Consider that many of these unsecured loans are also called signature loans. The only thing reassuring the lender you will pay back is your word or your signature. There is no real property of value to secure the loan. The only recourse the lender has is to take the borrower to court. If there was collateral or security, the lender could sell it to cover the loan. In light of that, here are seven points worth considering if you are looking to take an unsecured loan.
Point 1: I.O.U. Loans
Time-worn though it may be, it is still alive and well. Though the most simple of loans, it must be treated with care. Getting cash from a friend or family member involves a lot more than paying back money on time as stipulated. Missing those terms could mean bad blood and relationships on the rocks.
Point 2: Credit Cards and Cash Advances
Even though many consumers spend billions of dollars every year on credit cards, they do not see credit cards as loans, but that is what they are. The credit card issuer lends you money to give to a merchant. The consumer pays back the loan to the credit card company. Many card issuers have taken unseemly measures to penalize users for the slightest infractions. Fees are imposed and interest rates are increased to near loan shark standards. Cash advances are the most expensive items charged to credit cards.
Point 3: Traditional Lenders
Many brick and mortar financial institutions still offer signature loans. Today they call them personal lines of credit. The institutional underwriting guidelines set the credit limits and the interest rates. Credit scores and other indicators are used and the better the credit score the more favorable these loans will have.
Point 4: Sky-Rocketing Interest Rates
Many lenders like to say that since no collateral is being offered, and that the borrower often has low credit scores, the higher rates are necessary to cover the risk of the loan. Consider that these loans are often rather small. A loan of $250 could require the borrower to pay back $285 - after only two weeks. Indeed, $34 may not seem like a lot, but it is time after time in the hands of the lender.
Point 5: Bankruptcy and Unsecured Loans
Lenders do have a point when it comes to bankruptcies. Any unpaid unsecured loans usually end up at the bottom of the heap when it comes to paying out of properties seized during bankruptcy proceedings.
Point 6: Protection from Zealous Collectors
If collection agencies are hounding a consumer, they do have recourse through the Fair Debt Collection Privacy Act (FDCPA). If a consumer defaults on a loan or a credit card, this ruling disallows harassing calls, calls at work, or the threat of lawsuits when none is possible. It includes provisions for harassed consumers to sue, including the right to attorney fees.
Point 7: Credit Scores and Approvals
Most lenders will run a credit check on a consumer who requests an unsecured loan. Usually referred to as FICO (a credit industry acronym), the better one is the better the chances of approval and the lower the interest rates charged. Any consumer can get this score for themselves. Before making any loan application it should be checked for errors -- and there usually are.
Check the Borrower, And the Lender, Too
Old as the caveman, folks for generations have relied on unsecured loans. The importance of understanding the rates and terms before signing on any dotted line is incumbent on the borrower, but check the lenders, too. Whenever folks start dealing with the money of others, there is plenty of room for shysters.
Point 1: I.O.U. Loans
Time-worn though it may be, it is still alive and well. Though the most simple of loans, it must be treated with care. Getting cash from a friend or family member involves a lot more than paying back money on time as stipulated. Missing those terms could mean bad blood and relationships on the rocks.
Point 2: Credit Cards and Cash Advances
Even though many consumers spend billions of dollars every year on credit cards, they do not see credit cards as loans, but that is what they are. The credit card issuer lends you money to give to a merchant. The consumer pays back the loan to the credit card company. Many card issuers have taken unseemly measures to penalize users for the slightest infractions. Fees are imposed and interest rates are increased to near loan shark standards. Cash advances are the most expensive items charged to credit cards.
Point 3: Traditional Lenders
Many brick and mortar financial institutions still offer signature loans. Today they call them personal lines of credit. The institutional underwriting guidelines set the credit limits and the interest rates. Credit scores and other indicators are used and the better the credit score the more favorable these loans will have.
Point 4: Sky-Rocketing Interest Rates
Many lenders like to say that since no collateral is being offered, and that the borrower often has low credit scores, the higher rates are necessary to cover the risk of the loan. Consider that these loans are often rather small. A loan of $250 could require the borrower to pay back $285 - after only two weeks. Indeed, $34 may not seem like a lot, but it is time after time in the hands of the lender.
Point 5: Bankruptcy and Unsecured Loans
Lenders do have a point when it comes to bankruptcies. Any unpaid unsecured loans usually end up at the bottom of the heap when it comes to paying out of properties seized during bankruptcy proceedings.
Point 6: Protection from Zealous Collectors
If collection agencies are hounding a consumer, they do have recourse through the Fair Debt Collection Privacy Act (FDCPA). If a consumer defaults on a loan or a credit card, this ruling disallows harassing calls, calls at work, or the threat of lawsuits when none is possible. It includes provisions for harassed consumers to sue, including the right to attorney fees.
Point 7: Credit Scores and Approvals
Most lenders will run a credit check on a consumer who requests an unsecured loan. Usually referred to as FICO (a credit industry acronym), the better one is the better the chances of approval and the lower the interest rates charged. Any consumer can get this score for themselves. Before making any loan application it should be checked for errors -- and there usually are.
Check the Borrower, And the Lender, Too
Old as the caveman, folks for generations have relied on unsecured loans. The importance of understanding the rates and terms before signing on any dotted line is incumbent on the borrower, but check the lenders, too. Whenever folks start dealing with the money of others, there is plenty of room for shysters.
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