Taking out a loan
One way in which you can pay for your purchases or future plans is by applying for consumer credit or a consumer loan. Unlike a mortgage, this type of borrowing is unsecured, so it depends on your creditworthiness, and that of any guarantors for the loan. This type of loan is usually easier to obtain than a mortgage, although it is generally more expensive, as the bank will charge a higher interest rate.
Loans to consumers of sums of €200 to €75,000 are covered by Law 16/2011, of 24 June 2011, on consumer credit agreements.
Here is some practical advice to consider when taking out a loan of this kind:
Before you sign the agreement:
- Read the advertising material and introductory information carefully. This should include the Standard European Consumer Credit Information (SECCI), which will set out the terms and conditions of the loan. Your bank should give you this information sufficiently in advance. As well as informing you about the loan, the SECCI will allow you to compare the conditions with other offers in a standard format for all EU lenders.
- If necessary, ask for a binding offer in writing. This is free of charge and is normally valid for at least two weeks.
- The lender must answer any questions you may have so you can weigh up whether the loan meets your needs and is suited to your financial situation.
When you sign the agreement:
- Check that the conditions in the agreement are the same as those set out in the SECCI.
- Make sure that the agreement includes:
- The type of credit you are being given;
- The duration of the loan agreement;
- The total amount borrowed and the conditions under which it is will be made available;
- The borrowing rate and the conditions governing its application;
- The annual percentage rate (APR);
- The amount, number and frequency of the payments you need to make;
- The penalty interest rate on arrears;
- What happens if you default;
- Any collateral or insurance that is a condition for the loan to be granted;
- The right of withdrawal and the right to repay early;
- Lenders must safeguard the agreement appropriately, in accordance with current legislation. If you need a copy of the agreement you have signed, you can ask you bank for one at any time.
- You have a two-week cooling-off period after signing the agreement in which you can cancel it without incurring a penalty and without having to give any reasons. You will need to repay the money received, plus the interest accruing up until the repayment date, within 30 days of giving notice of cancellation.
However, remember that a loan agreement can only be declared null and void, in whole or in part, whether as a result of the ineffectiveness of the associated consumer agreement or otherwise, by a court of law.