Loans: Tips for Borrowers Who Need Financing

06 January 2011 ~ 0 Comments

Loans: Tips for Borrowers Who Need Financing

Mortgage Loan Tips

Loans: Tips for Borrowers Who Need Financing

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Home Page > Finance > Loans > Loans: Tips for Borrowers Who Need Financing

Loans: Tips for Borrowers Who Need Financing

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Posted: Jun 25, 2010 |Comments: 0
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Loans allow people to buy things they cannot afford to pay for upfront. Loans are almost always necessary to buy a house, start a business, or pay for college education. Many people take out loans to make home improvements, purchase household furnishings, or buy automobiles.

While loans allow consumers to obtain high-dollar items, borrowers must be financially prepared to repay borrowed funds. Otherwise, they will be subjected to collection calls and can destroy credit ratings. Worse yet, they could be forced into bankruptcy.

Prior to the banking crisis, loans were relatively easy to obtain. Lenders offered bad credit and ‘no income verification’ loans; making it easy to qualify for all types of loans. Today, banks carefully inspect borrowers’ finances to ensure they are capable of repaying debts.

Before applying for loans, borrowers should weigh the pros and cons of financing. Lenders assess interest against all types of loans which increases the amount of money to be repaid. Banks can charge late fees when payments are delinquent and prepayment penalties when loans are paid off early.

Lenders can commence with collection action when borrowers default on loans. When creditors obtain debt collection judgments, borrowers are held responsible for court costs and legal fees, along with accrued interest and late payment penalties. These costs can double or triple the amount of original debt.

Loans financed through credit unions and banks are secured with a promissory note. This legally binding contract details interest rates, payment terms, payment dates, and late fees. Loans financed by family or friends should also be secured by a promissory note to ensure borrowers understand the terms. Relatives often feel uncomfortable making borrowers sign a contract. However, more family disputes arise over unpaid debts than nearly anything else.

Banks assess interest based on borrowers’ credit scores and the type of loan provided. Other factors that can play a role in interest rates include employment history, credit history, and who is providing the financing. Credit unions often charge lower rates of interest than banks. Family or friends who provide personal loans must abide by state usury laws and are prohibited from charging a higher rate of interest than financial institutions.

Credit card companies typically charge higher interest rates than banks loans. Credit card interest rates range between 8- and 23-percent. Mortgage loans generally carry the lowest rate of interest with rates ranging between 4- and 7-percent.

Borrowers who obtain mortgage loans for bad credit will pay a higher rate of interest because they fall into the high-risk category. Entering into high interest loans can place borrowers at risk for default which often leads to foreclosure. Borrowers with bad credit should strive to clear derogatory credit in order to obtain lower monthly payments.

Homeowners who obtained bad credit mortgages and have improved credit rating should consider mortgage refinance. Refinancing into a new loan allows borrowers to obtain a lower interest rate and reduce monthly payments. Interest rates are based on credit scores, so the higher the score, the lower the interest rate.

Refinancing mortgages can also be a good option for borrowers with good credit. Homeowners should strive to reduce assessed interest by 1.5- to 2-percent. Mortgage refinance requires borrowers to pay upfront costs including loan origination fees, home appraisals and inspections, legal fees, and closing costs.

Borrowers with several loans might benefit from loan consolidation. This option can be particularly beneficial to students with multiple college loans and homeowners with two or more mortgages. Consolidation loans reduce overall interest and allow borrowers to pay off loans earlier than expected.

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Simon Volkov -
About the Author:

Real estate investor, Simon Volkov provides information to help consumers understand the pros and cons of obtaining loans. His article library includes personal finance and money management articles including how to buy a house, real estate investing, and saving for retirement. Learn more by visiting www.SimonVolkov.com.

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Hello, im on family allowance, and need to borrow money for my car rego, but i need more then 90 days to pay the money back what loan can i apply for?
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Article Tags:
loans, mortgage loans for bad credit, loan consolidation, promissory note, mortgage refinancing, consolidation loans, refinancing mortgages

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