How does the loan work? Understand

Who has ever been in a financial situation that was a little more alarming than normal? Have you ever wondered how the loan works?

This situation, still very present in the lives of millions of Brazilians, leads indebted people to resort to various means to pay off their debts and get out of the red. And one of the main methods sought is still the infamous loans.

But is this the best solution for all cases? What are the main impacts—both positive and negative—and what precautions should be taken into account when choosing this option?

In this content, we explain how this method works and the main aspects that should be taken into consideration before formalizing a loan.

The text will cover the following topics:

• What is a loan?
• What is the purpose of a loan?
• Types of loans
• How to get a loan?
• What is the best option?

What is a loan?

There is a lot of talk about this function, but many people still have doubts about how this procedure works.

A bank loan is nothing more than an agreement made between the financial institution and the customer.

In this arrangement, the customer requests a specific amount of money, which must be paid back in the future, with interest added. Some aspects—such as the amount available, interest rates, and payment methods—can vary significantly from bank to bank.

What is the purpose of a loan?

This is up to each person.

Unlike other types of transactions – such as financing, which has a specific purpose, such as buying a house or car – a loan can be used however the applicant sees fit: whether to pay off debts, take a trip, get married, renovate the house, or even resolve an unexpected financial situation.

Types of loans

Personal loan

The best-known loan model, the personal loan, is usually available at most banks, making access easier.

With this option, the customer can access the requested funds quickly—about 24 hours—directly into their checking account. However, despite being an affordable option, this model still has some limitations.

People with a negative credit rating – the famous “dirty credit” – in the vast majority of cases are unable to obtain a loan, as the bank understands that the chances of default in such cases are greater.

Another disadvantage that affects those who apply for the loan is the interest rates paid by the customer, which are usually higher than normal. 

Payroll loan

Another well-known option on the market is the payroll loan.

In this credit model, when you borrow a certain amount of money, the installments for payment are automatically debited from the customer's salary or benefit payroll – pension or retirement, for example.

Despite the advantage of being a loan with lower interest rates than personal loans, the payroll loan is only accessible to retired customers or INSS pensioners.

Special check

Available to millions of Brazilians who have checking accounts, overdrafts can also be classified as a type of loan. In most cases, they are automatically contracted when the customer's account goes into the red.

While it's a very practical and flexible way to cover your checking account balance—since it can be arranged without much bureaucracy—you should be careful with overdrafts, as the interest rates can often be quite high. Therefore, it's best to use them only in cases of unforeseen circumstances.

How to get a loan?

Nowadays, taking out a loan is easier than it was a few years ago.

To apply for yours, simply go to your bank branch with your personal documents in hand to learn more about the loan options available to you.

Additionally, some institutions even offer the option of simulating a loan and applying directly online, without having to leave home.

But be careful: to help you decide which loan model is best for you, don't forget to carefully analyze the interest rates and repayment terms offered by financial institutions.

This is important because some banks offer extremely high interest rates and repayment terms that may not fit your budget. So, be mindful of this so you can choose a loan that best suits your situation—and your budget.

Necessary precautions when taking out a loan

At the time of make your loan, there are some things that must be analyzed so that you can make the right decision and choose the investment that suits you.

Interest rates

The first of these—as mentioned above—is the interest rate offered by the bank. This rate can vary significantly from institution to institution. Therefore, it's essential to pay close attention when searching for a good option for your budget.

Lack of installments

Another very important factor in decision-making is the grace period before the start of the installments. In most cases, the longer the grace period before the start of the payment, the higher the interest rate.

Beware of scams

In addition to the pitfalls that can exist in contracts, another point that requires attention is the famous scams.

There are numerous gangs specializing in scams involving loans and lines of credit. There are even companies that serve as fronts for these scams.

Therefore, prioritize reputable companies and always be wary of overly advantageous payment terms or interest rates that seem too good to be true. You might be falling for a scam!

What is the best loan option?

Taking into account what we've presented to you, a personal loan may be the most viable option for the general public, as it's easier and more accessible.

But, if you are part of the public that can opt for the payroll loan option, it is a good idea, since the interest rates are lower.

The truth is that the choice has to be made taking into account your needs and the type of credit that best fits them.

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