10 Things to Avoid When Looking For A Personal Unsecured Loan

So, what the difference between a secured and unsecured loan?

Put simply, the latter checks for your creditworthiness while the latter also ensures the safety of repayment by means of collateral in the form of property.

Of course, an unsecured personal loan is the simplest of all financial products but it still manages to obtain interest from its customers. Hopefully, not too much money.

For that, one has to be aware of the financial traps that await us when we take an unsecured personal loan.

10 Traps to Avoid When Taking a Personal Unsecured Loan

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Some of these traps are so obvious yet we tend to ignore them. Having said that, here are 10 traps to avoid when taking a personal unsecured loan:

1: Large loans for a longer duration

With unsecured loans, the bank will always try and sell you a larger loan than you first considered. Second, they will want you to take for a longer period of time as well. It is because they want to earn more interest over a longer period of time. So, keep the loan short and small.

2: Opt for a fixed variable loan

While most personal unsecured loans are fixed, there are a few that are of the variable type. Ensure you pick one that has a fixed interest rate.

3: Look at the TAR, Not the APR

Money lenders can play around with the APR and which is not what you should be looking at. Instead look at the total amount repayable each year. Simply put, it is the total cost that includes charges and interest of all your payments. Also, ensure that you can make the monthly payment too.

4: Don’t settle for any Terms & Conditions

You can always find better terms and conditions. In one way, if you want to close the loan early, you can make a lump sum payment but not be charged for it. No matter what, understand the fine print before you take the loan.

5: Origination fees

Apart from the total cost, there are other fees that the bank charges such as an origination fee. As you compare loans, compare the origination fees charged by each bank and then pick one based on which is least.

6: Privacy

Before you even apply for a loan, make sure you read the Privacy Policy. In some cases, banks might reject your application but will forward your information to other lenders for a nice commission.

7: Think about alternatives

Instead of lodging in for an unsecured person, a better way is to save the money yourself or even use a credit card that offers lower rates. Better still, if you have a good credit score, then going to peer-to-peer lending sites is advisable such as Zopa.com in the UK and LendingClub.com in the US.

8: Check for add-on terms

Just in case, you miss or default on the loan, there are terms that must be checked for such late payment penalties, collection fees or even payment protection insurance too. Understand these add-ons before you take a loan.

9: Don’t trust any bank

No matter what, your bank will always sell expensive loans to its own customers. They don’t necessarily have your best interests at heart. So, shop around on sites like Bankrate.com or check with other financial institutions if they have a better deal for you. That works almost always.

10: Gimmicks should be avoided

While these products are meant to be the simplest, sometimes they’re offered with gimmicks such as payment holidays and even cash back. Be warned that you will lose the cash back if you pay the loan off sooner while the payment holidays option will increase the interest rate that, in turn, will increase your repayments too. It will prove to be far more expensive than it is worth.


How to Get an Unsecured Personal Loan

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If you are unable to have a good night sleep because of current financial problems – lack of financial funds to bear your financial responsibilities. If you’re thinking of filing of bankruptcy – hold back as you can probably get your problem solved by getting an unsecured personal loan. Here are some tips to such loans even if you have a low credit score:

1. Determine the total amount of personal loan that you need to borrow

Initially, you need to calculate the actual amount of money that you can use it for dealing with debt, mortgages, or your kids’ college. It is wisely that you don’t apply for loans that exceed the total money that you really need. In this case, “greed is not ” – as you need to repay the total borrowed loans plus the principal interest applied.

2. Looking for reputable loan lender

Emphasize on non-bank lenders as they normally offer bad credit unsecured personal loan for applicants who have low credit scores. Such loans are also meant for applicants who don’t own any land properties or any valuable assets. To prevent you from being the victim of unscrupulous loan lenders, make sure that these lenders have high Better Business Bureau ratings in which these ratings reflect their credibility of their business.

3. Be a forum member and get feedback from other forum members

It’s common to obtain information from internet forums. Instead, you can sign up as a member of a personal finance forum and start looking for forum members who had previously undergone the same experience as you’re facing now. Be smart as you can subscribe to forum threads that you think these threads are informative. Don’t spend much time on threads that have no constructive feedback.

4. Compare all the loan packages and choose the right one

Once you have found several BBB accredited non-bank lenders, it’s time that you need to distinguish their bad credit unsecured personal loan packages based on few criteria:

The actual cost of the loan package including total interest rates and service fees. The affordability of the monthly repayment plan including the duration of the loan terms
5. Understand the risk and find possible ways to prevent it

Certainly, applying for a bad credit unsecured personal loan has its risk – the high principal interest rates and it’s almost impossible to pay it off if you have missed a few of its monthly repayment. Therefore, you have to be certain when it comes to repaying your loan consistently – by setting up an emergency fund and save as much money as possible, or by increasing your income stream.

6. Find a suitable guarantor for your loan application if you’re temporarily unemployed

Basically, although a personal loan application requires no collateral, it requires a guarantor to support your loan approval. A person who has a stable job and land properties, is eligible to become a guarantor – the perfect candidate is a person who you can trust, and consistently keeping track on your loan repayment process, i.e. your spouse, family members or your best friend. Don’t disappoint them and make sure that you’re able to pay off your loans on time.