Being burdened with a tremendous amount of debt is not helpful for anyone’s fiscal well-being. Excess debt due to multiple credit cards, personal loans, and other accounts makes managing day-to-day finances difficult. In turn, the ability to effectively pay off debt becomes even more complicated. A common way to address the problem and add a little “fiscal sanity” to the situation entails consolidating debt. Unfortunately, a poor credit score or other problems may make a person a very weak lending applicant. The end result is the applicant is turned down for a traditional debt consolidation loan. A declined personal or secured loan application does not mean all roads are closed. Alternative lending options exist for those who otherwise have no options.
Alternative Lending Mitigates Risk
The reason someone may be turned down for a traditional debt consolidation loan is he/she is deemed too much of a risk to pay the loan back. Collateral could be used to offset concerns over risk, but not everyone has enough collateral to cover a loan request. Even those with collateral might find a bank or credit union unwilling to issue an approval. The institutions worry about the extra efforts required to seize property if any loans default.
This is why alternative lending institutions prove to be exceptionally helpful. The very existence of alternative lending ventures proves some are more than willing to absorb the extra risk. In fact, alternative lending ventures reflect a niche market of lenders who cater to those with bad credit.
Two Basic Alternative Lending Endeavors
Alternatives to traditional lending sources come in many forms. One unique process is called peer-to-peer lending. Peer-to-peer lending simply entails borrowing a loan from private investors who are affiliated with a lending entity. Such entities allow lenders to explore a unique investment opportunity while providing a borrower with a reliable source of funds. The drawback with peer-to-peer lending is none of the investors is obligated to accept a loan application. Applying does not automatically mean the loan would be approved.
A car title loan is going to come with a far greater chance of being approved. The way this type of loan works is a car’s title — and the ownership of the car — is put up as collateral. The loan amount is based on the value of the car and can be issued to someone even if he or she is unemployed. This type of loan, like peer-to-peer lending, can be done over the internet. Accessing funds is not complicated at all.
Interest Rates and Repayment Plans
One thing persons seeking alternative lending options need to be fully aware of is the fact interest rates on these types of loans are high. No entity is going to issue a high-risk loan at a low rate of interest. The lending world does not operate this way. Persons who wish to take out “last chance” loans do need to be aware the costs are going to be higher.
Additionally, failure to pay on time can lead to huge penalties. Heavy penalties end up making the loans even more costly. Those who think they can ignore responsibilities associated with these types of loans could be making a huge mistake. Persons who understand the costs, however, may be able to effectively engage in a workable debt consolidation plan.