Eight Considerations Regarding Unsecured Loans

If you are in need of a substantial infusion of cash and cannot or do not wish to offer any collateral to secure the loan, you will be wanting an unsecured loan or a signature loan. A lender only has your signature and your promise to secure repayment. This high risk incurs higher interest rates. Here are eight considerations regarding unsecured loans and the lending industry.

Consideration One - The I.O.U.

The oldest financial instrument on Earth, the I.O.U., is still kicking. The most simple of loans, it is the one that requires the most diligence regarding repayment. Getting money from a friend or family member is tough to ask for and it should repaid as agreed. Neglecting the agreement can result in bad blood and bad relationships.

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Consideration Two - The Traditional Lender

Many traditional lenders still offer unsecured or signature loans, often referred to as personal lines of credit. The institution underwriting the loan sets the credit limits and interest rates. Credit scores, salaries and other indicators are used. The better the credit score, the lower the interest rates and the more comfortable the repayment terms.

Consideration Three - The Credit History

You can pretty much count on a lender running your credit scores. The higher your score or FICO (Fair Isaac Company), the better your chances for approval and the lower your interest rates. Run it for yourself to check for discrepancies because usually there are errors.

Consideration Four - The High Interest Rates

When there is no collateral to secure the loan, and especially when the borrower has a poor credit history, interest rates will be higher than for other loans. This risk requires higher interest rates so the lender is better able to recover after defaults. For instance, if you take a $250 loan, in as little as two weeks you will have to pay back around $285. Not a lot if you need the cash, but extension requests will cause more fees and paying even more in interest.

Consideration Five - The Bankruptcy

Having a bankruptcy on your record, lenders will take a hard look at your application. Once a borrower declares bankruptcy, assets are seized, sold and money doled out. Unsecured private loan lenders often end up at the end of the line when it comes to paying off creditors. Sometimes no money is left when their turn comes up.

Consideration Six - The Credit Card

Yearly, billions of dollars are passed through credit card companies. Many do not see credit cards as loans; they are. The company pays the merchant, you pay the company plus interest. Many credit card companies have pulled pretty tricky stuff when it comes to the slightest infraction. Late payments, less than required payments, going over the credit limit, and other mishaps can increase interest rates and fees to near loan shark amounts. Cash advances are terribly expensive.

Consideration Seven - The Persistent Collector

Consumers have protection from overzealous debt collectors through the Fair Debt Collection Privacy Act. Defaults on loans and credit cards are the most common reason collectors descend on consumers. The Act prevents harassment such as calls at work, unfounded threats of law suits, and other harassing collector tricks. Consumers can sue and even have the right to include attorney fees in the settlement.

Consideration Eight - The Fine Print

Though loans are as old as the Neanderthal, nowadays it is important that you understand the rates and terms before signing on any dotted line. All kinds of interesting things, costly things, can show up in the fine print. You have heard this admonition since childhood for good reason. It is absolutely necessary. When it comes to dealing with the money of others, all sorts of interesting factors arise and there is plenty of elbow room for rogues.

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