Loans can help consumers buy a house, buy new cars, further education or start a business. Credit card loans offer money to update wardrobes, buy household appliances and furnishings, pay for cosmetic dental care or have fun holidays.
While loans allow consumers to finance things they can not afford to pay in advance, borrowers must be able to repay debts. Otherwise, they will destroy their credit rating and possibly be forced into personal bankruptcy.
Before the economic downturn, loans were quite easy to obtain. Many lenders offered bad credit and "no credit control" loans; which makes it easy to qualify for secured and unsecured loans. Today, lenders investigate borrowers to ensure they are financially able to repay borrowed funds.
Borrowers must weigh the pros and cons of obtaining some type of loan. All bank loans are assessed interest rates that increase the amount of money to be refunded. Lenders can also charge late fees when payments are criminal.
If borrowers are common on loans, banks can initiate legal action to collect outstanding loan balances. When creditors are issued, borrowers are liable for legal and legal costs in addition to late payment and accrued interest.
Loans financed through banks and credit unions are secured by a loan. This legal contract describes payment terms, interest rates, late fees and payment date. Personal loans provided by family or friends should contain a memorandum to ensure that both parties understand the terms and prevent family disputes.
Interest rates are based on the type of loan given. Other factors affecting interest rates include the borrower's credit score, employment history and who provides the funding. Persons who provide personal loans are required to comply with statutory laws and are prohibited from paying a higher interest rate than banks or credit unions.
Credit card companies usually charge the highest interest rates at prices between 9 and 23 percent. Home mortgage rates usually carry the lowest interest rate with rates of between 4.5 and 7 percent.
Borrowers who receive mortgages for bad credit pay higher interest rates because they are considered to be at high risk. High-interest loans often put up borrowers for standards that lead to foreclosure. Instead of taking out a high mortgage loan, borrowers must strive to clear down credit and get a fico score of 720 or higher. Depending on the severity of credit damage, credit restoration can take a year or more.
Bad credit borrowers who want to buy a home can find leasing-to-own or the seller carry back mortgages are better options. Rent-to-own means giving a payment to the seller that contributes part of the rent amount to home purchases. The seller returns home loan requires that sellers act as lenders for all or part of the purchase price.
Borrowers who have received bad credit and have cleared off credit should consider refinancing of mortgages. This option allows borrowers to lower interest rates and lower monthly installments. Interest rates are based on credit points, the higher the score, the lower the interest rate.
Mortgage refinancing can be a good option for homeowners with good credit. Property owners should strive to get a 2 percent interest rate cut. Refinancing requires borrowers to pay advances, such as loan application fees, property inspections and assessments, attorney fees and closing costs.
Borrowers carrying multiple loans can benefit from loan consolidation. This financing option can be especially useful for students with multiple college loans and homeowners with two or more mortgages. Consolidation loans can reduce overall interest and help borrowers to pay off loans earlier than expected.