Personal loans

• What they are
• Interested parties
• Strengths and drawbacks
• Expenses
• Underlying rules
• Pitfalls

What they are

Personal loans are a form of consumer credit. To apply for this loan, you have to be resident in Italy and be between 18 and 70 years of age. To obtain a personal loan, you will have to demonstrate your ability to repay the amount borrowed over the life of the loan. This is what is known as your 'creditworthiness' and is assessed by the lender before the loan is granted.

Some factors that help show you have a 'good repayment capacity' include:

• never having been late on previous loan instalments;
• never having been reported as having payments (promissory notes, cashier's cheques or personal cheques) rejected owing to insufficient funds;
• not having requested funds above and beyond your repayment capacity.

Interested parties

Personal loans consist in a fixed amount of funding, used for personal or household consumption. For example, you might want to buy a new car or TV, enrol in language classes, or do a combination of these things. This is why we call it a 'general purpose' loan: i.e. it is not bound to the purchase of a specific good or service.

Personal loans allow you to receive the sum you need in full (up to a maximum of €75,000), which you will repay a little at a time according to a fixed repayment schedule.

Strengths and drawbacks

Personal loans are an important economic commitment for both individuals and households that must be honoured over time. Reimbursing the sums borrowed could prove difficult. You might find it hard to meet the repayment schedule. If you miss a payment, the lender can activate all the legal options available to get their money back, from formal reminders to recourse to the courts.

The failure to make even just one repayment as scheduled can increase your costs, starting with interest on arrears, i.e. additional interest payments on the amount borrowed.

Once you have drawn up a contract, the loan can be reported by the bank or credit institution that granted it, to various credit database systems. If you have borrowed an amount equal to or more than €30,000, it will certainly be reported to the Bank of Italy's Central Credit Register (CR).

Remember that if you have already taken out other loans, you may not qualify for an additional personal loan, for example, because in that case you would be indebted beyond your repayment capacity.

When a loan is defined as 'consumer credit', the law envisages special safeguards and rights compared with other types of financing.

Expenses

The cost of the loan depends on a number of variables:

• amount;
• duration;
• the rate of interest applied;
• initial costs, such as processing fees;
• costs for paying the instalments;
• possible insurance costs.

Some fees and expenses are fixed and do not vary with the loan amount. So the smaller the loan, the higher the relative cost of these fees and expenses.

This form of credit can be more costly than others, given that it is not secured by a property. It can, however, be secured by personal guarantees, such as a guaranty or insurance policy.

One measure that summarizes the total cost of the loan is the Annual Percentage Rate (APR), because it takes account of both the interest rate applied and additional costs.

Underlying rules

You can rescind from the contract within 14 days of the date of signature by notifying the lender according to the terms and conditions set out in the loan itself. You are not obliged to state the reason why you want to rescind. If, in the meantime, you have received even part of the loan, you must repay the money received to the lender within 30 days of notification of rescission and pay the interest accrued up until the date of repayment. Withdrawal from the loan agreement also means rescinding from the auxiliary services provided by the lender or by third parties, unless these parties can demonstrate that they are providing these services autonomously, irrespective of the loan agreement. The lender can also rescind, but it must give the consumer at least two months notice.

You can repay a portion or all the monies owed in advance at any time. If you do repay the loan early, you have the right to a reduction in the total cost of the loan, equal to the amount of interest and eventual costs - which you have in fact paid in advance - due at the natural end of the contract. It is worth assessing whether fling without a portion of your income can affect your daily and future financial commitments. Look at all your streams of personal income, both fixed, such as your salary, and once-off payments, such as a liquidation or employment severance indemnity, to decide whether you can afford to take out the loan. Bear in mind that during the life of the loan, there could be unanticipated expenses (i.e. medical fees, home repairs, childcare needs etc) or unexpected events (job loss or redundancy) that could lead to a drop in your income.

Examine the various options available to you on the market and read the terms and conditions carefully. You can also use some internet sites that compare the various offers available to you. Check out the APR, which all intermediaries are obliged to publish.

Pitfalls

To obtain a personal loan, you can turn to a bank or authorized financial company. Before signing off on anything, always check whether the intermediary you have chosen is enrolled in the Supervisory registers and lists maintained by the Bank of Italy and whether, therefore, they are authorized to carry out banking or financial activities.

Be aware that financial intermediaries can avail of the services of financial agents and credit brokers, which in turn must be enrolled in the special registers kept by the OAM - Agents and Brokers Organization. Here again, always check that the agent or broker is on this list.