Unsecured Personal Loan Withdrawal Loan (UPL) is a loan which allows a consumer to borrow money from a bank at a lower rate of interest than they would have earned on the loan in the first place.
Withdrawals can be made from bank accounts or by depositing money in a savings account.
The Consumer Financial Protection Bureau (CFPB) issued guidance in August to clarify how borrowers can qualify for a UPL, and if they do, what the minimum amount of money is needed to repay the loan.
Under the new guidance, the minimum repayment amount for a “unsecured” loan is $25,000, and for a secured loan, it is $100,000.
The guidelines also clarify that borrowers who receive a ULP from a mortgage company can only make the minimum payment for the loan and must not be able to make a full payment on the interest earned.
In addition, the guidelines indicate that if a borrower makes a payment on a UPI loan but then sells the home, the borrower can make an additional payment of $50,000 for the sale and the amount owed will be deducted from the principal balance on the UPI mortgage.
The guidelines also require a borrower to make sure they are eligible for a mortgage insurance policy, if applicable, before making the first payment of the loan, but the loan is not required to be insured.
The guidance also outlines how borrowers may have to repay more interest on their loan.
The CFPB clarified that the interest rate on unsecuritized personal loans (UPI loans) is “currently based on a 2.25 percent fixed rate.”
However, it added that the rate is “subject to a maximum of 2.75 percent interest rate over the life of the mortgage loan.”
Under the guidance, interest rate is not a percentage, but rather a rate that a bank uses to calculate interest, which varies based on the amount of income or debt the borrower has, and the loan amount.
For example, if a consumer earns $20,000 per year on a $150,000 secured loan and the borrower makes an initial payment of only $10,000 and then owes $12,000 on the $150-per-year loan, the interest charged on the unsecuity loan would be $5.00 per month.
If the borrower sells the house and owes $40,000 in principal, the principal amount would be reduced to $10 per month, and interest would be at a 3.75% rate of 3.25% (3.75 x $10).
This is not the first time the CFPBs guidance has clarified how borrowers should make payments on uncollected debt.
In June, the CPPBs said that borrowers should not have to pay a penalty if they did not pay all of their debts, and borrowers should have to make payments for up to 90 days after the payment is due.
However, the agency did not offer any guidance on how much interest is owed to a borrower after 90 days, and some lenders have said that a borrower should have an additional 3.5% penalty if the borrower does not pay off the debt in full.
