Personal loans (unsecured debt)

In everyday speech, we usually mean an individual’s unsecured debt when we talk about personal loans. Unsecured debt is not secured by a lien on an asset or by any guarantor. Since this type of loan is more risky for the lender than a secured loan, unsecured loans tend to have a higher interest rate. The lender will also typically be more careful when assessing the credit worthiness of a person applying for an unsecured loan, a getting a large unsecured loan may prove impossible even for a person that is highly credit worthy. It is for instance uncommon to purchase real estate in major cities using only a personal loan to finance the purchase; a mortgage loan (where real property is used to secure the loan) is much more common.

personal loan

Comparing personal loans

Before you opt for a personal loan, it is a good idea to look around and compare a lot of different options to find the best solution for your specific situation. In addition to looking for personal loans, you should ideally also look at other types of loans. Sometimes a specialized loan, such as a car loan with the car as collateral, is better than a personal loan. There are also situations where being patient and saving up for a purchase is better than getting a personal loan.

When it comes to personal loans, you can often obtain a better deal if you go through an organization where you are a member. In many countries, labor unions will negotiate favorable personal loans for their members, provided that you fulfill certain requirements. Other examples of organizations that may have negotiated favorable loan terms for their members are home owner organizations, small business organizations, student organizations and alumni organizations.

When you compare personal loans, there are a lot of factors that should be taken into account. Even small differences, e.g half a percent difference in the interest rate, can make a big impact in the long run.

Here are few examples of points that needs to be taken into account:

  • What is the interest rate? Is this rate fixed for the entire term of the loan or can it change?
  • Is the interest rate calculated daily or monthly?
  • Is there an establishment fee? How large is it?
  • Are there any monthly fees (aside from interest rate)?
  • What’s the repayment schedule?
  • What happens if you are late with a payment? What’s the late fee? Will the interest rate increase for the entire remaining loan?
  • If you wish to pay off your entire loan before the term is up, while there be an early exit penalty?
  • Is the lender allowed to change the terms of the contract during the duration of the loan? Which changes can be made? How and how far in advance will you receive notice about upcoming changes?

Visit http://www.privatlå to see comparison lists of personal loans.

Non-conforming lenders

The term non-conforming lender is typically used for a lender that is willing to lend money to a borrower that other lenders decline because of low creditworthiness. It can for instance be a borrower with a lot of unsecured debt, a very small or unreliable income and/or a history of defaulting on loans.

Non-conforming lenders take a higher risk than ordinary lenders, and will try to compensate for this by charging a high interest rate and/or large fees.