There significant differences between our signature loans and our no income/no asset loans. To explain these differences we have created this initial installment.

Signature Loans

A signature loan is the purest form of cash flow in existence. As discussed earlier, lending institutions look at the three Cs to decide if the borrower gets the money and how much he or she pays for it. We’re talking about cost of borrowing here.

Cash flow is simply the difference between the money you have coming in to pay bills and how much money is going out during the same period. The more money coming in relative to what is going out, the more likely the lending institution will be to approve the loan.

Collateral is what you put up that the lending company can take and sell if you don’t pay the loan off. For banks there is little money in being in the repossession game, so they avoid making loans that require that the sell-off your collateral.

Your signature loan has no collateral attached to it. So it is a pure credit score and cash flow play. If the consumer finance company evaluates the application and the credit score is high enough, the employment or income history is long enough, the loan application will probably be approved. Borrower’s need not have as high a credit rating as is usually demanded by other institutions.

Several factors go into your credit score, such as timeliness and the overall amount of credit the consumer has borrowed relative to their income. However, for a personal loan that is not secured by collateral, it is hard to overestimate how important your credit score will be in getting the loan.

Consumer finance companies can be found in the Yellow Pages or on the Web. In addition, they often advertise in the local Pennysaver or Free want ad papers. Although a loan from a consumer finance company may be faster than the bank, you should still think in terms of weeks, not days.

Risk vs Reward

Some consumer finance companies have a better handle on the art of lending smaller amounts ($5000 – $10,000) to consumers then do other financial institutions. Not only are they able to make small cash loans to consumers, they are often more willing to do so. These companies have been serving this market since the early years of the last century. They have a lot of experience and are more willing than the banks to overlook problems with your personal financial situation.

For example, consumer finance companies may except credit histories that have a few bangs and dents. They will also generally be willing to look at credit scores and credit histories that are less than perfect.

Imagine that all loans are a Teeter Trotter, with risk on one hand and reward on the other. The more risk the lender takes, the more reward (APR) the lender is going to want in return. These institutions exist somewhere between pawn shops and banks because they are willing to take more risk than banks, but not as much as pawn shops. Consumer finance companies will reject applicants who post a greater risk. Pawn shops will generally loan out to anybody, so long as the property is not stolen.

This willingness to take risks comes at a price to the borrower. I’ve created these bullet points of lowest interest rate loans being #1 and growing;

• loan from family member
• life insurance loans
• credit unions
• banks
• consumer finance companies
• credit card advances
• pawn shops
• car title loans
• and of course…..drum roll please – loan sharks!

No Income/Asset Loans

Anyone who needs quick cash and has real estate or assets to put up as collateral can employ this kind of loan. The so-called no income/ asset loan is the kind of loan some self-employed people end up using.

If you are self-employed and you don’t have a perfectly stable source of steady income, it can be difficult to persuade a bank or other conventional mortgage lender to lend you money. This goes for small loans such as $2500, $5,000 or $10,000 as well.

This is where a no income/asset loan comes in to play. This loan essentially looks for things that a person in that category might have available, such as good credit and collateral in the form of real estate and cash flow doesn’t figure into the loan – instead the loan is driven by the two other factors.

The lending institution is using the credit score to reassure itself that based on the past history of paying bills, the person has both the money and the inclination to pay off the loan. Secondly, this is a mortgage. That means the lending institution now has a security interest in the house and may foreclose on it if the borrower defaults.

As with all loans, there are advantages and disadvantages to this loan. On the advantage side, it is cash and it is fast with little paperwork for a real estate mortgage as is possible. However, there are also significant drawbacks relative to conventional mortgages. First of all, you can expect to pay a much higher interest rate for the money.

Because this is a riskier loan for the lender, it will cost more and have a higher interest rate. Secondly, these mortgages are often adjustable rate mortgages. This means the rate of interest is not fixed and may go up.

Lastly, these are often balloon mortgages. That means that the payment balloon’s up and becomes due and payable. As a practical matter this means that the borrow could be forced to refinance the loan at a much higher interest rate.