Understanding the Dangers of Personal Loans
What is going on? I conduct free consultations from my offices in Orlando and Kissimmee and in maybe 3 out 5 cases, my client has a personal loan with some company. These companies have several different names: Sofi, New Egg, Lending Club, On Deck Capital, Mariner Finance, Kabbage, Avant, One Main, Wells Fargo, Discover, and so on. When someone is in a financial bind or in over their head with credit card debt, taking out a personal loan can be tempting. Problems arise when people end up taking out more than they can afford to repay and not reading the terms and conditions of these loans, which can be complicated and sometimes predatory. Thankfully, bankruptcy is able to wipe out these debts.
Predatory lending involves any corrupt actions carried out by a lender to entice and assist a borrower in taking a loan that carries high fees, a high-interest rate, making it more expensive for a borrower to repay the debt. These can take the form of payday loans, car loans, tax refund anticipation loans and personal loans.
Personal loans can encompass many different things, but an unsecured loan is the most common type of personal loan used. An unsecured loan means the borrower does not need to have a co-signer, put up any collateral and they can apply for the loan with a poor credit rating. These types of loans are riskier for the lender, so they tend to come with higher interest rates. Also, the more money that is borrowed, the higher the interest rate tends to be.
If the borrower wishes to pay off the loan in advance, many unsecured personal loans come with prepayment penalties or exit fees. Lenders do not expect borrowers who take out personal loans to pay off the loan sooner than expected, but if the borrower does end up doing so, he or she will end up paying a fee to close out the loan early.
Being able to pay off the loan is not always easy for borrowers who take out unsecured personal loans. Borrowers often believe that taking a out a personal loan will be the best way to consolidate debt and pay it all off in one lump sum amount. However, many borrowers end up with the same amount owed in the end, if not a larger amount.
Before taking out a personal loan, carefully read all the terms and conditions of the loan (i.e. – what is written in fine print), including the loan’s interest rate, repayment schedule, exit fees, penalties, etc. If you have questions on this topic or are struggling with insurmountable debt, we advise sitting down with an experienced Orlando bankruptcy attorney for a free consultation- particularly if you are facing wage garnishment or have a collection lawsuit pending. A bankruptcy attorney can advise you as to all the options available to you and detail the pros and cons of each, giving you the best advise based on years of experience helping those in similar financial circumstances.