Secured loans require some type of collateral. Collateral is what is used to secure the loan. In other words it is something you put up that the lender can seize if you fail to meet your loan commitment.
A down payment is not collateral. A down payment is actually not part of the loan at all, but rather a payment up front on the total purchase price of what you are buying with the loan. Sometimes people confuse a down payment with collateral. Even if you put up a down payment you may still need collateral.
In most cases the collateral must be something of significant value. Usually close to the value of the loan and it is most often the item being purchased with the loan. In the case of an auto loan the vehicle being purchased is the collateral. With a home loan the home is the collateral.
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Qualifying for a loan is a big stress. Many people do not even bother to try to qualify because they think they can not possible meet the requirements. The truth is that in many cases people have no idea what the requirements are to qualify for a loan.
Lenders will vary in their specific qualifications for a loan, but there are some general requirements that most lenders use. They are as follows:
- Your credit rating. Lenders do not expect picture perfect credit. This is the most commonly misunderstood factor in loan a qualification. Do not avoid applying for a loan just because your credit is not perfect. You may be surprised at the loan offers out there for those with less than perfect credit.
- Your income. Lenders want to see that you will be able to afford the loan. They ideally want steady income for the past three to four years. You should be able to show that you have adequate income to finance the loan you want.
- Your expectations. Legitimate lenders will try to help you understand what you can afford and make sure that your expectations meet what you can afford and what they will offer to lend you.
A good lender will work with you to try to help you get the money you need. You will find that for some types of loans you can usually qualify if you shop around and seek out helpful lenders.
You have probably heard of predatory lending. Predatory lending is a serious problem and in hard economic times it becomes a serious threat. Predatory lenders prey on those who are already in financial trouble and help to dig them deeper into debt.
Most often the result of predatory lending is that a person loses their home and ends up in serious debt. Predatory lending is, in fact, defined by the fact that the homeowner does not benefit at all from the transaction. In a traditional lending situation the homeowner does benefit.
Predatory lenders often use coercion and abusive practices to get borrowers. They often target people of lower incomes, the elderly and minorities. Most states have laws or are in the process of setting laws regarding predatory lending.
The keys to predatory lending are that they charge high fees, include unnecessary products and excessive penalty charges. Most of the time a regular lender can provide the same services for much lower costs.
Getting pre-approved for a loan can be a great help when you are trying to buy a home. Pre-approval helps a real estate agent know what you can afford and helps streamline the house hunting process. Additionally, it lets you know that you are ready to buy and you will not run into issues later with getting a loan.
Pre-approval is simply the process of finding a lender and learning how much you can borrow. You get the process of looking into your financial situation and filing paperwork out of the way. It will help speed things up in the end when you are ready to secure the loan and buy the house.
Pre-approval is basically like applying for a loan without finalizing anything. You basically get to apply and see what you will be approved to borrow without any commitment. This is good if you end up not finding a home or deciding to go another way besides buying.
Pre-approval also will help you to get a better place to start at when bidding on a home. The seller will know you are serious and be more likely to work with you to find a price you can afford. It is always smart to get pre-approved before you start house hunting.
A credit union differs from a bank in many ways. Some of the differences of a credit union help to make it the better choice for borrowing because a credit union can offer you the best deal.
A credit union does do the following things, which most banks do:
- pass on costs on insuring loans
- include hidden fees or charges
- charge high interest rates to stay competitive
- charge penalties for early pay off of a loan
- customize a loan to your personal situation
While the cost of a loan through a credit union will vary you can expect to find them more reasonable than a bank. This is due to the many factors listed above. Also credit unions are more oriented on the customer because the customers are members of the credit union and essentially a part of the credit union. This is also why credit union loans are more customizable.
As you can see the benefits of getting a loan through a credit union are amazing compared to getting a loan through a bank. It is well worth checking into with your local credit union.
APR or annual percentage rate is the percentage rate on a loan for a year’s time. It is basically what the loan will cost you for a year. Most people use an APR to judge what loan is most cost effective.
What many people do not know is that lenders calculate their APR in different ways. This means that what you see is not always what you get. You may see a lower APR but in the end you may pay more than you would for a higher APR loan. It is confusing. Still, though, comparing APR’s is the best way to compare a loan costs despite the fact it is not fool proof.
You should consider the APR on any loan, but also see just what is including in the APR. Check into what costs and fees are included. This will give you the best picture by which to compare loans. You should compare the APR but also consider all the other costs and that should help you to find the best loan.
Once you sign a loan agreement you are legally bound to the terms and conditions of the loan. That is why you must always read the loan documents and be sure that you completely understand everything involved in the loan before you sign.
You should never sign a loan if you feel unsure or if you are not clear about the terms of the loan. You should ask as many questions as you need to so that you can fully understand what the loan entails.
Before signing a loan you should always know the following and ask if you do not:
- interest terms
- penalties
- fee or other costs
- restrictions
When you sign on that line you should know exactly what you are agreeing to. Lenders should always be willing to answer questions. If they will not or they try to say you have to sign the agreement even though you are not clear on the terms then you should walk away and do business somewhere else.
If you have decent credit then you may come along a situation where you are asked to co-sign on a loan for a friend or family member. The reason they need a co-signer is because they can not get the loan with their own credit. Basically, the lender doesn’t believe they are credit worthy.
While you may know the person and really think they will be fine with the loan, you should consider what the lender is saying. It could really help you to stay out of trouble.
When you co-sign a loan you are saying that you will be responsible for the loan if the other person is not. So, if your friend or family member decides they are going to default on the loan then you have to handle it. Otherwise you could face credit trouble.
This is a big decision and you should not feel forced into it. Many times when it comes to friends and family it is hard to say no, but unless you are positive that they will not default you should consider saying no to co-signing. You have to think about your own credit and financial situation before you start worrying about other people. Chances are they may be mad at first but they will get over it and you will have saved yourself a lot of hassle.
Any loan you get is an investment. You are paying for this loan and usually the only security you have for the loan is the property you bought with the loan money. If you want to save your investment you should consider insurance.
Insurance is protection for your loan. If something were to happen to the property that you bought you will be able to at least gain something back through your insurance coverage.
Usually insurance is bought when you have taken a larger loan, like for a car or house. If you wreck your car or your house burns down you get the protection from the insurance so you are not just left without anything.
Without insurance you runt he risk of having to replace the damaged property yet still have to pay on the old loan. Most people are just not in a situation to do that. Be smart and protect yourself with the proper insurance coverage.