What are Personal Loans and their types?  

Personal financial products serve a variety of purposes, whether you want to consolidate debt, pay off credit card debt, do home repairs, pay for a family vacation, or simply pay for a large or unexpected expense upfront.

This type of loan may work for you for a number of reasons:

  • In general, it is easier to qualify for personal credit than for business credit.
  • There are fewer requirements overall and less paperwork involved.
  • Many lenders do not require a high score
  •  However, if you have strong credit, you may be able to receive better interest rates.
  • There are a number of loan options available (but not all) that don’t require collateral or collateral: that means you don’t need to secure the loan by risking your personal property or assets.
  • The interest rates and monthly payments are usually fixed to help you plan your monthly expenses.
  • The  approval process for this type of loan is much faster  than for business loans 
  • Approval is not usually governed by your credit score.

Requirements to obtain a personal loan

These are the four most common requirements to obtain a personal loan :

  • History and credit score:  It is necessary to have a credit history and they usually request more than 600 points.
  • Income guarantee:  Lenders will request that you have a minimum annual income and you must present documentation that supports it.
  • Debt-to-income ratio:  Lenders measure your ability to pay by taking into account various variables. To be eligible your index must be less than 50%.
  • Social Security Number:  Most lenders will require you to have an SSN, although there are options that accept ITINs.
  • Collateral:  Homes, vehicles, and other assets are used to secure the payment of the loan (this only applies to secured loans).

Depending on the lender, they may ask you for more or fewer requirements. For example, Camino Financial has very few easy requirements to meet.

How to get personal loans

Follow the steps in this guide to get a loan or see the shortlist below.

  1. Establish a budget:  Before requesting a loan, assign a goal and the amount to cover your financial needs. Do not divert capital for other tasks.
  2. Investigate:  Know the characteristics and requirements of different loans and financial institutions. Choose the lender that best suits your payment possibilities.
  3. Gather documentation:  Order and update your personal documents in physical and digital format. If you need one, it is better to wait to get it, remember that rejections will also be reflected in your credit history.
  4. Apply:  Now that you have the necessary information, fill out an application online or in person.
  5. Wait for approval:  Traditional banks can take several weeks to approve an application, while online lenders respond in a few days.

Once you’re approved and sign your contract, don’t forget to manage cash wisely.

Types of personal loans

unsecured loans

It does not request a guarantee or collateral to guarantee the loan. If you miss your payments, it will greatly affect your credit score.

They are generally exclusive for people with an excellent credit history and a score greater than 670 points. Although there are lenders, such as Camino Financial, that do not have such strict requirements and do not ask for collateral.

secured loans

To access this option, you will need an asset that will work as collateral (called collateral), it can be a car, savings account, or shares.

The interests are usually lower because the payment is secured by the guarantee.

Fixed-Rate Loans

The interest rate and monthly installments of these loans are fixed throughout the term of the agreement. This way you will know, from the moment you apply, if the financing fits what you are looking for and payment possibilities.

Variable Rate Loans

At the beginning of the agreement, interest is low but can be changed at any time. The most convenient thing with this loan is that you pay it as soon as possible to prevent the debt from increasing.

What do lenders look for when approving a loan?

When applying for a loan, financial institutions pay special attention to ensuring that the applicant can fully cover the credit or loan granted.

In other words, they make sure you can afford it.

Subsequently, before approving any financing, they carry out an exhaustive analysis in which they take into account certain factors, which we will explain below.

If you are about to apply for a loan, read this information carefully.


What does it mean?

Capacity is what measures your (real) possibility of paying for a loan.

Your ability to pay is analyzed by comparing your monthly income with your fixed payments (in essence, they calculate the relationship between your debts and your income).

This capacity is reflected in a percentage that indicates whether your relationship with debt is healthy.

Because it is important?

The lower your percentage, the easier it will be to meet this requirement.

  • If you are above 50%, it is difficult for them to grant you a loan.
  • If the range oscillates between 36% and 49%, they will request extra requirements to grant it.
  • If you are below 35%, the lenders will approve this factor without problems.

How to calculate the relationship between debts and income?

To calculate your debt-to-income ratio, follow these steps:

  1. Add up all your monthly fixed payments, such as rent, credit cards, and another financing (car, mortgage, for example).
  2. You must divide the result by your monthly income.
  3. Finally, multiply the result by 100.


What does it mean?

Also called guarantee, it is a guarantee of payment that you will present to the financial institution to which you will request the loan. Your property or assets will serve this purpose. 

You can use properties such as houses and apartments, cars, savings accounts, and some lenders even accept jewelry or collectibles.

In the event that you fail to repay the financing, this asset will be seized and used to pay off the debt. 


What does it mean?

They are the particular circumstances of each request and each applicant. Three relevant factors come into play in this regard:

  • What will you use the loan for?  If you do not have an established, clear, and well-thought-out objective, it is a sign of a lack of seriousness and economic certainty.
  • The economic situation and market conditions. An excellent example is the poor economic indicators generated by the Covid-19 pandemic. Fewer loans were provided during this crisis.
  • Particular factors of the loan.  If you take out a loan for something that could be considered risky, lenders will not approve the loan.

Because it is important?

Financial institutions must take into account all the factors that may prevent the borrower from paying his debt, whether they depend on him or not.

It’s simple to damage prevention.

Credit and history

These concepts are simpler than you think.

  • Credit history is the record of your credit management since you obtained your first financing.
  • The credit score is the rating that credit management deserves.

The parameters are established by the different private companies dedicated to this work. These resources work to make lenders aware of your credit management.

How to get your credit report and credit score?

To get this information, it is not necessary to work in a financial institution, anyone can access this data.

On the websites of companies like TransUnion, Experia, and Equifax, you can access your credit report for free once a year.

The process is simple and will give you greater certainty about your true possibilities of accessing financing.

There are also platforms like Credit Karma that will give you your score for free.

APPLY FOR A LOAN Is it a good idea to borrow for personal use?

It is important that you know that debts are not always bad.

As long as they allow you to achieve your goals and don’t hurt your finances, it’s a good strategy to get into debt (whether it takes the form of a loan or a credit card, for example).

It all depends on what you plan to do with the loan and whether it will be a good investment.

You also need to make sure the loan has low-interest rates. We recommend receiving financial support for personal loans, because if you have a good credit score, then it will be easier for you to get better interest rates, and consequently, a cheaper loan.

Can I use them for my business?

The reality is that many people decide to obtain fast and reliable personal loans to finance their business needs.

While this isn’t a bad practice (especially for newer businesses), it’s always best to get a business loan if you want to seriously invest in your business.

Why? Well, business loans will offer you larger amounts that will really allow you to really grow your business.

At Camino Financial, our goal is to help you access affordable capital, which is why we offer both the Solopreneur loan (which is like a personal loan) and our small business loans.

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