About Personal Unsecured Loan Lenders

Personal unsecured loans have some of the highest interest rates this side of credit cards. In fact, many of them have rates that are much higher even than many post-introductory rate cards, making them a relatively poor choice particularly for people with fair credit or worse. Luckily, there is strong competition among personal unsecured loan lenders to provide competitive rates, low fees and good service.

Significance

The majority of personal loan providers are banking institutions. These companies protect their risk by using their access to substantial amounts of consumer data--primarily credit score--to provide lower rates, superior service and lower fees. The main downside is that they use this access to information to make it difficult for people with fair credit or worse to get access to unsecured personal loans. Such marginal borrowers are often pushed to go to unsecured lenders that charge extraordinarily high rates.

Function

Payday lenders are the other major category of unsecured loan providers. Most often, these companies do not conduct credit checks, often providing instant approvals for short loans without even investigating the credit histories of the borrowers. After the loan is given, they often ask for access to the checking account of the borrower, sometimes taking payments directly out of paycheck deposits. Interest rates often exceed 100 percent and the periods of these loans are extraordinarily short.

Warning

These lenders charge such extraordinary rates and fees because of the risk they take by servicing borrowers with mediocre credit histories. As these loans have a relatively high default rate, the companies need to charge more to make a profit and keep their service in business. Becoming late on a payday loan can often lead you to pay 300 to 500 percent of the original amount of the loan in both interest and fees. In most cases, going to a charity to help meet basic needs is a better choice relative to taking out a short-term personal loan.

Considerations

Social lending services also provide competitive rates without the necessity of going to a bank. Services like Prosper and Lending Club allow users to post requests for loans along with their reasons for needing them. They then connect them with other individuals who have money to lend. These services generally offer a great alternative particularly for short-term loans, but most of them have similar credit requirements to those that banks look for. The main trouble is that the loans are generally funded by dozens of individuals, so there is no single person that can be negotiated with if there are problems in paying the loan back.

Benefits

Personal loans should be used chiefly for purposes that are related to improving monthly income. Critical car repairs, debt consolidation, medical coverage and other similar important costs are all good uses of personal loans. Look for more than just the lowest rates and fees. Most personal loans are relationships that last at least three years. Service matters, as you want to be able to get in touch with the lender to discuss the situation if any problems come up in paying back the loan. You want to find a stable lender that won't change the terms of the contract without warning. Pay attention because taking out an unsecured loan is an important decision.

Resources

• Lending Club
• Lending Tree
• KATC for payday loan warnings