Tenant Loan Lenders: Questions to Ask

Tenant loans are loans given to any person that does not own property. Since the borrower does not have a home or real estate, the borrower does not usually place collateral in order to secure the loan. This means the loans are higher risk for the lender, more expensive for the borrower and may come with unfavorable loan terms. Whenever you are applying for an unsecured personal loan, you should be careful to ask questions about the contract.

Can the Interest Rate Adjust?

Unsecured loans are more likely to have variable interest rates than secured loans. The variable rates can be attributed to the high risk of the loan; lenders use variable rates to assess higher fees if a high risk borrower misses a payment or experiences a drop in credit. As a borrower, you should be wary of any adjustable rate loan. If you cannot find a fixed rate, then you should aim to set limits to how high the rate can adjust. You may choose to either set a limit above the national prime rate or above the initial interest rate. 

When is a Payment Delinquent?

You should know the terms of delinquency on your loan. Because you are a high risk borrower, a lender may use a delinquency to raise your personal loan interest rate or assess fees. You are likely not planning on missing any payments, but factors may arise that prevent you from paying on time. Know how long you have to make a late payment before you are assessed penalties. The typical amount of time is 30 days, with penalties increasing every 30 days thereafter. 

What are the Terms of Default?

You cannot protect yourself against default adequately unless you know exactly what a default means on your loan. Some loans move into default after just one missed payment. Other require a more involved process. Your lender may try to protect against losses by creating a situation where they can easily push you into default. For example, your loan contract may read that your lender does not have to notify you before sending your debt to a collections agency. You may also learn your lender reserves the right to file for losses in court without warning. Knowing these terms is the only way to prepare against default proceedings. 

What are the Prepayment Penalties? 

Lenders do not like it when you prepay your loan. They have assessed your interest rate based on how much they hope to earn from the financing over the life of the loan. When the life of the loan is cut short, they lose money. To prevent this, lenders will assess prepayment fees. High risk loans carry a good chance of prepayment and refinancing. Whenever you are taking an unsecured tenant loan, you should be aware of prepayment fees and work to reduce those fees because the fees can be very high.

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