Unsecured loans are one of the easiest loans that you can get in case you are stuck with the immediate payment problem. All that you need to do is write a post-dated check of the loan amount that you need plus the processing fee as needed. The required amount will then be credited to your bank account. Your amount will be automatically repaid after a certain period, when the lender deposits your post-dated check to his account.
Lenders will usually hold the check till your next pay day. Borrowers can also return the money in cash if he wishes to. In case the borrower is unable to repay the loan on the specified day then he needs to pay a certain extra amount and extend the due date further. The loan amount is usually not a very big amount and it is in the range of $100 to $1000. The finance charges are also based on the rule of the particular state which may also differ.
Usually the loan period is for 14 days and the loan is a bit costly as the annual rate of interest is about 400%. In case you default then there is a penalty imposed on the borrower and the due loan amount becomes very big. Therefore, such short-term loans should not be allowed linger on for a long period.
Requirements for an unsecured loan
In order to get such a loan, the lender must have a bank account and a steady source of income so that he can pay back the loan. He also must have a valid ID however the lender will never check the credit rating. Lender will also not ask about the ability to repay the loan since this type of loan is more based on lender’s ability to obtain his money back and less on the ability of the borrower to repay.
According to data available 80 per cent of the borrower of unsecured loans usually roll over their loan or again borrowed loan within the next month. Online borrowers are usually the maximum among the defaulters.
What is the legal status of unsecured loans?
In the 32 states, this high cost unsecured loans have been authorized by the states and have fixed their own rates of finance charges. Some of the states are little liberal towards the borrower and the loan is a bit less expensive in these states. Those who apply for online unsecured loans are subjected to state licensing laws and the rate caps.
People who are working in defense services and their dependents are provided special protection by law. The lenders cannot charge more than 36 percent annual interest from them.
People who do not have sufficient bank balance or those who cannot use a credit card facility usually apply for such loan. Annually about 12 million people in America avail such kind of loan to meet their emergency expenses and 80 percent of them usually default while repaying the loan. Among the defaulters most of those who apply for such a loan from online. One can really fall under the debt trap if such kind of short-term loan is not cleared in a timely manner.