needs for undefined purchases. However, the rates charged for this type of credit are very high (around 20%) insofar as the funds loaned are not for a specific situation. The risk for lending institutions is therefore much higher.
Because of the higher remuneration on these types of loans, professionals often offer them before personal loans (less profitable). Consumers will be guided implicitly through advertising and marketing towards these types of solutions. In this situation of specific cash flow need (work), the personal loan is a suitable solution and must be chosen by the consumer.