Can someone please tell me what lenders mean when they ask for insurance for non collateral loans?

Question

I have been asking questions and many of these lenders ask for insurance fees up front? Is this supposed to happen? I really need to know.

Answer 1

You did NOT specify what kind of LOAN you are seeking from lenders...and no, I'm not a lender nor do I sell insurance, rather my background BS Finance and experience involving has involved getting various types of loans & insurances from mortgage to home equity loans, automobile loans, lines of credit, whole life & term insurance, health insurance, umbrella liability insurance etc.

Basically you need to understand that ANY FINANCIAL INSTITUTION or even individual(s) loaning money determines the interest rate and whether they will proceed based on the applicant's risk and ability to repay both the principal $$ dollars borrowed as well as accumulated interest.

COLLATERAL refers to something of $$value that is tied or associated directly to that loan or money that is being lent to you. Why banks or financial institutions care is bec if they cannot put their firm's name on the legal document title filed in the court house collectiung taxes etc, in the event you were to default on your loan and not pay for some reason or other, they must prove to the courts that they have a financial interest in order to send a collector or to repossess that particular asset. Also it also involves where the stand in line and their pecking order if you were to file bankruptcy and who would be first, 2nd, 3rd and so forth in line to whatever funds pr assets you might have in your name or in your bank accounts, etc

You did not say why you need to borrow the money but most lending sources on noncollateral loans often will attempt to get you to have a cosignor, who would equally be responsible if you skipped town. I would imagine if you're a HIGH RISK that they would charge you a high interest rate that might be out of sight...but I agree like others that the fact they are claiming or telling you need to purchase insurance that it's there way to entrap you into signing something stupid because yo might be desperate since legitimate financial institutions and lending sources never ask for fees up front unless it's for 3rd party appraisals since most lenders have on-line access to your credit history almost instanteously once you sign the required consent form.

Answer 2

Insurance for loans is a RIP OFF. You pay higher rates than any other form of insurance and only the lender is protected. Tell them you refuse the insurance. If they won't give you the loan without insurance, they are running a scam. If the loan had collateral, they could legitimately require you to insure the collateral, but they can't force you to used their insurance provider.

Answer 3

Unfortunately, the Internet is overrun with scam artists offering people loans. You should assume that anyone offering you a loan is a scam artist until proven otherwise. Remember that real lenders never ask for an advance fee for insurance or any other reason. Any fees they require are added to the loan amount, you never pay for them upfront. If you pay an advance fee, they will take your money and run. Never give personal information to someone who may be an identity thief.

See this link about scam artists:


http://www.ftc.gov/bcp/conline/pubs/tmarkg/loans.shtm

Answer 4

Maybe having a Insurance policy to cover the loan if you can't make it. If you had collateral, Like putting your house or your car on the line for a loan then they could take your house or your car. it's so they get paid.