An unsecured loan is now easier to get than ever, but with that emanates the need to look closer for the pitfalls. Finding an online finance company is only a click away using your computer or phone. Finance companies sometimes label these loans as Installment loans, Payday loans, Signature loans or Personal loans. The results yield quick cash for a fixed term. Their application process is convenient, easy to fill out, and the expectation for a great credit record isn’t a stipulation, in fact, there are usually no credit checks.
The application guidelines for an unsecured loan are simpler and the results are faster. They will not inquire why you need the loan, so you will be able to spend this money for whatever you’d like. You‘ll find that most banks and finance companies that offer unsecured loans are quite amiable and happy to assist you.
Unlike a secured loan, the finance company of the unsecured loan will not expect collateral for this loan. As a borrower of this loan, you’ll not be asked for collateral such as land, a home, or an automobile for this loan. Not asking for collateral for an unsecured loan, the finance company recovers its expenses by charging higher interest rates and fees. If the borrower cannot make payments on an unsecured loan, the lender can just take legal actions for repayment of the loan. Nonpayment of an unsecured loan will lower your credit score. Paying off your loan on time is an excellent way to boost your credit scores.
Depending on the lender, there can be a considerable amount of fees associated with your loan, which adds the final amount of the loan. As you read your contract, you may find additional fees beside the interest fees. You need to be aware of these fees because they add up quickly. You may see charges for 1) Application processing fees, 2) late payment fees, 3) fees for extending loan, and 4) penalty fees for paying the loan off early.
Your credit rating drives how high your loan’s interest rate fee will be. If you have good credit, the finance company will be willing to offer you a lower rate. These loans usually have very short payback periods, which make the interest at first seem reasonable. You’ll find a major pitfall of an unsecured loan if you fail to pay the loan off on time, or need an extension on the loan.
Finance companies make their money from the high interest on these loans when people can’t make their payment. It’s in your best interest to pay the loan back at the required time. On a 2-week loan, 15% doesn’t seem too harsh to pay. As you extend over a year with this type of loan, you’re just throwing your money away on interest fees. The interest fee for an unsecured loan over a longer period of time can be excruciating. In addition, keep in mind that interest paid on an unsecured loan cannot be taken off on your income taxes like a secured loan.
Learn to be diligent when discussing the terms of your loan. Setting up a comfortable payment and schedule plan that you can manage will save you grief, and the expense of additional interest and bank fees. A simple loan can become a nightmare, if you underestimate your ability to make your payments. Be honest and let the lender know what you are capable of handling.
The most important pitfall is when people don’t have a comprehensive understanding of the terms of their loan contract. You cannot take the loan contract for granted. Online finance companies will not request a massive amount of information or securities from you for this type of loan. Realize though, you are responsible for the terms of the loan. Reading and understanding the lender’s requirements is important, if you don’t, it will get you into serious financial trouble. Learn what will be required of you and what the terms of the loan are before you sign. Falling behind on payments can be costly and you will end up owing much more than you borrowed.
Responsibility for the additional fees, and interest rates that contribute to the final amount borrowed fall to you. Each finance company has their set of policies that you will be obliged to fulfill in a loan process. When you sign for an unsecured loan, it’s considered a legal contract with that lender, even if you are using an online signature. You will be legally obligated to respect the conditions that you sign for on this loan. If you fail to undertake the terms of the contract you signed, the finance company can take legal actions against you. You can help yourself by knowing the terms of your unsecured loan and avoiding the pitfalls.