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Loans

Loans allow people to buy things they need but don't have enough money saved away to purchase. Loans are often used when buying real estate and automobiles, as well as financing college education tuition or starting a business.

Unless loans are provided by family or friends, recipients of borrowed funds must apply for personal or business loans through banks or credit unions. Lending institutions require borrowers to provide evidence they are capable of repaying loans. If borrowers have poor credit their loan application might be denied or lenders may require a qualified co-signer.

Careful consideration should be given when agreeing to co-sign for loans. If borrowers do not make payments on time or become delinquent on their note payable, co-signers' are held accountable for outstanding debts and their credit rating can be damaged.

Careful consideration should also be given when taking out loans. In order to maintain a good FICO score, borrowers must be financially prepared to pay loan installments on time and in full throughout the duration of loan terms.

While most people have every intention of repaying borrowed funds, unexpected emergencies can and do arise which make it difficult for borrowers to repay their loans. Falling behind on loan payments often creates a domino-effect in that borrowers find it hard to catch-up. This is especially true when individuals do not have a savings account from which they can borrow funds to pay delinquent loan payments.

Falling behind on home mortgage payments can quickly lead to foreclosure. Becoming delinquent on car loans can result in repossession. Failure to pay student loans can result in loss of education.

Borrowers holding multiple loans can be driven into bankruptcy if their financial situation is radically altered due to unemployment, divorce, loss of spouse, or chronic health problems. The new bankruptcy laws require borrowers to repay a portion of their debts under Chapter 13 reorganization. If borrowers are unable to adhere to their payment plan they will fail out of bankruptcy and be held responsible for all outstanding loans.

While loans can help borrowers improve their life, they can also wreak havoc on credit scores and cause financial hardship. Before taking out a loan, borrowers should take time to learn about the pros and cons and calculate the true cost of financing.

Bank loans are assessed a rate of interest throughout the duration of the finance period. Mortgage loans typically have the lowest rate of interest because they are paid over the course of 15 to 30 years. Credit card loans usually have the highest rate of interest because they provide borrowers with an open line of credit which can be used over and over as funds become available.

Mortgage loans for bad credit are assessed a higher rate of interest than home loans provided to borrowers with good credit scores. Borrowers wanting to buy a house, but have a low FICO score and small down payment, should consider obtaining credit counseling and work toward raising credit scores in order to obtain a lower interest rate. Other home buying options include rent-to-own and seller carry back financing.

While bad credit loans might seem enticing, borrowers must realize that they will be charged a much higher rate of interest and required to provide a higher down payment. Borrowers should avoid entering into bad credit loans unless an absolute emergency. Instead of paying exorbitant interest, borrowers would be better off spending money on credit repair.

Borrowers with bad credit loans can refinance once they obtain a good FICO score. Banks assess a variety of refinance rates for home loans. Common refinancing fees include home appraisals and property inspections, loan origination and application fees, attorney fees, closing costs and prepayment penalties.

Graduates carrying several student loans can consolidate to reduce interest and lower monthly installments. Options for student loan consolidation will vary depending on whether education loans are federal or private.

One option to loan consolidation is loan deferment. Depending on the circumstances, some lenders allow borrowers to defer a few months of payments to help borrowers get back on track. Deferred loan payments are usually rolled to the end of the loan and payment terms extended. Loan deferment is sometimes offered with car loans, student loans, credit cards, and unsecured loans.

Loans can help borrowers buy a house, start a business, make home improvements or obtain a college education. They can also lead people to financial ruin. We invite you to browse our loans and personal finance library to obtain additional information and resources. By taking control of personal finance, borrowers can retain or restore a good credit rating; making loan approval easy when borrowing funds is necessary.


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Published on June 11, 2010 at 03:05 AM

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