Unsecured personal loans have received plenty of negative press for locking low-income borrowers into payments they can't afford at high interest rates. However, this type of loan is regaining its respectability, according to The Wall Street Journal. More financial institutions and lenders are offering personal loans with favorable terms to consumers who are unlikely to default, based on their credit scores and income information.
Many lenders are publicizing unsecured personal loans as a way to pay down credit card debt at lower interest rates than the card would allow. For those who can afford to use this strategy, it can be a fruitful one. The savings lower interest represents are is often significant, especially if the consumer can find an unsecured personal loan with very low interest and no origination fees. With good enough credit, it is possible to find loans of this type.
The Journal noted paying off a credit card with a $10,000 balance at an interest rate of 11.82 percent over three years would cost $1,936. By contrast, if the same borrower could find a personal loan for that amount at 6.77 percent, he or she would spend only $1,075. These interest rates are also usually fixed, as opposed to credit card rates, which lends security and stability to the borrower's budget in paying off credit card debt.
Of course, unsecured personal loans aren't just for paying off credit cards. Consumers use them to buy cars, fund home improvement projects, pay for weddings and much more. Credit unions that do not currently emphasize unsecured personal loan products may be missing out on the rise in popularity these loans are experiencing.