Supplying banking customers with loans is not unusual in many New Jersey banking and financial institutions. However, there are always numerous details to consider when it comes to determining what type of loan a bank should provide to a particular customer, if the entity should provide one at all. Often, one of the most important factors to consider with a personal loan is whether it should be secured or unsecured.
Secured loans are typically the preferred method of lending money because it offers the bank more protection. In the event that a person defaults on the loan, there is some type of collateral that the bank could seize to cover the remainder of the balance. This type of loan could also offer benefits to a customer who may not have the best credit history and would likely not qualify for an unsecured loan.
Of course, even if an unsecured loan is applicable, lenders still need to take measures to protect themselves in association with the loan, which could be done in the following ways:
- Applying a higher interest rate
- Applying higher penalty rates
- Ensuring that an applicant has a solid credit score and prior credit history
When issuing either type of personal loan, New Jersey banking institutions can also help protect themselves by using the right terms in their loan agreement. This agreement could detail what is expected of the borrower and what will happen in the event that the borrower falls behind on payments or defaults. It is necessary that these agreements are drawn up in a legally binding way and that they comply with state laws, which is why most financial institutions work with experienced legal professionals when dealing with these matters.