Ready to turn your humble house into your dream home? Major renovations like remodeling your kitchen, adding a new bathroom, transforming your basement into an entertainment zone and replacing your roof can beautifully transform your home — and significantly boost its value — but these kinds of upgrades don’t come cheap. You need a lot of cash to pull off major home transformations, and that’s where GreenSky comes in.
GreenSky has carved a reputable niche in the consumer finance market by providing low-interest, point-of-sale (POS) loans to help consumers finance various home improvement projects. Additionally, the company’s unsecured loan program helps individuals and families pay medical bills using affordable financing plans they can apply for in a matter of minutes. What makes GreenSky different from many other lenders? While secured loans (like car loans) must be backed by collateral, the unsecured loans offered by GreenSky don’t require collateral.
Unsecured loans typically have higher interest rates, but in many cases, GreenSky’s deferred loan repayment plans don’t accrue interest for a specified period, which is an appealing money-saving feature for those who can pay off the loan balance in full by the end of that term. As appealing as that sounds, these types of loans do come with certain risks, and it’s important to understand every one of them. Start with this analysis of some of the risks of GreenSky loans before deciding if the lender can meet your borrowing needs.
Payment Card Equals Greater Cybersecurity Risk
Unlike a personal loan where the money is directly deposited into your account once you’re approved, GreenSky provides you with a direct payment card that functions just like any other consumer credit card. Although this makes paying for your home renovation purchases or medical expenses convenient, these payment cards are susceptible to hacking, just like any other credit card.
Tech-savvy cybercriminals can steal payment and personal information from you using electronic skimmers, and that information allows them to easily gain access to your demand deposit account (DDA). Financial firms and credit card companies are always searching for innovative technologies to help them stop — or at least minimize — payment card fraud, but every type of card user remains susceptible to financial cyber attacks for now.
Ease of Use Equals Greater Possible Debt — Quickly
Most GreenSky loans start out with a very appealing 0% annual percentage rate (APR) for a designated period, during which you can repay the loan at no cost. Despite this obvious perk, GreenSky’s 0% interest cards still come with some significant financial risks. For starters, you could underestimate your ability to pay the full loan amount during the promotional no-interest period, and that mistake would be a costly one. If the promotional period ends before full payment is made, all the previously deferred interest is added to the loan.
You could also be tempted to take on more debt than you can reasonably pay, thanks to the oh-so-tempting thought of an interest-free purchase. Many unsecured loans processed at the point of sale are approved very quickly — possibly even immediately — so there is definitely some risk of impulse buys leading to undisciplined spending. For example, you might be tempted to spend some of your home improvement money on unnecessary expenses like lavish patio furniture you don’t need or a deluxe refrigerator to replace one that isn’t very old and still works great.
Poor Money Management Equals Greater Default Risk
When a borrower fails to repay a debt, the loan goes into default. This usually happens when the borrower stops making payments entirely, although default could also occur when it becomes clear the borrower can’t make timely payments or misses a single agreed-upon payment, depending on the lender. The actual legal risk varies by state and by the terms of your specific agreement, but if you fail to repay a GreenSky loan, the penalty could be harsh, including risk of foreclosure on your home or property. Additionally, the bank may be allowed to charge you late fees and other financial penalties if your payment is more than 23 days past due for each billing cycle.
GreenSky may also have the right to charge you the cost of whatever it spends trying to collect the debt from you. If the bank hires a collection agency, for example, you could be held responsible for paying the debt collector. Defaulting on a loan ultimately raises the outstanding balance on the loan by a substantial amount and lowers your credit score. Poor credit scores can make it more difficult to get approval for other financial assistance in the future and could even affect your ability to get a job, as some companies run credit reports to assess a prospective employee’s risk of financial malfeasance.
Less Than Perfect Credit Equals High Interest Rates
Even when you qualify for a bank loan, it’s important to do some research and do some math before you automatically accept the money. In the absence of collateral, banks typically charge higher interest rates than you could receive on a secured loan. Some unsecured loans offer interest rates below 10%, but plenty of others are three or even four times that amount. In general, the interest rates on unsecured loans depend on your credit score, your income and your debt load.
Be cautious when evaluating annual percentage (APR) amounts on loans, as they can be manipulated in ways you might not understand. Instead, look at the total amount you will pay over the life of the loan, including interest, fees and principal, to get a better understanding of the total cost of the loan.
Rates are always subject to change, but GreenSky often offers interest rates of 6.99% to 23.99% on personal loans, depending on your credit score. They also charge an additional activation fee of around $39 that is added to your total loan amount.
