What is a private loan - What are the rules?

What is a private loan – What are the rules?

What is a private loan – What are the rules?

A private loan, or unsecured loan as it is also called, is an unsecured loan. Since there is no security for this type of loan, the maximum ceiling for how much can be borrowed is lower than with, for example, a mortgage. At the same time, the interest rate for private loans is often a little higher because there is no security. Private loans are often taken out to, for example, finance a cash investment, a boat, or a repair.

  • Examples of unsecured loans are unsecured loans / private loans
  • Examples of secured loans are mortgages and car loans (the bank has security for the loan in the home or car)

Personal loans can help you finance your cash investment or renovations

A private loan can be very helpful in financing various housing-related investments. Since there is a ceiling on how high a loan-to-value ratio you can have for your mortgage (85%), it is sometimes difficult to borrow more with the home as security. Then a private loan can be a good option. A private loan may, among other things, be suitable for the following investments:

1. You can take out a private loan for the cash contribution

Since 2010, when the requirement for a cash contribution was introduced in Sweden, private loans have played an important role for many home buyers. The cash contribution requirement means that home buyers may not finance their entire home purchase with a mortgage, but 15% of the purchase price must come from saved money.

As housing prices have risen steadily, it has become increasingly difficult for many to save up for a cash investment. In such cases, it has become increasingly common for home buyers to take out a private loan to, either partially or in full, finance the cash contribution. Since the private loan is not a mortgage, it is not covered by the rules regarding the mortgage ceiling.

2. Finance the down payment, booking fee & advance fee

The down payment is an amount you must pay immediately when you sign a purchase agreement for a home. A private loan can be repaid quickly and therefore it can be a good alternative if you have not yet had time to save enough money.

For example, many people use private loans for the down payment, the booking fee, and the advance fee when buying new products. This is because these costs may have to be paid long before the home is actually finished, which means that you may not have had time to save the money yet.

If you buy a used home, the bank with which you take the mortgage can usually offer you a special down payment loan. Down payment loans usually have lower interest rates and better terms than private loans.

3. Renovate your home with a private loan

Before the mortgage ceiling, it was common to extend the mortgage to carry out a renovation. Nowadays, it is only possible to borrow up to 85% of the value of the home and therefore there is rarely room to borrow more money for a renovation. Instead, a home improvement loan can be a great idea, especially if you are in dire need of a home remodel.

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