One of the most common things about the financial lives of Brazilians who have debts is that they always start small, harmless. However, it is like a snowball. Before you know it, plus interest rates and other debts, the debtor’s name is already negative.
When deciding to take out a loan to settle these debts, many people do not know where to start and which line of credit best suits their pocket and profile. When doing a quick search on the subject, you will see that there are two types of loan that have the cheapest rates and the longest payment terms.
It is important to choose the loan carefully so as not to end up in another debt that should be the solution. However, choosing between the secured home loan and the payday loan requires even more information. Check below the difference between them and know when to hire one and when to hire another.
What is home equity loan?
Also known as home equity, it is a type of loan where the installer leaves as a guarantee for the financial institution a property that is in its name. The idea is that the asset serves as a pledge if the debt is paid. Other names for this credit line are property refinancing or chattel mortgage. Because it has many names, it is confusing with several other types of credit.
What is a payday loan?
Aimed at the elderly, public servants and workers in private companies, it is a type of credit in which payment is made directly from the payroll or from the installment plan. With this guarantee, interest rates are lower than for a regular loan.
The main differences
In addition to its definition, there are other factors that must be considered when choosing between one and the other, not only how much lower interest rates are in relation to other loans. Check out the other differences below.
Who can hire?
The property secured loan can be applied for by anyone over the age of 18, in full possession of their civil rights. Considered one of the easiest credit lines to obtain, the property as collateral gives the financial institution greater security that the debt will actually be paid. The prerequisites for the operation vary from institution to institution.
The payday loan can only be taken out by public employees and private companies and retirees and INSS pensioners. This restriction and the way in which the installments are paid guarantees the bank that the debt will be paid, since the aforementioned people usually have financial stability due to the salary or benefit.
In both types of credit, interest rates are lower than those of other types of loans, as institutions feel secure in closing the contract and there are rarely cases of default. However, the interest rate on the secured home loan is even lower than that of the payday loan.
In the case of a secured loan, rates vary from 2.3% to 3.5% per month, but may vary from institution to institution. On the other hand, in the payday loan, the rates are usually 2.34% per month. It is still low, but the values will be even lower if you choose to place the property as a pledge.
The deadline for payment
Again, home equity loans have more advantages to offer. The debt can be paid in up to 30 years, but it is important to know that the longer the term, the higher the interest rate charged in the monthly installments. However, the amounts to be borrowed are usually quite high.
In payday loans, INSS retirees and pensioners have a maximum payment period of 72 months (6 years). Federal Public Servants (SIAPE), State and Municipal have a maximum of 96 months. It is worth remembering that, until the debt is paid off, the considerable margin cannot be released.
Both lines of credit have great flexibility, since the amount borrowed can be used for any purpose, without the need for justification and proof. However, the amounts contracted in the loan with property guarantee are high, so that it has even more flexibility in relation to the payroll.
The credit for the secured loan can reach up to a maximum of 60% of the total value of the asset. In contrast, in the payday loan this credit amounts to only 30% of the beneficiary’s monthly income.
The loan with a property guarantee is limited to 60% of the total value of the asset. The amount can be used for any purpose, but care must be taken with the payment of the installments. If the debt is not paid, the default can lead to the taking of the asset by the financial institution, even if this is the last resort and quite rare.
Before the property is repossessed, there is a whole process to be followed by debt renegotiation. The bank company has the duty to inform the installer if it reaches the stage of repossession of the property, and it can only be taken with a lawsuit, which can be appealed by the debtor.
Payday loan there are no major risks
Since the discount of the installment is made directly from the payroll or the benefit of the installment. However, in the case of civil servants, if the situation occurs in which you are unemployed, the debt will have to be paid off in another way, with the possibility of negotiation. If the employee of a private company changes companies, it is necessary to check if the new company has an agreement with the institution in which it must.
A disadvantage of the payday loan is that, while the installments are automatically deducted from the paycheck or credit installment benefit, payments cannot be postponed. The consignable margin can also turn negative, even when a new loan is not made. This is due to undue or unforeseen discounts, that is, payroll deductions.