Unsecured Loans Can be Negotiated by Borrowers
Unsecured loans are difficult to get these days. Before the recession, lenders were handing out credit left and right to subprime borrowers. Almost anyone could get a loan and credit with relatively little thought of how they were going to pay the funds back.
The changing face of credit
Once the recession happened, however, things drastically changed in the world of credit. Lenders shut their doors quickly and even high-credit scoring borrowers suddenly had to deal with hefty fees, slashed limits and higher percentage rates. It made for a difficult time and many borrowers are still trying to recover. The good news is that lenders are willing to negotiate with customers in an effort to recoup as much as possible from them.
Negotiating with lenders
New studies are showing that some people are having problems with paying down debt and looking to negotiate but don’t know how. The true test is a three-point questionnaire.
- Is the borrower clear about his or her finances and aware of how much they can afford to pay?
- Does the borrower understand the timelines involved with the debt?
- Is the borrower willing to forgo a high credit score to take care of debt now?
For those who answered yes to the above three questions, a debt repayment plan may be closer than they think. First, the borrower who is ready to face debt needs to be in trouble. It may sound odd, but borrowers who still have the ability to pay but don’t aren’t given much leeway in terms of payments. The only true reason for falling back on payments is when a consumer simply doesn’t have the funds. Due to wanting to mitigate losses, lenders normally approach borrowers who are several payments behind and offer some dialogue to fix the issue. They have forbearance and hardship programs ready for borrowers who need help. Though missing a payment may be a sure-fire way to get a lender to notice and offer help, it will do little for the borrower’s credit. In fact, two missed payments can bring a credit score down by as much as 100 points. In addition, going through any forbearance plan or hardship program will also show up negatively on a credit report.
Before formal negotiations
Before a consumer starts to negotiate with lenders, he or she should look into alternatives that are less damaging to credit. Financial institutions offering unsecured loans are still competitive and some offer much better deals than others. Consumers in debt could try to find a lower-rate credit card, a three-year fixed-rate personal loan from a credit union or a three-year fixed-rate loan from a peer-to-peer lending website. It’s critical for borrowers who are in trouble to still think clearly. Experts caution that grabbing any option is never a good idea. Though there may seem to be fewer options, in today’s market there are still levels of service for bad-credit borrowers. Consumers are cautioned to look into a few options prior to choosing one.
When negotiating isn’t an option
There are still a group of people who will try as hard as they can but still be unable to negotiate with their lender. If that is the case, then they need to heed some additional suggestions. They should work on a viable budget as soon as possible. It’s always a good idea to get to where the problem actually started, and that’s true with credit chaos. Consumers should look at their incoming money and outgoing expenses and find out where their issues are. Another tip is to get realistic without the use of credit. Though credit helped in former years, it also gave people a false sense of security. Unsecured loans are not always there to help people and now the general public is finding that out. Now more than ever, having financial wisdom is crucial to personal money management.