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Message
Why does the reason for a loan determine the APR?
Posted on 8/3/22 at 10:27 am
Posted on 8/3/22 at 10:27 am
I’ve gotten a personal loan to buy a used boat before and I put that on the application and no questions were asked. They just deposited the money into my account. Now I want to get a debt consolidation loan. I noticed the APR is higher than it used to be, but obviously still lower than paying a CC’s APR. I changed the reason from debt consolidation to a used auto loan from a dealer and the APR went lower. I’m sure this is fraud, but why the difference if they don’t actually check on anything?
6
Posted on 8/3/22 at 10:29 am to dualed
quote:
Why does the reason for a loan determine the APR?
Because if you don't pay they can come take your shite. A boat generally becomes worth less and less. A house generally becomes worth more and more. Therefore the lender has less risk so they'll give you the money for cheaper.
Posted on 8/3/22 at 10:33 am to Mingo Was His NameO
quote:
Because if you don't pay they can come take your shite. A boat generally becomes worth less and less. A house generally becomes worth more and more. Therefore the lender has less risk so they'll give you the money for cheaper.
Weird use of "becomes" but generally speaking, this is one of the smartest things you've ever said on this site.
Posted on 8/3/22 at 10:41 am to dualed
quote:
why the difference if they don’t actually check on anything?
If you're getting the loan for property, they're going to be a lienholder and have the deed or title until you pay it off. If you just say "debt consolidation" there's nothing for them to hold as collateral so it's riskier for them. I'm not sure how you could say it's for something else (like if property were to be involved) without them knowing. I did a personal loan to renovate my bathroom in 2017. I told them it was for "home improvement" and in order to secure the loan, I had to put a vehicle up as collateral. I was charged 4% interest on it because I had collateral but if I didn't put anything up as collateral, it was going to be over 9% I believe. This was through a credit union.
This post was edited on 8/3/22 at 10:44 am
Posted on 8/3/22 at 11:46 am to TDsngumbo
Also, debt consolidation loan doesn't remove the ability to still run up the old credit card debt. So basically it's new borrowing, unsecured.
Which is more of a reason for a higher APR.
Which is more of a reason for a higher APR.
Posted on 8/3/22 at 12:20 pm to dualed
unsecured = risky, no options to recoup cost with collateral
secured = less risky because of collateral
risky = higher rate
less risky = lower rate
yes, these are broad generalizations
secured = less risky because of collateral
risky = higher rate
less risky = lower rate
yes, these are broad generalizations
Posted on 8/3/22 at 12:21 pm to dualed
If you get in a bind and have to miss a payment it's going to be the boat payment you miss vs the car or house.
Posted on 8/3/22 at 12:25 pm to dualed
"I need temporary debt to buy something" >>>>>>>>> "I need more debt to use to pay off other debt".
If you default on the former, they can (ideally) repossess the thing you bought and recoup at least some of their money from selling it off. If you default on the latter, that's going to be tougher to get any sort of reimbursement from you.
It's about how they view risk based on what the loan is for.
If you default on the former, they can (ideally) repossess the thing you bought and recoup at least some of their money from selling it off. If you default on the latter, that's going to be tougher to get any sort of reimbursement from you.
It's about how they view risk based on what the loan is for.
Posted on 8/3/22 at 3:21 pm to Penn
quote:
unsecured = risky, no options to recoup cost with collateral
secured = less risky because of collateral
risky = higher rate
less risky = lower rate
Exactly. I have no idea why the OP thinks this is fraudulent. He doesn’t understand that the personal loan is unsecured and the auto loan is secured by the automobile title?
Posted on 8/3/22 at 3:38 pm to Jag_Warrior
quote:
I have no idea why the OP thinks this is fraudulent.
OP was suggesting that he just simply tell them it's an auto loan not a debt consolidation loan and just using the funds to consolidate debt instead. That would be fraud, but probably impossible since they would require the title.
Posted on 8/3/22 at 3:42 pm to dualed
Are you asking why secured loans have lower interest rates than unsecured loans?
Posted on 8/3/22 at 4:05 pm to TDsngumbo
Oh! Thanks for clarifying.
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