1.99% Unsecured "AnythingLoan" READ UPDATE 9-10-14

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
User avatar
Topic Author
Meg77
Posts: 2701
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

1.99% Unsecured "AnythingLoan" READ UPDATE 9-10-14

Post by Meg77 »

My husband recently bought a new car, and in searching for financing options online he came upon Lightstream, which is a division of Suntrust Bank. https://www.lightstream.com/ They advertise a 5 year fixed 1.99% loan for auto financing, but upon further review it turns out that their loans are actually totally unsecured. Although you state a loan purpose, they do not take anything as collateral. Indeed, after he applied, they never even asked to see a contract, inquired about the VIN number, or anything else.

He ended up actually getting another car loan at 2.15%, and we are using his 1.99% "anything loan" to max out his ESPP by the end of the year (which pays a 15% bonus and allows the sale of shares after holding for just one quarter). Excess is going into a checking account that earns 2% for now. Yes, the interest is taxable, but the spread between the interest earned after tax and interest paid on the loan is minimal. Basically we are borrowing "for free." Once the ESPP is maxed and we start rolling out of the shares, we will see how to use the cash - maybe we just pay off the lightstream loan early, or maybe we pay down his 2.75% floating rate student loan, or maybe some other option comes up. If I were to take out one of these loans too, we'd have enough to totally refinance his student loan - of course we'd have to be prepared to pay it off over a 5 year am, which we aren't sure about yet, but we just may go that route.

Of course if you actually have a car or RV loan or even a student loan it may be worth checking this loan out too. He got approved and got the cash transferred to his checking account within 12 business hours (they do look a little more closely at your finances than many underwriters; for instance they wanted to know all about how much we put down on our recent home purchase).

UPDATE - Over three weeks after closing and funding our loan, my husband received a letter saying he was randomly selected for a loan use verification audit. They want to see the sales contract from his auto purchase to verify that's what we used the loan for. I don't know how often they do these audits or how random they really are, but BEWARE of this possibility if you are thinking about getting this loan and using it for anything other than what you're stating you want it for.

If we can't or don't provide that verification, the kindly worded letter says they "might" exercise the options available to them per the terms of the loan agreement (which amount to calling the note due). Of course that contract would show that we used another auto loan for the purchase. Luckily we still have the extra cash sitting in checking, so we are just going to repay the loan to avoid having to talk with them and risk the loan being thrown into default. Even if they wanted to, I doubt anybody we'd get on the phone has the authority to waive the use of funds clause and just let us keep the loan without providing the verification. Usually it's the compliance department managing this type of thing, not any lenders or credit approvers who may be willing or able to evaluate on a case by case basis.
Last edited by Meg77 on Wed Sep 10, 2014 3:35 pm, edited 1 time in total.
"An investment in knowledge pays the best interest." - Benjamin Franklin
livesoft
Posts: 76592
Joined: Thu Mar 01, 2007 8:00 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by livesoft »

So why not borrow from a 401(k) to do the same thing? Any interest paid on the 401(k) loan goes into your own pocket. There is usually a setup fee and small quarterly fee that goes to servicing the loan, but it is cheaper that what you did for something that is a sure thing.
Wiki This signature message sponsored by sscritic: Learn to fish.
CaptainSegfault
Posts: 9
Joined: Mon Jun 16, 2014 1:37 am

Re: 1.99% Unsecured "AnythingLoan"

Post by CaptainSegfault »

livesoft wrote:So why not borrow from a 401(k) to do the same thing? Any interest paid on the 401(k) loan goes into your own pocket. There is usually a setup fee and small quarterly fee that goes to servicing the loan, but it is cheaper that what you did for something that is a sure thing.
How about the fact you need to repay a 401(k) loan immediately-ish (or pay penalties on a withdrawal) if you lose/leave your job?
furwut
Posts: 1762
Joined: Tue Jun 05, 2012 8:54 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by furwut »

Although you state a loan purpose, they do not take anything as collateral. Indeed, after he applied, they never even asked to see a contract, inquired about the VIN number, or anything else.
I can't imagine a bank running such a loose loan process - signs of a bubble?????

Anyway, I tested out the web site and the rates differ remarkably depending on the stated purpose. Is it fraud if one obtains a loan using false information (e.g., stated purpose is new car loan actual use of money - invest in stock market)?

P.S. - One has to give a credit card number. Ostensibly this is for the purpose of determining credit worthiness. But I wonder if somewhere, in the tiniest tiny print, there isn't a clause that allows the lender to immediately charge the unpaid balance (with suitably massive fees) to the card if the loan goes into default.
playtothebeat
Posts: 454
Joined: Thu Jan 24, 2013 12:39 pm
Location: southern california

Re: 1.99% Unsecured "AnythingLoan"

Post by playtothebeat »

This is really interesting, and definitely makes you wonder whether we're headed for another bubble. As someone who works in finance, I always get a kick out of this stuff.

I'm still grandfathered into a 6.99% credit card, which is just like an unsecured personal loan from Discover, Wells Fargo, etc. However, the minimum payment is much lower than a fixed 60 or 72 month payment, so that's nice to have for flexibility..
User avatar
Tozmo
Posts: 94
Joined: Sun Dec 08, 2013 10:12 am
Location: Antarctica

Re: 1.99% Unsecured "AnythingLoan"

Post by Tozmo »

Playing around with this, it only gives the 1.99 if you choose the new auto loan.

Would be interested if we get more validation that once the money is issued it could be used loosely
User avatar
Tozmo
Posts: 94
Joined: Sun Dec 08, 2013 10:12 am
Location: Antarctica

Re: 1.99% Unsecured "AnythingLoan"

Post by Tozmo »

Meg, would you mind stating how much (or a range) of how much loan you guys took out without having any collateral?
Grt2bOutdoors
Posts: 23782
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 1.99% Unsecured "AnythingLoan"

Post by Grt2bOutdoors »

What's the difference between an unsecured loan and a secured loan?
A secured loan means the lender has a perfected security interest in the collateral, in the event of non-payment or default, the lender will seize and sell the collateral to pay off the debt.

An unsecured loan is still a loan but with no perfected security interest. Don't be mistaken that if you default the lender will not come after you, they will and usually that is in a court of law where they will show evidence of your assets and credit rating at the time of default. If the court agrees, the lender can attach a lien on assets unprotected by the law and force a repossession or sale of those assets to satisfy the debt. There are attorneys available nationwide who specialize and pursue these types of cases. In other words, the lender isn't playing "fast and loose", and the borrower is technically stating the true purpose of the loan at the time of borrowing, using the funds for purposes other than attested to is "fraud".

The lender isn't taking that much of a risk given the amounts borrowed and repayment terms selected, capital is very cheap when deposits are paying at rates ranging from 0-1% and they are lending out at least double the margin. At worst, the lender can repackage these loans in the form of securities and sell them in the open market, there is an appetite for "yield".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
22doubledeuce22
Posts: 65
Joined: Thu Sep 04, 2014 5:32 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by 22doubledeuce22 »

I got excited on this promo, but after chatting with the rep - they were pretty rigid in terms and flexibility. The best I could find was a 2.19% on a classic car. I asked if I could borrow against my free and clear classic car and they said no. The laugher of them all is that they want to lend on timeshares...

Looks a bit too good to be true. A local, Missouri bank just finished a 2.49% for 3 years unsecured deal. I restructured some of my debt service with that.
placeholder
Posts: 4713
Joined: Tue Aug 06, 2013 12:43 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by placeholder »

CaptainSegfault wrote:How about the fact you need to repay a 401(k) loan immediately-ish (or pay penalties on a withdrawal) if you lose/leave your job?
No legal requirement for that and indeed some plans don't.
placeholder
Posts: 4713
Joined: Tue Aug 06, 2013 12:43 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by placeholder »

Grt2bOutdoors wrote:Don't be mistaken that if you default the lender will not come after you, they will and usually that is in a court of law where they will show evidence of your assets and credit rating at the time of default. If the court agrees, the lender can attach a lien on assets unprotected by the law and force a repossession or sale of those assets to satisfy the debt.
But there's a huge difference between that and them towing your car whenever they want not to mention that court might not attach any assets but only allow them a salary garnishment and a lot of the time the lender just won't bother so they write it off and sell it to a bad debt company.
Grt2bOutdoors
Posts: 23782
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 1.99% Unsecured "AnythingLoan"

Post by Grt2bOutdoors »

placeholder wrote:
Grt2bOutdoors wrote:Don't be mistaken that if you default the lender will not come after you, they will and usually that is in a court of law where they will show evidence of your assets and credit rating at the time of default. If the court agrees, the lender can attach a lien on assets unprotected by the law and force a repossession or sale of those assets to satisfy the debt.
But there's a huge difference between that and them towing your car whenever they want not to mention that court might not attach any assets but only allow them a salary garnishment and a lot of the time the lender just won't bother so they write it off and sell it to a bad debt company.
Tow? That's not the Boglehead or Lightstream way of LBYM! Nahh....up here they just slap a nice iron boot on your front tire, now that's cheap. :twisted:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Prf2009a
Posts: 6
Joined: Thu Sep 20, 2012 3:06 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by Prf2009a »

This was so easy it is scary... Got a $10K loan on a car refinance at 2.29%. Bank will be funded on Monday.

A rep called me 5 minutes after filling out the application. I told him I had a loan with a family member on a car purchased 3 years ago. (This was all true except for the fact that we paid the family member in full within 6 months.) He had no other questions about the vehicle. Didn't even ask for the make or model.

Wife and I are tackling $150K in student loan debt at 6.5% so every little bit of help is needed to knock down interest paid.

Thanks for the heads up on this.
User avatar
Tozmo
Posts: 94
Joined: Sun Dec 08, 2013 10:12 am
Location: Antarctica

Re: 1.99% Unsecured "AnythingLoan"

Post by Tozmo »

What does this do to ones credit score if one or serial loans (one after another) are taken out?
ERISA Stone
Posts: 1626
Joined: Tue Jun 24, 2014 8:54 am

Re: 1.99% Unsecured "AnythingLoan"

Post by ERISA Stone »

placeholder wrote:
CaptainSegfault wrote:How about the fact you need to repay a 401(k) loan immediately-ish (or pay penalties on a withdrawal) if you lose/leave your job?
No legal requirement for that and indeed some plans don't.
Can you elaborate? Some plans (albeit VERY few) allow you to make payments after you have terminated employment. However, most require full payment of the loan within 60 days of termination or the remaining balance is deemed to be distributed and is taxable.
TIAX
Posts: 1416
Joined: Sat Jan 11, 2014 12:19 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by TIAX »

Prf2009a wrote: A rep called me 5 minutes after filling out the application. I told him I had a loan with a family member on a car purchased 3 years ago. (This was all true except for the fact that we paid the family member in full within 6 months.)
Making misrepresentations to get a loan is probably not the best idea legally. Did you put that in writing?
Prf2009a
Posts: 6
Joined: Thu Sep 20, 2012 3:06 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by Prf2009a »

TIAX wrote:
Prf2009a wrote: A rep called me 5 minutes after filling out the application. I told him I had a loan with a family member on a car purchased 3 years ago. (This was all true except for the fact that we paid the family member in full within 6 months.)
Making misrepresentations to get a loan is probably not the best idea legally. Did you put that in writing?

No misrepresentation. I told the rep we had paid the family vehicle loan off by forgoing other debt repayments as I did not feel comfortable taking loans from family members. (This was all true) He asked if the loan was in writing. I told the rep it was not and there were no other questions from him. Sorry for the confusion. I guess my misrepresentation was that I didn't tell him we accelerated the repayment compared to what our agreed upon terms were. However, he never asked what the terms of the loan were either.

Appreciate the input though.
furwut
Posts: 1762
Joined: Tue Jun 05, 2012 8:54 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by furwut »

@Prf2009a

In the loan documentation/contract is there anything about how a default is handled? In particular I'm wondering if they have the ability to charge your credit card for a missed payment? It's curious that their online process asks for a credit card number rather than a social security number for "purposes of a credit check only".

I've never seen credit checks done off a credit card number elsewhere (though, admittedly, being a good Bogelhead I've never applied for many loans. Cash is king). I worked for a major online insurer and we always social (where state law allows) to get credit worthiness which was then used as a factor in rating.
Lincoln
Posts: 58
Joined: Sun Mar 02, 2008 9:51 pm
Contact:

Re: 1.99% Unsecured "AnythingLoan"

Post by Lincoln »

Just wanted to chime in that I also got one of these loans from LightStream. I paid for my vehicle in cash and then took out the loan for liquidity, because I figured I could just pay it off if there was any hidden surprises. I did it all online and did not speak with anyone. The loan was for purchase of a used vehicle and I got 1.99% for 60 months. It is true that it is completely unsecured. I'm not sure what all the requirements are but I tried some different scenarios and was able to keep those terms in excess of $50k (although I didn't take that amount out!). When doing research before completing the loan it sounded like most negative reviews were about people not qualifying for the loans. We have excellent credit and high income, so I think the requirements are tight. Just my experience, it does seems too good to be true, but so far, so good...
http://www.whitecollarwealth.com/
FreemanB
Posts: 344
Joined: Thu May 22, 2014 5:55 am

Re: 1.99% Unsecured "AnythingLoan"

Post by FreemanB »

ERISA Stone wrote:
placeholder wrote:
CaptainSegfault wrote:How about the fact you need to repay a 401(k) loan immediately-ish (or pay penalties on a withdrawal) if you lose/leave your job?
No legal requirement for that and indeed some plans don't.
Can you elaborate? Some plans (albeit VERY few) allow you to make payments after you have terminated employment. However, most require full payment of the loan within 60 days of termination or the remaining balance is deemed to be distributed and is taxable.
What is to elaborate? There is no legal requirement that forces you to pay back a 401(k) loan if your employment is terminated. Most plans do require it as part of their terms and conditions of the loan, but that's a contractual requirement, not a legal one. The IRS rules specify under what conditions a loan must be deemed a distribution(And subject to penalties), but continued employment isn't one of them.
ERISA Stone
Posts: 1626
Joined: Tue Jun 24, 2014 8:54 am

Re: 1.99% Unsecured "AnythingLoan"

Post by ERISA Stone »

FreemanB wrote:
ERISA Stone wrote:
placeholder wrote:
CaptainSegfault wrote:How about the fact you need to repay a 401(k) loan immediately-ish (or pay penalties on a withdrawal) if you lose/leave your job?
No legal requirement for that and indeed some plans don't.
Can you elaborate? Some plans (albeit VERY few) allow you to make payments after you have terminated employment. However, most require full payment of the loan within 60 days of termination or the remaining balance is deemed to be distributed and is taxable.
What is to elaborate? There is no legal requirement that forces you to pay back a 401(k) loan if your employment is terminated. Most plans do require it as part of their terms and conditions of the loan, but that's a contractual requirement, not a legal one. The IRS rules specify under what conditions a loan must be deemed a distribution(And subject to penalties), but continued employment isn't one of them.
So the first comment was correct. You either have to pay it back or pay penalties on a withdrawal (and caveat with "unless you meet an exception"). I suppose the 2nd comment was just reinforcing that? It sounds like there's a disagreement to me.
an_asker
Posts: 3297
Joined: Thu Jun 27, 2013 2:15 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by an_asker »

ERISA Stone wrote:
FreemanB wrote:
ERISA Stone wrote:
placeholder wrote:
CaptainSegfault wrote:How about the fact you need to repay a 401(k) loan immediately-ish (or pay penalties on a withdrawal) if you lose/leave your job?
No legal requirement for that and indeed some plans don't.
Can you elaborate? Some plans (albeit VERY few) allow you to make payments after you have terminated employment. However, most require full payment of the loan within 60 days of termination or the remaining balance is deemed to be distributed and is taxable.
What is to elaborate? There is no legal requirement that forces you to pay back a 401(k) loan if your employment is terminated. Most plans do require it as part of their terms and conditions of the loan, but that's a contractual requirement, not a legal one. The IRS rules specify under what conditions a loan must be deemed a distribution(And subject to penalties), but continued employment isn't one of them.
So the first comment was correct. You either have to pay it back or pay penalties on a withdrawal (and caveat with "unless you meet an exception"). I suppose the 2nd comment was just reinforcing that? It sounds like there's a disagreement to me.
Looks like you are both right.

a) No one is forced to pay back the loan.
b) IRS does not care.
c) If loan is not paid back within certain time, you will be docked with taxes, yada yada yada.
d) I thought contractual requirements are legal requirements as well.
User avatar
Toons
Posts: 14057
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: 1.99% Unsecured "AnythingLoan"

Post by Toons »

Pay Cash :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Prf2009a
Posts: 6
Joined: Thu Sep 20, 2012 3:06 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by Prf2009a »

@ furwut

I read through the fine print specifically looking for any mention of charging the credit card on file in result of default and saw no mention of it. The default language seems to be pretty standard compared to other loans I have had in the past.

I cannot explain why they needed the credit card # however. I also thought it was odd being that I have never experienced that. Since the language in the contract looked appropriate I was ok with it.
playtothebeat
Posts: 454
Joined: Thu Jan 24, 2013 12:39 pm
Location: southern california

Re: 1.99% Unsecured "AnythingLoan"

Post by playtothebeat »

I wonder if you can get a "virtual" CC and provide it for this purpose. I think Amazon lets you do that, or maybe paypal. I recall doing that a few years ago.

Or better yet buy a prepaid Visa card and try to use that as the CC #.
nedorezo
Posts: 2
Joined: Fri Sep 05, 2014 12:20 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by nedorezo »

Is them asking for a credit card number versus social a location specific thing? I went through the application and filled in a bunch of junk just to see what info they ask. They are asking my social on the personal information page and I do not see where they are asking for CC# at all. I'm in CA.
Prf2009a
Posts: 6
Joined: Thu Sep 20, 2012 3:06 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by Prf2009a »

nedorezo wrote:Is them asking for a credit card number versus social a location specific thing? I went through the application and filled in a bunch of junk just to see what info they ask. They are asking my social on the personal information page and I do not see where they are asking for CC# at all. I'm in CA.
It was the very last question I believe on a screen a few clicks after the application page.
furwut
Posts: 1762
Joined: Tue Jun 05, 2012 8:54 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by furwut »

is them asking for a credit card number versus social a location specific thing? I went through the application and filled in a bunch of junk just to see what info they ask. They are asking my social on the personal information page and I do not see where they are asking for CC# at all. I'm in CA.
It certainly is for running a credit check for insurance purposes. I don't know how the laws may differ for lending. Since you got the social question in your state and others have not in other states it seems so.

Credit card companies will provide you a cash advance but at much higher rates. While credit card companies are as rapacious as it gets I wonder at a bank offering loans at rates so much lower. After the mortgage debacle lending procedures for housing have gotten tighter. I have read that banks were focusing on other (less regulated) loan products. There is no free lunch. Somebody is paying for these, seemingly, risky loans. Could the bank be bundling these and selling them off to investors as being higher quality/documented loans then what they really are?
nedorezo
Posts: 2
Joined: Fri Sep 05, 2014 12:20 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by nedorezo »

furwut wrote:
is them asking for a credit card number versus social a location specific thing? I went through the application and filled in a bunch of junk just to see what info they ask. They are asking my social on the personal information page and I do not see where they are asking for CC# at all. I'm in CA.
It certainly is for running a credit check for insurance purposes. I don't know how the laws may differ for lending. Since you got the social question in your state and others have not in other states it seems so.

Credit card companies will provide you a cash advance but at much higher rates. While credit card companies are as rapacious as it gets I wonder at a bank offering loans at rates so much lower. After the mortgage debacle lending procedures for housing have gotten tighter. I have read that banks were focusing on other (less regulated) loan products. There is no free lunch. Somebody is paying for these, seemingly, risky loans. Could the bank be bundling these and selling them off to investors as being higher quality/documented loans then what they really are?
Yeah I was confused as it sounded like other people were not even asked for their social. I don't mind giving it to them for credit check.. I plan to get a car loan, ie. buy my car from myself and then actually use the proceeds for credit card balance consolidation. This is something I have been thinking of doing for a while as I have about $35K across a bunch of 0% cards I wouldn't mind locking into an installment loan over 60 months if the rate is decent.
User avatar
Topic Author
Meg77
Posts: 2701
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: 1.99% Unsecured "AnythingLoan"

Post by Meg77 »

livesoft wrote:So why not borrow from a 401(k) to do the same thing? Any interest paid on the 401(k) loan goes into your own pocket. There is usually a setup fee and small quarterly fee that goes to servicing the loan, but it is cheaper that what you did for something that is a sure thing.
There are no loan origination or servicing fees on the Lightstream loan at all. I really have no interest in a 401k loan. We're maxing out our 401ks and want them to grow and compound as quickly as possible - not shrink.
furwut wrote:
Although you state a loan purpose, they do not take anything as collateral. Indeed, after he applied, they never even asked to see a contract, inquired about the VIN number, or anything else.
I can't imagine a bank running such a loose loan process - signs of a bubble?????

Anyway, I tested out the web site and the rates differ remarkably depending on the stated purpose. Is it fraud if one obtains a loan using false information (e.g., stated purpose is new car loan actual use of money - invest in stock market)?

P.S. - One has to give a credit card number. Ostensibly this is for the purpose of determining credit worthiness. But I wonder if somewhere, in the tiniest tiny print, there isn't a clause that allows the lender to immediately charge the unpaid balance (with suitably massive fees) to the card if the loan goes into default.
I know, we were shocked too (we are both bankers), and we also struggled with the concept of "fraud." However I told him that basically it wasn't fraudulent because when he applied he fully intended to use the funds for a new car - and he claimed all his debts honestly on the application. Then AFTER he got the loan we realized how unsecured it really was (they even send out docs explaining NOT to claim your car has a loan on it to any insurance company or anyone else). And so he got a different car loan. Technically he could be buying 2 new cars, and they apparently wouldn't care...Interesting on the credit card number. My husband didn't mention having to give that. I doubt most cards would have limits high enough for them to be able to do what you're suggesting though.
Tozmo wrote:Meg, would you mind stating how much (or a range) of how much loan you guys took out without having any collateral?
He applied for $36,000 and got it approved without any problem at the 1.99% rate. I think they look at how levered you are so I'm not sure how I'd qualify with all my rental mortgages on the credit report.
Grt2bOutdoors wrote:What's the difference between an unsecured loan and a secured loan?
A secured loan means the lender has a perfected security interest in the collateral, in the event of non-payment or default, the lender will seize and sell the collateral to pay off the debt.

An unsecured loan is still a loan but with no perfected security interest. Don't be mistaken that if you default the lender will not come after you, they will and usually that is in a court of law where they will show evidence of your assets and credit rating at the time of default. If the court agrees, the lender can attach a lien on assets unprotected by the law and force a repossession or sale of those assets to satisfy the debt. There are attorneys available nationwide who specialize and pursue these types of cases. In other words, the lender isn't playing "fast and loose", and the borrower is technically stating the true purpose of the loan at the time of borrowing, using the funds for purposes other than attested to is "fraud".

The lender isn't taking that much of a risk given the amounts borrowed and repayment terms selected, capital is very cheap when deposits are paying at rates ranging from 0-1% and they are lending out at least double the margin. At worst, the lender can repackage these loans in the form of securities and sell them in the open market, there is an appetite for "yield".
Very true. A loan is still a loan - we're still levering up. But most unsecured loans run 7-9% in interest at BEST and are only for a year or two. That's where this is so interesting. If we thought we could for sure afford to pay off his student loan on a 5 year amortization I'd go get another one of these and we'd "refinance" that. Seems a better use of funds than a new car, but of course they don't offer 1.99% for that!
Tozmo wrote:What does this do to ones credit score if one or serial loans (one after another) are taken out?
Credit scores dip a little with every inquiry - or application for debt. But it's usually short term.
furwut wrote:@Prf2009a

In the loan documentation/contract is there anything about how a default is handled? In particular I'm wondering if they have the ability to charge your credit card for a missed payment? It's curious that their online process asks for a credit card number rather than a social security number for "purposes of a credit check only".

I've never seen credit checks done off a credit card number elsewhere (though, admittedly, being a good Bogelhead I've never applied for many loans. Cash is king). I worked for a major online insurer and we always social (where state law allows) to get credit worthiness which was then used as a factor in rating.
This is bizarre. I'll ask my hubby about it. I didn't know this was how they did it. I've never seen that either.
"An investment in knowledge pays the best interest." - Benjamin Franklin
Grt2bOutdoors
Posts: 23782
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 1.99% Unsecured "AnythingLoan"

Post by Grt2bOutdoors »

Meg77 wrote:
livesoft wrote:So why not borrow from a 401(k) to do the same thing? Any interest paid on the 401(k) loan goes into your own pocket. There is usually a setup fee and small quarterly fee that goes to servicing the loan, but it is cheaper that what you did for something that is a sure thing.
There are no loan origination or servicing fees on the Lightstream loan at all. I really have no interest in a 401k loan. We're maxing out our 401ks and want them to grow and compound as quickly as possible - not shrink.
furwut wrote:
Although you state a loan purpose, they do not take anything as collateral. Indeed, after he applied, they never even asked to see a contract, inquired about the VIN number, or anything else.
I can't imagine a bank running such a loose loan process - signs of a bubble?????

Anyway, I tested out the web site and the rates differ remarkably depending on the stated purpose. Is it fraud if one obtains a loan using false information (e.g., stated purpose is new car loan actual use of money - invest in stock market)?

P.S. - One has to give a credit card number. Ostensibly this is for the purpose of determining credit worthiness. But I wonder if somewhere, in the tiniest tiny print, there isn't a clause that allows the lender to immediately charge the unpaid balance (with suitably massive fees) to the card if the loan goes into default.
I know, we were shocked too (we are both bankers), and we also struggled with the concept of "fraud." However I told him that basically it wasn't fraudulent because when he applied he fully intended to use the funds for a new car - and he claimed all his debts honestly on the application. Then AFTER he got the loan we realized how unsecured it really was (they even send out docs explaining NOT to claim your car has a loan on it to any insurance company or anyone else). And so he got a different car loan. Technically he could be buying 2 new cars, and they apparently wouldn't care...Interesting on the credit card number. My husband didn't mention having to give that. I doubt most cards would have limits high enough for them to be able to do what you're suggesting though.
Tozmo wrote:Meg, would you mind stating how much (or a range) of how much loan you guys took out without having any collateral?
He applied for $36,000 and got it approved without any problem at the 1.99% rate. I think they look at how levered you are so I'm not sure how I'd qualify with all my rental mortgages on the credit report.
Grt2bOutdoors wrote:What's the difference between an unsecured loan and a secured loan?
A secured loan means the lender has a perfected security interest in the collateral, in the event of non-payment or default, the lender will seize and sell the collateral to pay off the debt.

An unsecured loan is still a loan but with no perfected security interest. Don't be mistaken that if you default the lender will not come after you, they will and usually that is in a court of law where they will show evidence of your assets and credit rating at the time of default. If the court agrees, the lender can attach a lien on assets unprotected by the law and force a repossession or sale of those assets to satisfy the debt. There are attorneys available nationwide who specialize and pursue these types of cases. In other words, the lender isn't playing "fast and loose", and the borrower is technically stating the true purpose of the loan at the time of borrowing, using the funds for purposes other than attested to is "fraud".

The lender isn't taking that much of a risk given the amounts borrowed and repayment terms selected, capital is very cheap when deposits are paying at rates ranging from 0-1% and they are lending out at least double the margin. At worst, the lender can repackage these loans in the form of securities and sell them in the open market, there is an appetite for "yield".
Very true. A loan is still a loan - we're still levering up. But most unsecured loans run 7-9% in interest at BEST and are only for a year or two. That's where this is so interesting. If we thought we could for sure afford to pay off his student loan on a 5 year amortization I'd go get another one of these and we'd "refinance" that. Seems a better use of funds than a new car, but of course they don't offer 1.99% for that!
furwut wrote:@Prf2009a

In the loan documentation/contract is there anything about how a default is handled? In particular I'm wondering if they have the ability to charge your credit card for a missed payment? It's curious that their online process asks for a credit card number rather than a social security number for "purposes of a credit check only".

I've never seen credit checks done off a credit card number elsewhere (though, admittedly, being a good Bogelhead I've never applied for many loans. Cash is king). I worked for a major online insurer and we always social (where state law allows) to get credit worthiness which was then used as a factor in rating.
This is bizarre. I'll ask my hubby about it. I didn't know this was how they did it. I've never seen that either.
Strictly from a ethical and compliance point of view, you are stretching the meaning of acceptable behavior. The intent was clear, you were going to use the loan to purchase a car. The completion of the car purchase is where you err in believing the action it's not fraudulent. You purposely chose to double your leverage to complete the purchase, you've gone double long for a depreciating asset worth 50% of the leverage. IMO, I'd steer clear of things like this. Lenders frequently run credit checks on their borrowers, now you've funded two loans from two different lenders at the same time - my question is "can the lender Lightstream call the loan or declare you in default for using the funds for reasons other than declared"?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
dm200
Posts: 23148
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: 1.99% Unsecured "AnythingLoan"

Post by dm200 »

livesoft wrote:So why not borrow from a 401(k) to do the same thing? Any interest paid on the 401(k) loan goes into your own pocket. There is usually a setup fee and small quarterly fee that goes to servicing the loan, but it is cheaper that what you did for something that is a sure thing.
It is my VERY strong opinion, based on the actual way they work, that 401(k) [probably also applies to TSP and 403(b) as well) loans are usually a bad idea or alternative. it is also my opinion (based on experience and talking to past coworkers, friends, acquaintences) that most prople do not understand such "loans". In my view, these 401(k) "Loans" are not really "loans" (at least as I and most folks would describe/define a "loan"). When you get, for example, a $10,000 401(k) "Loan", the 401(k) administrator SELLS $10,000 of your 401(k) investments and sends you the $10,000. There are no tax consequences at that point - and will not normally be, as long as you pay it back according to the specific terms of your 401(k) plan. As you make the scheduled payments, or pay extra/early, these repayments are used to purchase investments in the plan. Because the 401(k) "Loan" actually results in liquidation of that amount of the investments in the plan - you do not receive the gains that the investment amount would have received. [Likewise, if the investments lose, you don't suffer that loss either]
placeholder
Posts: 4713
Joined: Tue Aug 06, 2013 12:43 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by placeholder »

ERISA Stone wrote:Can you elaborate? Some plans (albeit VERY few) allow you to make payments after you have terminated employment. However, most require full payment of the loan within 60 days of termination or the remaining balance is deemed to be distributed and is taxable.
You realize that "most" and "all" are different so I don't know what further elaboration is required.
placeholder
Posts: 4713
Joined: Tue Aug 06, 2013 12:43 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by placeholder »

an_asker wrote:
CaptainSegfault wrote:How about the fact you need to repay a 401(k) loan immediately-ish (or pay penalties on a withdrawal) if you lose/leave your job?
So the first comment was correct. You either have to pay it back or pay penalties on a withdrawal (and caveat with "unless you meet an exception").
No there was nothing in the original that said anything about exceptions and it said you had to pay it back soon or pay penalties which is just flat out wrong because the plan can allow the borrower to keep paying back on the original schedule if the rules are written that way and some plans are.
placeholder
Posts: 4713
Joined: Tue Aug 06, 2013 12:43 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by placeholder »

dm200 wrote:Because the 401(k) "Loan" actually results in liquidation of that amount of the investments in the plan - you do not receive the gains that the investment amount would have received. [Likewise, if the investments lose, you don't suffer that loss either]
That's why you take it from fixed income so that the interest you pay becomes the gain on that portion.
althes
Posts: 2
Joined: Sat Sep 06, 2014 10:30 am

Re: 1.99% Unsecured "AnythingLoan"

Post by althes »

Just applied, didn't have to put in any credit card info.
Said I would receive a decision monday morning.
User avatar
archbish99
Posts: 1649
Joined: Fri Jun 10, 2011 6:02 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by archbish99 »

dm200 wrote:It is my VERY strong opinion, based on the actual way they work, that 401(k) [probably also applies to TSP and 403(b) as well) loans are usually a bad idea or alternative. it is also my opinion (based on experience and talking to past coworkers, friends, acquaintences) that most prople do not understand such "loans". In my view, these 401(k) "Loans" are not really "loans" (at least as I and most folks would describe/define a "loan"). When you get, for example, a $10,000 401(k) "Loan", the 401(k) administrator SELLS $10,000 of your 401(k) investments and sends you the $10,000. There are no tax consequences at that point - and will not normally be, as long as you pay it back according to the specific terms of your 401(k) plan. As you make the scheduled payments, or pay extra/early, these repayments are used to purchase investments in the plan. Because the 401(k) "Loan" actually results in liquidation of that amount of the investments in the plan - you do not receive the gains that the investment amount would have received. [Likewise, if the investments lose, you don't suffer that loss either]
You're right about the mechanics, but I disagree about the conclusion. A 401k loan basically has two halves:
  • Present-you is taking out an after-tax loan, with no tax consequences, at a certain interest rate. This loan must be repaid under certain terms, usually out of paychecks, and may or may not have precarious provisions if you lose your job.
  • Future-you (the retirement account) is making a loan with tax-advantaged money. The debt is an investment held by the account just like it might hold any other individual bond. The note gets repaid under certain terms, and there is an element of credit risk. And obviously, to purchase this note you had to liquidate something, and you'll purchase other things with the proceeds as it's repaid.
So yes, it is a loan, but no company is lending you money. Future-you is loaning money to present-you as an investment. And present-you may default, in which case future-you loses his/her investment and present-you has the tax consequences. But you best know your credit risk -- if present-you is a worthy borrower, it can be a good investment for future-you to make. If both sides of the equation benefit, then by all means, use a 401k loan. If it's a bad deal for either side, explore a different option.

For myself, I've found the loan to be an excellent short-term fixed income investment in my 401k, and a competitive rate with other funding options when we've needed it. I continue to count the loan in my 401k balance, but also as an outstanding debt outside the 401k, reflecting both halves. There are definitely aspects you need to think through carefully, but they're useful in the right circumstances. (It helps that my plan requires immediate repayment if I quit, but not if I'm laid off.)
I'm not a financial advisor, I just play one on the Internet.
PennySaved
Posts: 115
Joined: Tue Mar 06, 2012 6:05 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by PennySaved »

Wow- quick and easy! On Friday night, I applied for a $30,000 new car loan with Lightstream with advertised interest rate to be 1.99-2.74% for 36 months. On Saturday, I received an email from Lightstream that I got approved for the loan for 1.99% interest. I signed loan agreement electronically and did then did electronic verification by submitting a personal credit card number online. They claim the personal credit card is for verification purposes and that they do not save it. Loan agreement states there is no prepayment penalty on the loan. I am supposed to get funds electronically deposited to my checking account on Tuesday (they let you chose a date). No information about vehicle to be purchased was required at any point and everything was done online. I had to set up a userid and password to access the loan account online- you do this after you make the application and then when they email you they ask you to log in to their website to sign the loan agreement and do the credit card verification and account setup. Payments are to be autopayed by my checking account each month and I got to select the monthly payment date.
SBritt
Posts: 38
Joined: Sun Aug 25, 2013 11:36 am

Re: 1.99% Unsecured "AnythingLoan"

Post by SBritt »

Excuse my ignorance, and maybe it has been posted ITT already, but what do they mean by payment method - Autopay vs. Invoice?

Thanks
PennySaved
Posts: 115
Joined: Tue Mar 06, 2012 6:05 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by PennySaved »

Below is the description of the Autopay option from my loan agreement. If you choose to be invoiced for the loan payments, the interest rate is 0.5% higher.

AUTOMATED PAYMENT OPTION: You have selected the Automated Payment Option. Your selection of this option entitles you to a reduced interest rate for so long as you maintain automated payments. Under this option, we will initiate an automatic transfer of your monthly loan payment each month from your designated checking or savings account. You agree that your failure to initiate the Automated Payment Option prior to your scheduled first Payment Date or your subsequent failure to maintain this Automated Payment Option, for any reason (including, without limitation, if we experience 3 failed attempts to collect any automated payment from your designated checking or savings account), will immediately result in the loss of your reduced interest rate and the non-discounted rate as explained below will apply going forward to this loan.

If you fail to pay or maintain payments via the Automated Payment Option, you agree that the failure will immediately result in a permanent 0.50 percentage point increase in the annual interest rate in effect on your loan. You acknowledge that this non-discounted annual interest rate will result in a higher monthly payment of the remaining unpaid principal fully amortized over the remaining term, applying the non-discounted annual interest rate and using the actuarial method. You further agree that if you cease to maintain Automated Payments, resulting in the non-discounted annual interest rate, you will remit your increased monthly payments to the address that we subsequently designate or our assignee or successor in interest (as applicable) subsequently designates.
PennySaved
Posts: 115
Joined: Tue Mar 06, 2012 6:05 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by PennySaved »

Lightstream also offers a "Customer Experience Guarantee" as described on this page:
https://www.lightstream.com/who-we-are

"We guarantee you a better experience.

After receiving your loan from us, if you are not completely satisfied with your experience, please contact us.
We will email you a questionnaire so we can improve our services. When we receive your completed questionnaire, we will send you $100.
Our guarantee expires 30 days after you receive your loan. We reserve the right to change or discontinue our guarantee at any time. Limited to one $100 payment per funded loan."

I will see if completing their questionnaire ends up with me receiving $100. Anyone else have experience with that?

You can also see more explanation about Lightstream loans on the FAQ page at
https://www.lightstream.com/contact-us
PennySaved
Posts: 115
Joined: Tue Mar 06, 2012 6:05 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by PennySaved »

Oops, after re-reading the customer experience guarantee, I realize I only get the questionnaire if I have a complaint about their process. So far, no complaints.
Logan T
Posts: 185
Joined: Sat Sep 06, 2014 1:10 pm
Location: Colorado

Re: 1.99% Unsecured "AnythingLoan"

Post by Logan T »

Applied for a loan this morning and just got approved. $24,500 at 1.99% for 26 months (nice that I can pick the exact amount of months I want). The money will be in my bank account tomorrow. I did have to call in to answer a few questions about our income and current debt. That took maybe 5 minutes and I got an e-mail saying I was approved about 10 minutes later.

Thanks OP for the recommendation!
You really don't need to begin saving for retirement before you reach 60. At that point, simply save 250 percent of your income each year and you'll be able to retire comfortably at 70. -Jonathan Pond
hbgpharmd
Posts: 49
Joined: Tue Mar 05, 2013 9:23 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by hbgpharmd »

The loan application process is sort of perplexing to me...I always thought one needed a SS# to apply for a loan/credit card. If I were to take out one of these loans, would it go on my credit history?

In the past, within a few weeks of applying for a new credit card or loan, the details appear on my credit monitoring service via reporting by one of the credit bureaus.

Would Lightstream report this to the bureaus via the credit card number you give them? Also, as someone mentioned earlier, what if you used a prepaid visa or a visa gift card?
PennySaved
Posts: 115
Joined: Tue Mar 06, 2012 6:05 pm

Re: 1.99% Unsecured "AnythingLoan"

Post by PennySaved »

You will have to provide your SS number on Loan Application. They will check your credit history. You also have to provide last four digits of driver's license number, Date of Birth, work status, occupation description, employer name and address, yrs employed, annual salary, home equity value, liquid assets value, retirement assets value. I am assume the loan will be reported on your credit history. You can go online at http://www.lightstream.com and start the application process to see what exactly info needs to be provided- you don't have to submit it. Providing the credit card number is a separate step that comes after application. They use your credit card number to verify your identity.

You can click on these links to get more details about the loans:
https://www.lightstream.com/who-we-are
https://www.lightstream.com/contact-us (this page has the FAQs)
User avatar
Topic Author
Meg77
Posts: 2701
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: 1.99% Unsecured "AnythingLoan" READ UPDATE 9-10-14

Post by Meg77 »

Please read the update to my original post. You may be asked to provide verification that the loan was used for your stated purpose several weeks after you get the funds! I sort of think this is backhanded in a way, since many people like us might have fully intended to use the loan as stated on the application but then changed their minds almost at the encouragement of the lender, what with all their happy proclamations of how "unsecured" this loan is and how there is no lien on the car whatsoever.

Thank goodness we haven't already used the funds to pay down some other higher rate debt! Since I'm assuming that step two after we don't provide the requested verification is to put the loan into default and ask for full repayment. I don't know that for sure, but part of me wonders if there aren't some hidden default loan servicing fees or something that would immediately be activated if they were to do that. So we are just paying the loan off immediately to avoid having to figure that out the hard way...
"An investment in knowledge pays the best interest." - Benjamin Franklin
User avatar
Phineas J. Whoopee
Posts: 9675
Joined: Sun Dec 18, 2011 6:18 pm

Re: 1.99% Unsecured "AnythingLoan" READ UPDATE 9-10-14

Post by Phineas J. Whoopee »

So, one isn't misleading a lender unless one gets caught?
PJW
JGoneRiding
Posts: 1973
Joined: Tue Jul 15, 2014 3:26 pm

Re: 1.99% Unsecured "AnythingLoan" READ UPDATE 9-10-14

Post by JGoneRiding »

Meg--why not send them the purchase agreement/car title and use the lightstream funds to pay off the other note since it is at a higher rate? They would have to re-pull/check your credit to know about the second car loan but there would be nothing wrong with having temporarily had two loans and used theirs to pay the first.
User avatar
Topic Author
Meg77
Posts: 2701
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: 1.99% Unsecured "AnythingLoan" READ UPDATE 9-10-14

Post by Meg77 »

Phineas J. Whoopee wrote:So, one isn't misleading a lender unless one gets caught?
PJW
I still don't think we were misleading the lender. My husband called and explained our situation honestly after getting the request for the sales contract. He told them we'd gotten an additional loan which would show up on the sales and asked if they wanted to amend the loan terms or let it ride or be repaid immediately. They were nice and said yeah, they'd need the funds back in our case. If we had bought two cars they would have re-run the application to include the additional debt (kind of ridiculous that they'll lend us cheap money unsecured for 2 luxury cars but not for any other purpose). If we had refinanced a car loan or bought something else that was on their list of fund options, I think they would have just raised our rate accordingly since they quote different rates for different loan purposes. But since we didn't really do anything with the funds we just returned them.
JGoneRiding wrote:Meg--why not send them the purchase agreement/car title and use the lightstream funds to pay off the other note since it is at a higher rate? They would have to re-pull/check your credit to know about the second car loan but there would be nothing wrong with having temporarily had two loans and used theirs to pay the first.
Yeah I guess they would have gone along with that, but the difference in interest between the 1.99% loan and the 2.15% loan we got is negligible. It's true that we could have actually opted to use the lightstream debt up front for the purchase and then later taken out a loan against the car - but we weren't strategizing at the time and didn't assume they'd come back for documentation a month later if they didn't ask for it up front. It's just as well, we didn't really need the money.
"An investment in knowledge pays the best interest." - Benjamin Franklin
Carl53
Posts: 2103
Joined: Sun Mar 07, 2010 8:26 pm

Re: 1.99% Unsecured "AnythingLoan" READ UPDATE 9-10-14

Post by Carl53 »

I had forwarded this thread to my son. He applied to consolidate his CC loans. 'Lightstream' contacted him and clarified a few things. They asked about whether he had a car loan. He told them he did but that it was already a very low rate and he was not interested in refinancing it through them. He then was approved for a 2.19% loan, just a little larger than the sum of the two credit card balances. He called a few minutes ago, quite pleased with the result. I found it quite interesting since their website indicates that CC consolidations would have been north of 7%. Apparently Lightstream is interested in making the loans attractive and gave the low rate despite it not being for a car loan. BTW, son does have very a very good credit score.
Post Reply