Doron F. Eghbali Banking Law Blog on Lawyers.com

As we all know, the credit market has not fully recovered from the collapse of Lehman Brothers and Bear Stearns. This means banks are still unwilling to make unsecured personal loans. For instance, Wells Fargo to give a unsecured personal loan requires prime credit and an existing credit in the form of a savings account or CD with the bank. In fact, if the applicant has been out of work for some time, getting the loan is very hard. The reason is big banks by extending a personal unsecured credit take too much risk for little return.

However, hope is not lost. In this market, you might be able to get a personal loan. The following provides you with some insight into the potential places to turn to and where you should seriously avoid applying for loan.

YOUR COMMUNITY BANK

Even as credit has dried up for small businesses and investors at big banks, thankfully, the business more or less has not been affected at most community banks.

When applying for a loan expect:

• Sitting face to face with the banker to take the application;
• Discussing your income, sources of repayment, amount of debt, the purpose of the loan;
• Requiring an existing relationship with the bank;
• Having an income is mandatory; and
• Varying rates from 5%-12%.

PEER-TO-PEER LENDERS

Peer-to-peer (p2p) lending websites such as Prosper.com or LendingClub.com allows consumers to be both lenders and borrowers.

This is how, generally, the lending sites work:

• Every borrower includes with the request a personal profile detailing the purpose of their loan, how they plan to use it and repay it.
• Rates vary depending on the borrower's credit rating. At Prosper.com, rates are between 8.65% to 25.6%, at LendingClub.com rates vary between 7.05% to 21.21%.

AVOID PAYDAY LOANS

Seriously avoid payday loans. They lend you money with $50 upfront fees for a loan of $300-$500 that must be repaid within two weeks. Most consumers applying for these loans have
difficulty repaying the loan when it comes due. The result is that they have to pay the $50 fee probably four or five times. This means on a $300 loan, in two months they have paid the preposterous $200 interest. In fact, Center for Responsible Lending (CRL) found that the fees consumers pay to carry these loans equal an average annual percentage rate, or APR, of 400%. 

AVOID ADVANCE FEE PAY SCAMS

Be wary of online scammers. These scammers usually give you hope you are approved on one condition that you send a "credit insurance fee" or pay the first three payments in advance before receiving the loan.