All you need to know about getting a personal loan
Personal loans are a useful way of buying high-priced items such as cars, computers, furniture or financing big events such as weddings. You can also take a loan to tide you over a specific financial period when you might need additional income, such as after the birth of a new baby or if you had an unexpected and expensive repair bill.
Although loans include mortgages, we have not detailed them in this article, as we have a separate one dedicated to applying for a mortgage.
Overdrafts can be organised with some banks with advance notice and are useful if you only need a small amount of extra cash for a short period of time. You should check directly with your bank for the terms and conditions of an arranged overdraft.
Types of personal loan
Secured personal loan – this one is for a specific investment or cost such as a car or wedding. It can include refurbishment costs, but keep in mind that it is usually for a fixed amount and fixed term.
Unsecured personal loan – this loan is for when you need help with unforeseen additional costs and can also cover situations where you don't know what the final cost will be such as starting a business. Since an unsecured loan is not offset by your property or another item, it usually has higher interest rates and is for a shorter term.
Personal loans are usually offered at a fixed interest rate and have equal monthly payments for a pre-agreed term. Many banks will only offer up to a maximum of €75,000 in borrowing, and some banks, such as Banque et Caisse Epargne de l'Etat (BCEE) have a minimum loan amount of €5,000 (please not this does not apply to mortgage loands). Terms can be as short as six months and are usually up to a maximum of 60 months, but always check with the bank for exact conditions.
APR and preferential rates
Annual Percentage Rate (APR) is the interest plus fees and represents the actual cost of the loan. It might include insurance and penalties for early or late repayment. It's worth checking the APR as some banks may offer competitive fixed interest rates but then ask for much higher additional costs that get wrapped into the APR that you pay back in addition to the money you borrow.
You can get preferential APR rates if you are willing to pay the bank a monthly service fee, but check if that monthly fee plus your preferential rate doesn't add up to more than the normal APR tariff.
Repaying your loan
Unlike a mortgage loan, you normally can't review the terms of payment during the life of your loan. If you're having trouble with repayments you should contact the bank immediately. If you fail to pay three consecutive instalments on a loan, the bank is entitled to terminate your contract and ask for immediate payment of the loan balance together with interest.
It's not in the bank's interest to do this, so contact them as soon as possible if you have loan repayment issues. They can defer repayment of the non-interest element of the loan, or extend the loan period to reduce monthly payments.
Where to get a loan?
All the major providers in Luxembourg have a personal loan option. If you are thinking of buying a new car, then dealers and insurance companies can also provide loans. We've listed links to personal loan calculators/simulators available online:
CPE (European People's Credit)
Guichet has a page about consumer credit and loans here.