All you need to get started with Loans in Europe
The mention of loans brings about mixed perceptions among people. Those who have built great fortunes courtesy of loans that were used for the intended purpose will always have good things to say about them. On the other hand, there are also enough stories out there of people whose lives and investments have been ruined by loans. Such people may not sing any praises to loans and can easily dissuade someone against going for them. But now that you are reading this blog, it’s the assumption that you have a positive perception of loans and may go for it as a way to fill up a void in your budget.
To start off, the picture out there about Europe is that it’s a land of great prosperity and success. If economic power and advancement is the yardstick for measuring prosperity then for sure Europe has made it. No wonder most countries have put up a strong social security system to take care of their people. Economically strong and prosperous as Europe may be, the place of loans has never changed.
Contrary to what people may think that loans target poor people who lack their own means to make ends meet, in Europe, loans remain the engine that propels dreams into realities. As we can read on the Norwegian website Dennedagen.com this day can be the day that writes history. So many big companies and businesses in Europe that employ a lot of people remain beneficiaries of loans. Even at a personal level, loans in Europe intend to help individuals out of their temporary budget strains as well as purchase expensive things that savings or salary alone may not be sufficient.
Loans in Europe have made people live their dreams
Even as one takes a leap of hope to move to Europe, it would be beneficial to know from the outset that taking loans there does not in any way mean someone is poor. Secondly, even with the most lucrative and well paying job in Europe, the need for loans may come up in any way, in any form and shape.
Nobody really knows when the need for that extra coin becomes a necessity. Not even insurance will guarantee a person will not want loans in Europe. You will see people living in modern designed and furnished houses in Europe, driving sleek latest model cars, brandishing Apple products around, taking trips around the world….seemingly living their dreams. What does not come out for everyone to read is that sometimes, most of the good things you see around are as a result of loans.
Now that you see the essence of loans in Europe, breaking down the granular details about and around them will be great justice. We are here to demystify loans in Europe, highlight the types of loans, requirements for applying for loans, available lenders and more. In the end, you will have a picture of ways to grow with or sort out your issues with loans in Europe.
Europe comes out as an attractive and prosperous continent but loans mean a lot there
Europe is among the smallest continents in the world. However, it surprisingly receives a higher number of visitors every year. It is thanks to the beauty and rich culture that the countries in this region have to offer. However, some cities such as Paris and Hamburg have a relatively high cost of living. This is where loans come in! A loan is where you borrow money from a lender with the promise of paying it back. Depending on the type of loan, you can use it for any purpose such as making a large purchase or paying off another debt. You can also borrow money to cover the costs of huge expenses such as weddings and vacations. This wouldn’t be surprising given the many great vacation spots in Europe.
In Europe, you will have access to many lenders including banks and online lenders. Money obtained through loans will in most cases come in lump sum. Depending on the agreement you have with the lender, you will repay the loan after a while. Taking a loan is a huge decision that should not be taken lightly.
For one, taking a loan may affect your finances for a while until you have repaid it in full. On the bright side, most loans come with fixed interests and repayment terms. Therefore, you will have adequate time and space to plan your finances adequately. Staying ahead of your finances in Europe is necessary if you want to enjoy the resources that this region has to offer.
Knowing a thing or two about loans in Europe will go a long way in saving costs and making an informed decision before you can apply for a loan. Besides, the availability of many loan providers in the market means that you have a variety of choices. But it could also mean that it might be time consuming to decide which one is the best.
This is why this blog focuses on loans in Europe. The articles here will provide all the information you require to apply for a loan. It will also cover the advantages and disadvantages of loans to help with your decision. Remember that your reason for needing a loan matters more than the loan itself.
How Loans Work in Europe
The common denominator for loans is that they work the same way worldwide. While the principle and intention of loan facilities remain to sort out financial scarcities, the actual outcome depends on the borrower, lender and terms of the loan. It is these three that will influence whether there is success or failure of the loan. There might be a few differences depending on your municipality but the basic concepts remain the same. That said, a loan is money you borrow from a lender with the hope of paying back later. Most loans have a set repayment period and regular monthly payments.
A loan can be either secured or unsecured depending on your needs. A secured loan implies that you put up a collateral against the money you borrowed. For instance, the collateral for a mortgage loan is the house itself. Similarly, unsecured loans do not have collateral against them. The amount of money you receive will vary from one provider to another and so does the interest rates.
In Europe, most lenders offer a loan repayment period of up to seven years though it will be influenced by many other factors. Loans will be helpful in most cases but you should remember that specific types and lenders may have higher interest rates than the others. The interest rates applied and repayment period are key indicators whether the loan you are setting out to sign for will really be helpful or pointer to your ruin. It’s noteworthy that failure to respect the terms of a loan or a non-negotiated default might just affect your credit score. Nevertheless, when used appropriately, the benefits might outweigh the risks. You should go for loans that have competitive rates to save more costs.
Apart from banks and online lenders, you can also find credit unions that provide loans in Europe. Each lender has different requirements and terms so it pays to shop around before settling on one. The good news is that most lenders have competitive rates and products so you will have many options in the market. However, you must always read the fine print since this is where you will find vital information. The devil is always in the details.
Applying for a Loan in Europe
Getting a loan in Europe is straightforward once you have identified the right lender for you. All you have to do is complete an application and wait for the lender to approve it. The approval can take long or might be immediate depending on your lender. The waiting is usually worth it though if you get approved for a loan.
Most lenders will disburse funds to your account almost immediately following an approval. So, it won’t be long before you can withdraw the funds and use them for the intended purpose. But wait, there is a catch. Most lenders will also expect you to start the repayment process right away.
Keep in mind that loans no matter how small, will affect your credit score and history. Lenders will report your repayment activities to credit bureaus until you have repaid it in full. This means that if you fail to pay the loan, they will report and your credit will be negatively affected. Repaying your loan in full and on time ensures that you can borrow larger amounts from other lenders.
Key Elements of Loans in Europe
When considering a loan, there are some elements that you should know and understand. Understanding these elements will ensure that you make a more informed decision. It will also ensure that you don’t get stuck with a loan that you might be unable to pay back. Remember that it is your responsibility to identify a loan with the most favorable terms. Let’s take a look at some of these elements.
Interest Rates
Most loans in Europe come with a fixed annual percentage rate (APR). It implies that you will have to pay more money than you borrowed. The APR will vary depending on several factors including the lender. It will also be based on your creditworthiness, income and credit history.
Remember that the interest rate will also determine how long it takes you to repay your loan and the overall amount you repay in the end. So, you should prioritize this when selecting a loan. Some lenders might charge exorbitant rates so you should be on the lookout. Don’t get stuck with a loan with unfavorable terms.
Monthly Payment
The best loans are those that come with a fixed monthly payment throughout the loan term. This will allow you to organize your finances accordingly to meet your other monthly obligations. Most lenders will calculate monthly payments by adding the principal and interest.
Longer repayment periods also come with more favourable monthly payments. However, you should remember that you also end up paying more than you would with a shorter one. It also means that you take longer to pay so it will affect your finances for a longer time. You can find information about monthly payments on lender websites.
Repayment Timeline
All lenders have their own repayment terms so the repayment timeline will differ from one to the other. The standard repayment period for most lenders goes up to seven years. The good news is that most of them will let you choose a repayment timeline. So, you should go for one that best suits your needs and budget.
Origination Fees
Before you choose a loan product, you should find out if it charges an origination fee. There are lenders who will set an initial origination fee. So it means that you will have to pay this plus the loan you borrowed. These fees will vary from one lender to another so it pays to compare each lender. Origination fees are mostly common in online loans.
How do Lenders in Europe Determine the Interest Rates applied on loans?
When you take out a loan, your interest will usually be determined by the annual percentage rate. The interest normally applies to the entire loan amount so you end up paying a fixed interest throughout the loan term. However, some lenders will apply a different APR over the loan term so watch out for this too. A fluctuating APR means that you will pay different interest rates periodically.
The APR typically entails the loan’s interest rate, fees and other costs the loan provider will charge. You might come across lenders who determine fluctuating rates based on a well-known index rate. The index rate could be the prime rate or the interest rate at which banks and other financial institutions lend to one another.
This is common among banks and not other lenders. In such a case, they place a cap on the interest rate such that it cannot rise to a given level despite the index rate increase. But don’t let this discourage you since most lenders will apply a fixed rate. Thus, you will be able to determine your monthly payments.
Your credit score plays a critical role when it comes to determining your loan’s APR. Lenders will apply the lowest rates to borrowers with an excellent credit score. So, you should work on building a good credit history. You can do this by paying your bills on time. It includes utility bills and credit card bills. Also, it pays to repay your credit card bills in full instead of carrying a balance from month to month.
Maxing out your credit cards can also lead to a negative credit listing so you have to be careful. Subsequently, your annual income will also affect the APR for your loan. Besides, a lender will only offer you a loan if you have a steady and reliable income. They interpret this as you being able to make monthly payments. You will also have more lenient terms when it comes to repayment periods.
As much as paying your bills on time affects your credit history, it also influences your APR. When a lender sees that you are focused on making on-time payments, they will offer a lower rate. So, before applying for a loan, you should work on building a solid history of making timely payments. On-time payments also apply to other loans that you might have borrowed before.
Finally, lenders will determine your APR based on the debt to income ratio. This is calculated by dividing your monthly debt payments by your gross monthly income. This computation also determine how attractive you will look to any lender in Europe. It is the largest part of your financial profile so, you should always stay ahead of it. It will tell your lender whether or not you can repay the loan you are applying for.
Types of Loans in Europe
Loans can come in various forms depending on what you need and the requirements. In Europe, you have access to a wide variety of loans. Yes, loans work the same way but they differ depending on a lender and their products. Most lenders in the region are continuously building innovative products to better meet your needs. So, it’s up to you to decide which loan best suits your needs. Let’s look at some examples of loans you are likely to come across.
(a) Unsecured Loans
These are personal loans that come with no strings attached when it comes to collateral. Unsecured loans are popular in different European countries. This is because they are easier to qualify for and don’t involve large amounts of money. However, they include fixed monthly payments.
This implies that you pay a specific amount each month after receiving a lump sum in your account. Subsequently, they have a fixed repayment timeline just like other types of loans. Most online loans are unsecured in Europe.
(b) Secured Loans
Secured loans are the opposite of unsecured loans. With this type of loan, you have to put down collateral. A good example of a secured loan would be mortgage loans which allow you to buy and own property. The major advantage of these loans is that they have lower interest rates and longer repayment periods.
However, they are also the trickiest form of loan since you risk losing your property. Failure to pay or late repayment could mean that your lender can seize the asset you put down as collateral. One should only go for this type of loan if you are sure you can make all the payments on time. Otherwise, you should seek an alternative or save up to buy the intended asset.
(c) Credit Builder Loans
Another common form of loans in Europe are credit builder loans. However, these loans differ greatly from other types of loans. For one, with them, the lender does not extend you a line of credit. With these loans, the lender will deposit funds into a savings account. The account is controlled by the lender by the way.
Your job is to make payments to the lender until you have repaid the full amount. In turn, the lender sends your repayment report to the credit bureaus until the loan term ends. In the meantime, you get to build a positive credit history. The advantage of these loans is that you don’t pay any loan fees. At the end of the loan term, the lender will give you back your payment in full.
(d) Specialized Loans
Specialized loans are loans that are obtained from some specialized lenders across Europe. These are service-oriented providers that extend a line of credit to their customers. The credit is usually to enable them to pay for their services.
For instance, a home improvement store might offer you some money in return for buying a new appliance. The disadvantages of these loans are the rates and terms that they come with. Most providers will set high interest rates and unfavourable terms that might outdo the convenience. So, before signing up for these loans, you should confirm if you can live with the rates and repayment terms.
Common things people in Europe spend their loans on
People take loans for different reasons depending on their needs. Your reason for needing a loan will affect many things including how much you end up borrowing. Most providers will let you use your loan however you want. So, this makes them flexible and diverse in a good or bad way depending on how you view it. Here are some common uses of loans in Europe.
1. Debt consolidation
Loans can come in handy when it comes to consolidating your personal debts. You can take out a debt consolidation loan to consolidate a high-interest credit card debt. This can also be done for other loans. The advantage is that the interest will be much lower and you could qualify for lower monthly payments. In the end, you will save a lot of money.
2. Expensive Events
Most countries in Europe are rather romantic, thus the high rate of expensive weddings comes as no surprise. The good news is, you can secure a personal loan to pay for any expensive event. They will help you to implement your budget and pay back later. The advantage is that you can plan your finances after thanks to the fixed interests and monthly payments.
3. Investments
Loans can also come in handy when you identify an investment opportunity. It doesn’t have to be a business opportunity though. For instance, you can take out a loan to pay for your education. Europe has access to many quality education systems that might peak your interest. Some people even take out loans to improve their self-image through cosmetic procedures and the likes. Thank heavens for the flexibility of personal loans.
4. Home Improvement Projects
Thanks to creativity and innovation, new architectural designs and styles continue to crop up throughout Europe. You might be a homeowner looking to improve your home but it comes at a cost. This is where a loan might come in. In Europe you can access home equity loans and home equity lines of credit (HELOCs). Most borrowers take out these loans to complete remodelling projects for their homes.
The disadvantage of these loans however is that you might have to put down your home as collateral. You should consider them carefully since you risk losing your home in the process of improving it. You could also go for other unsecured loans instead to eliminate the risk. With an unsecured loan, you can get affordable rates and terms without having to risk your home.
5. Emergencies
In life, it’s common to have an emergency at a time when you might be down financially. A loan will go a long way in helping you take care of your emergency situation. A good example would be needing to pay for unplanned medical bills. Unsecured loans and particularly online loans have a shorter approval period. Thus, you will not have to wait for long to get the funds disbursed to your account.