Costa Rica has a wide variety of banks. However, doing traditional loans with banks offer high-interest rates and with appalling approval times — it can take up to months to complete traditional bank loans, and that’s even if you get approved by them.
Anywhere in the world, there are several ways of borrowing money — in the loan business, we have types such as “secured” and “unsecured” loans. A secured loan is an equity loan or a mortgage loan, where collateral and liens are essential to these types of loan, whereas unsecured loans are less dependent on the security. An unsecured loan is a monetary loan where the borrower’s assets/benefits aren’t at risk.
Unsecured loans are most commonly used for peer-to-peer lending, credit facilities or lines of credit, bank overdrafts, personal loans, credit card debt as well as all of the above and then some.
Choosing The Right Path
Of course, we want you to choose the right path, but being able to spot the wrong path is also a very vital skill to possess, leaving more room for you to keep borrowing money safely here in Costa Rica. So here are a few things to be aware of, when borrowing money in Costa Rica:
1. Predatory lending happens most often in “unsecured” Loans.
2. What is predatory lending? It’s when granting a loan purposefully puts the borrower in a precarious financial position, leaving him or her in the position to be taken advantage of by the lender.
3. Usury is very common for both secured and unsecured loans, yet it is most commonly found when dealing with loan sharks. Some credit card companies in a few countries have been accused of usury — for example, some Costa Rican banks maintain an interest rate of up to 70% on their credit cards! Keep this in mind when doing a loan of any sort, to make sure you are not personally being taken advantage of!
4. What is usury? It’s when the lender is charging immensely high-interest rates.
5. Hidden fees: Some companies and/or lenders add in additional hidden fees in the contract.
6. What are hidden fees? It’s when legal and processing fees become outrageous due to overzealous lawyers and lenders.
7. Over-securitization of a loan happens often which is contrary to the benefit of the borrower. For example, for a loan of 10% LTV (Loan-to-Value) — such as a $50,000 loan on a $500,000 home — it should be enough to put a mortgage lien on the home and generally should not require tying up other assets.
8. What is over-securitization of a loan? It’s when overzealous lawyers and lenders want to put a lien on more properties than needed for the amount.
Is it safe to borrow money in Costa Rica? Absolutely, however, be cautious and stay vigilant for red flags. Use the above tips as a rail guard! Dealing with reputable companies in Costa Rica is essential for a fair loan — look for the right company with the right credentials. Companies like Gap Equity Loans have your best interest in mind for both the borrowers and the lenders!