YOUR MONEY-New unsecured loans beckon, but should you bite?

Reuters

By Mitch Lipka

Oct 28 (Reuters) - Late last summer, Jeff Whiting was goingback and forth with his credit union about whose name shouldappear on the title of the GMC Yukon he was trying to finance.So the 35-year-old Austin, Texas, attorney went in a differentdirection, taking a $45,000 unsecured loan from an online lenderinstead.

The loan he got in late August - from private lendingcompany LightStream - allowed him to avoid having a lien on thevehicle and also allowed him to sidestep the credit union'svoluminous paperwork and opinions about whether his wife shouldbe on the title. But his interest rate - 2.19 percent - wasabout the same as he would have received for a traditional carloan.

LightStream, the online lending division of SunTrust BanksInc., is taking aim at a niche space: Low interest unsecuredloans for highly qualified customers. It's all part of a broaderbank industry plan to woo and keep so-called mass affluentcustomers, and to avoid losing marketshare to new peer-to-peerlending sites that cut out banks altogether, says Greg McBride,senior financial analyst for Bankrate.com.

Niche loans like these "are sparsely available," McBridesaid. Credit unions tend to offer small, unsecured loans but atrates far higher than collateral-backed loans.

Larger banks like Citibank and TD Bank have always offeredpersonal loans, but they tend to have higher rates. For example,the average unsecured loan from credit unions is about $2,600,at an average four-year interest rate of about 10 percent, saysPaul Gentile, vice president of the Credit Union NationalAssociation, an industry trade group.

At TD Bank, which offers unsecured home improvement loans ofup to $50,000, interest rates posted on the bank's website rangefrom 6.63 percent to 9.2 percent for those seeking less than$10,000. Citi's website says the bank offers a personal loan ofup to $50,000 at rates from 6.74 percent to 19.49 percent.

SunTrust Banks Inc. quietly began offering its unsecured"AnythingLoan" of 10,000-$100,000 through LightStream.comearlier this year. To get one of these loans, the customer hasto have a good credit score (the average is in the high 700s)and sufficient assets and income to reassure LightStream thatrepayment won't be a stretch, says Gary Miller, the SunTrustsenior vice president who runs LightStream.

The customer must disclose the loan's purpose, and then thebank sets the interest rate based on the purpose of the loan. Acar loan, for instance, starts at 1.99 percent and tops out at3.59 percent (if the loan is extended to six years)for thosewith solid credit scores.

Home improvement loan rates from the site range from 4.99percent for three years to 7.24 percent for those borrowing lessthan $50,000 and repaying in seven years. (Nationwide, theaverage rate for a $30,000 home equity loan is 6.09 percent,according to Bankrate.com).

SOMETIMES, A LIEN IS BEST

There are pros and cons to taking an unsecured loan,especially for homeowners.

Those who don't have enough home equity to qualify for asecond mortgage or home equity line of credit could get anunsecured loan based on their credit score and their assets.Financing could be available for 100 percent of a project ratherthan limiting the total loan amount to a percentage of theproperty's value. Borrowers wouldn't be risking their propertyif they failed to repay the loan.

But the interest on an unsecured loan would not qualify as tax deductible, as it would be on traditional home improvementloan, McBride says.

CONVENIENCE COUNTS, BUT NOT A LOT

Interest rates and terms should be more important toconsumers than whether or not a loan is secured. But unsecuredloans may pull in people who care more about convenience andpaperwork avoidance.

Most consumers will find better terms via a secured loan,says Anisha Sekar, vice president of credit and debt at thepersonal finance site NerdWallet.com. "If you're sure you canpay off your debt, you're far better off using a home equityline of credit or other secured loan."

If the loan is for a short period of time, she suggestsconsidering a zero-percent credit card offer, which could runfor up to 18 months before the standard interest rate kicks in.(Most of those offers do have balance transfer fees typicallyaround 3 percent.) Credit cards, of course, are unsecured.

Editing by Linda Stern and Dan Grebler)

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