Everything You Need to Know about Third-Party Personal Loans
Secure loans allow people to get cash quickly in exchange for collateral. With secured loans, lenders can seize the collateral assets in case the borrower fails to pay back the loan, but what happens when the borrower doesn’t have any assets to offer? What can you do if you are in need of cash but do not have any assets registered to your name? in these cases, borrowers will still be able to get a loan that does not require collateral – a third party personal loan.
What is a Third-Party Personal Loan?
Third-party personal loans, also known as unsecured loans and personal loans, are loans that are given to borrowers based on their ability to repay the loan in full. Not that long ago, you would have had to go to a bank or a credit union to get a personal loan, but that has changed. These days ordinary people who have the cash to lend are becoming online lenders. Yes, that's right – personal loans are now provided by people just like who have no relation to an official financial organization.
Getting quick cash by sitting at home and clicking on your keyword can be very tempting, but there are some cases where personal loans can become honey traps. To prevent yourself from getting in over your head with an online personal loan, you should know more about these types of loans before you commit to a personal lender.
The Pros and Cons of Personal Online Loans
Like other decisions in life, you should consider the pros and cons of getting money from online lenders:
The Pros of Getting a Personal Loan:
1. No sales pitches – bank and credit unions provide products and services just like any other service provider. So, when you go to a bank or credit union branch, the person who is handling your loan request will try to sell you on other products, like a checking account. These sales pitches are something you won't have to deal with when you use online personal loans. Online lenders usually stick to loans alone, so you won’t feel pressured to get additional services you don't need.
2. Convenience – getting to a bank or a credit union can be tricky, especially if you work full-time and you can't spare hours waiting in line and them signing all the paperwork to get a loan. With online personal loans, like the ones available on LendingCluba and similar websites, you can save a whole lot of time. Personal online lenders don't have physical branches, so you won’t have to clear your schedule just so you can go and get a loan. With online lenders, you will be able to submit your application and other papers online without ever leaving your home. The entire process is reviewed and processed online, so you can stay at home when trying to get a loan.
The Cons of Getting a Personal Loan
1. Providing your information online – hackers use people's personal information to steal their identity or their money, so it could be deterring to provide your personal information online. This shouldn't be something that prevents you from applying for an online loan, but it is something you need to consider when applying for this type of loan. To minimize the risk of having your data stolen, you should only use reputable lenders with experience, positive feedback, and most importantly – a good security system.
So, before you apply for a loan, read reviews about the lender you are considering and do some research about it. You can also look for complaints filed against the lender with the Better Business Bureau to find out if there are problems with the lender you are considering.
2. Limited loaning areas – when you apply for a personal loan, you won't necessarily get it. why? Because some lenders don't provide services in all the states in the country. So, before you "land" on a personal lender, read the fine print and find out if they lend money in the state where you leave. This will keep you from wasting your time submitting paperwork that will eventually get rejected because of your location.
3. Approval fees – in some cases, you will need to pay lender approval fees after your application is processed and approved. Prosper, for example, can charge borrower up to 5% of the amount they borrowed. The approval fees vary by your credit score, so the better your score, the lower the fees.
4. High-interest rates and additional charges – one of the ways personal lenders guarantee they get their money back is by charging high-interest rates. So, for example, if 20% of the borrowers fail to pay back the money they borrowed, the interest fees from the remaining 80% will "cover" the loss.
While the interest fees in personal loans seem steep, they are there for a good reason; as we said in the beginning, personal loans are unsecured loans, so the lenders don't have any collateral or guarantee that they will get their money back. It's a pretty high risk, so when looking at it from the lenders perspective, high-interest rates make sense.
Aside from the interest fees that personal lenders take (like banks and credit unions), you could also be facing additional fees when taking a personal online loan. Examples for extra fees are a prepayment penalty, origination fees, and balance transfers. So, before you commit to a particular loan, read about all the additional fees you could be charged for.
Personal loans are a great way to get money when you don't have assets to put up as collateral. You can get a third-party personal loan online, but make sure you do your research before you commit to a loan; check the reputation of the lenders, read everything you can about repayment fees and interest rates, and most importantly – never take a loan you cannot pay back. It could lower your credit score and hurt you in the future when you need to get large loans, like a mortgage.