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Consumer Protection Law

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Personal Loans

Key Takeaways:

  • A personal loan is a way to borrow money to cover expenses when you don't have money available to pay the expense.
  • A personal loan can be secured or unsecured.
  • You could face delinquency, default, repossession, or a lawsuit if you don't pay back a personal loan.

When you’re facing a large or unexpected expense, and you don’t have the savings to cover it, a personal loan could help you. Borrowing through a personal loan can be comparatively easy. A loan with the right repayment plan can help you safely address your financial needs.

But personal loans, like any monetary dealings, can have their own issues and complications. Knowing some of the biggest pitfalls for personal loans can help you stay protected and keep your financial health on track. If you get into trouble with paying back a personal loan, talk to an attorney near you.

What Types of Loans Are Available?

There are many types of loans you can use to get money. Each loan has its advantages and disadvantages. The following are some of the different loans you can get:

  • Payday loans can have a high interest rate.
  • A home mortgage lets you buy a home for your family.
  • A credit card lets you borrow up to a limit, pay it back, then borrow again.
  • Consumer loans are unsecured loans you can use to buy goods and services.
  • A home equity loan uses your house as collateral. It often has a lower interest rate but puts your house at risk if you can’t repay it.
  • You can get an auto loan to buy a car.
  • A student loan lets you pay for your education.

What Is a Personal Loan?

A personal loan is a fairly versatile way to borrow money. Unlike other loans used for a narrow purpose, personal loans give you more freedom to use the money as you’d like. They can be a great way to help you cover sudden emergency expenses, like renovations for a flooded basement, or to fund major life events like weddings or child adoptions. A debt consolidation loan can help you combine loans and help you save money on interest.

How much money you can get and the terms of your loan are subject to several factors, like which bank you use and your creditworthiness. Your lender will use your credit score from a credit reporting agency to decide if you’re creditworthy. It’s a good idea to check your credit history before you apply for a loan.

There may be minimum or maximum amounts you can borrow. You’ll also have interest rates and monthly payments that apply to your account. Some personal loans are secured, meaning you provide collateral. Others are unsecured, meaning you don’t have to put up any collateral or liens (though you may face stricter loan terms as a result).

Though personal loans can have many benefits, they’re not risk-free. Depending on your lender, there can be stiff penalties for any mistakes you make with your loan.

Delinquency

A personal loan includes a legal contract stating when, how, and the amount you’ll pay toward the cost of the loan each month. If you fail to follow the agreement in your loan contract and begin to miss consecutive payments, you’ll likely become delinquent. A delinquency may be added to your credit report, lowering your score and affecting your ability to secure loans or loans with good interest rates in the future.

Default

If you’ve been in delinquency for too long without making efforts to pay off your debt, you may end up defaulting on your loan. This would mean that your lender believes you will never repay your loan, so they will likely close your account and “sell” your debt to a collection agency. That agency will then begin trying to collect from you.

A default is a serious mark on your credit score that could affect your ability to borrow again for years to come, impacting everything from credit cards to mortgages.

Repossession

If you default on a secured loan, your creditor can repossess the collateral you put up. So if you used your car as collateral on a personal loan, but you default, your creditor can repossess your vehicle and sell it to try and make up for the money you owe.

Lawsuits

Once you’re dealing with a debt collector, you open yourself up to additional legal complications over your loan. You could be sued in civil court for the amount you owe. If you lose, the court will compel you to pay the loan back, possibly even garnishing your wages to do so.

What Are Consumer Protection Laws?

Consumer protection laws are federal and state laws. They protect you from fraudulent business practices and defective products. The Federal Trade Commission (FTC) is the main government agency that enforces consumer protection laws.

Three laws primarily deal with loans. The Fair Credit Reporting Act (FCRA) regulates the collection of your credit information. It limits who can access your credit report. It also lets you access your credit report and correct inaccurate information. The U.S.’s three main credit reporting agencies are Equifax, Experian, and Transunion. You can contact them for a copy of your credit report.

The Fair Debt Collection Practices Act (FDCPA) makes it illegal for debt collectors to harass you to collect a debt. For example, the debt collector can’t contact you a certain times. The Consumer Credit Protection Act (CCPA) requires lenders to disclose the total cost of a loan. That disclosure includes how the creditor calculates interest.

How To Protect Yourself

The best way to protect yourself from a personal loan’s negative effects is to understand your loan’s terms. You’ll need to know how much you must pay back and when. You also must understand the consequences of missed payments.

If something does start to go wrong and you’re struggling to keep up with the payments, working with a consumer protection attorney can help you make plans to prevent you from defaulting on your loan. A skilled lawyer could help you negotiate down your payments or help you defer the payments for a time. If you’ve already defaulted, working with an experienced legal professional can help you build your case and fight in court against a lawsuit.

One of the most important things when dealing with loans is mindfulness about the amount, avoiding taking out more money than you can reasonably pay back, or with monthly payments too high for you to make on time each month.

If you need help, talk to a consumer protection attorney near you about your legal rights and options.

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