"Quick" Loans

The so-called "quick" loans are characterized by a simplified application process, quick approval of the application and allocation of funds. These are short-term loans that are usually used to cover urgent financial needs and unexpected expenses. It is widely practiced to grant them online or via mobile applications. They are offered mainly by non-bank financial institutions that must be registered with the Bulgarian National Bank. The process of granting this type of loan involves submitting an application - online or at the lender's office, followed by a quick check of the data and credit history of the loan applicant.

This type of loan provides access to borrowed funds for people who usually have difficulty obtaining them from a bank due to a bad credit history or very low income. The easier access to these financial products makes them riskier for lenders, which affects the "price" of a loan – the interest rates and, accordingly, the Annual Percentage Rate of charge (APR) are higher. When choosing a quick loan, you should check all the details in the contract, what is the annual percentage rate of charge, the total amount that must be repaid, whether there are any additional and possible hidden costs. The use of this type of product should be approached carefully and with a clear assessment of the possibility of regular loan servicing and the consequences in case of failure. Sometimes there may be promotional conditions such as 0% APR, but then you should take into account possible fees for late payments. Quick loans are intended for short-term financial needs and are usually not used for long-term purposes.

Overdraft credit

An overdraft credit is a popular product that allows you to use funds above the available balance in your current account up to a pre-approved credit limit. This is a convenient and flexible way to cover short-term financial needs or unexpected expenses. It is common practice to access this type of loan through a debit card issued to the account. There is no repayment plan for this type of loan, and the obligations are automatically repaid from the available funds on maturity or with the receipt of funds in the account. Therefore, an overdraft loan is usually granted to individuals with regular income, for example from a salary or pension. Interest on it is accrued every month, on a certain date (maturity), only on the amount used and is often higher than traditional consumer loans due to the accessibility and operability of the product. Consumers should carefully familiarize themselves in advance with the terms of the overdraft loan offer, presented in a Standard European Form (Standard European Form with information on consumer credit[1]). It is recommended not to view the loan funds as a regular and permanent source of financing, as this may lead to an increase in debt and financial overload.

Revolving credit and credit cards

A revolving credit allows for repeated borrowing of funds up to a certain limit from the lender, while at the same time repaying part of the obligations with regular payments. This type of crediting mechanism is used in the widely used payment instrument – ​​a credit card. The limit is determined based on the consumer’s creditworthiness. As a rule, interest rates are higher than in traditional consumer loans. A significant advantage of this payment instrument is the “grace” period, which provides the opportunity to use interest-free credit if the debts are repaid within this period. Consumers can pay only a minimum monthly instalment, with interest being charged on the remaining outstanding balance, but this option carries a significant risk of rapidly increasing the debt. Credit cards often include bonus programs and discounts, which provides additional advantages when making purchases.

Commodity loans

Commodity loans are “targeted”, designed to finance the purchase of specific goods such as electronics, furniture and household appliances in the form of instalment payments. These loans are often offered through partnerships between retail outlets and credit institutions. The granting process begins with the selection of a merchant and a lender. After submitting an application, the lender checks the consumer's creditworthiness and, on this basis, makes an approval decision.

Like other credit products, the decision to use a commodity loan must be well thought out and all the terms and conditions offered must be examined. Taking on new debt, even with a low monthly payment, can create difficulties, so it must be tailored to the personal financial situation. Some offers may include special conditions such as 0% interest periods, in which case it is recommended to check whether the final amount of all instalments corresponds to the price of the product, whether there are any fixed fees or other additional costs.

Financial leasing

A leasing is a financial agreement in which the lessor grants the lessee the right to use an asset, such as a car or equipment, for a certain period in exchange for regular payment of instalments. There are different types of leasing, the main ones being operating and financial leasing.

In operating leasing, assets remain the property of the lessor, and customers pay a price (similar to rent) to use the asset for a certain period and return it to the owner at the end of the term. Operating leasing contracts are not a type of consumer credit and are outside the scope of the Consumer Credit Act.

Financial leasing contracts/ financial leases allow the consumer to use the asset as their own against regular payments and usually include a purchase option at the end of the contract period. Financial leasing often has a deductible, so that the lessor is protected against a loss in the market value of the asset. It is also possible to set a residual value that must be paid upon acquisition of the asset at the end of the contract, and it is often possible to finance it as well.

Financial leasing contracts/ financial leases are a popular method of acquiring long-term assets, such as cars. They are offered by leasing companies, which must be registered with the Bulgarian National Bank. The financial leasing process begins with the selection of a leasing company which purchases the desired item and grants the customer the right to use it against regular monthly payments. After the obligation is paid and depending on the terms of the contract, the client usually acquires ownership of the asset or has the option to purchase it at a residual value. Before signing a financial leasing contract, it is important for consumers to carefully familiarize themselves with all the terms and conditions, to be aware of the consequences of non-fulfillment and to assess their ability to undertake financial commitment.

Useful links:

Bulgarian National Bank

Consumer Credit Act

Law on Credit Institutions