Loans in Tough Times: Banks can make it just that much harder

By | February 21, 2014

Trying to apply for a loan in a tough economy can often be a challenge. People with bad credit reports and scores have difficult times in securing loans for small amounts. Banks simply do not trust certain people with poor credit history.

Less Formal Lending

Fortunately, there are some institutions and companies that are willing to provide loans without any major hassles and problems. Some companies can lend money by taking any form of collateral from burrowers. For example, a burrower that has an expensive home entertainment system can get a loan for placing such property security for a loan.

Similarly, a vehicle can be used as collateral for a loan that involves thousands of dollars. You can visit 800loanmart.com for more information on applying for a loan from alternative sources.

Easier to process

These days, loans can be given out online by filling out simple surveys. Loan companies ask potential borrowers a few quick questions. An automated system checks the official information of a client and then accepts or rejects a request for a loan.

Loans that are given out with personal property as collateral usually come with lower interest rates compared to some banks and credit unions. Anyone that has a car title can essentially apply for a quick loan that would be very difficult to obtain from local financial institutions.

Check the interest rate before you borrow, and don’t be seduced by the lowest tier rates. They are teaser rates, for good reason… you could end up paying much more.

Considerable Caveats

There are some considerable caveats that you should note when borrowing finance like this, however.

Firstly, your car (almost any car) is a depreciation asset. In other words, over time your car is becoming less valuable, not more valuable. Therefore, should you be forced to sell your car to repay the loan, it will be worth less than when you borrowed. Check your car resale value yourself so that you can determine how much it is worth, and how quickly the value is depreciation.

Secondly, if you are forced to sell the car to repay the loan, it is likely that the fire sale will reduce the sale value even more as you have to sell in a hurry. And if the company that owns the car title sells the car … well then, as long as they get their money back, they won’t worry too much about the excess value.

Thirdly, and as a consequence of the first point, your interest rate will be higher than a secured loan on a property that you own; because the value is on a depreciating asset, the total amount is lower in value, and therefore the profit margins for the lender will be lower too. You might not want to know this, but this will result in a higher interest rate, and bigger potential penalties for late payment, etc.

However, if you are stuck for short-term funding, and family & friends can’t, then this kind of loan might make a lot of sense, even though the cost & risk is much higher for you.

So cover your a$$ first

You need to make sure you can make the payments! Don’t repeat this kind of borrowing, the interest rates over long periods will skyrocket! And, NEVER EVER, roll the loan over or borrow another loan to repay this one.

Author: InvestorBlogger

Investorblogger.com takes you on a 'Random Walk To Wealth' through money, investing, blogging and tech. We'll explore my insights, mistakes, and experiences together.