loans and credit

You may have heard a lot of talk about personal loans lately, and for good reason. If you go about it correctly, they can be a real life saver, saving you time and effort (not to mention money) compared to other, less conventional forms of borrowing. With a little research, you can typically get a much better deal than you would from a payday loan (bad) or from a tax return refund advance (not so hot either) etc. Another plus is that you usually don’t have to put up any collateral to get the loan, and many people find that to be extremely helpful. But there are some things to watch out for, and the goal of this article is to provide a little assistance in those areas, helping you to avoid any potential pitfalls. Here are a few tips to keep in mind:

#1: Check around: Don’t jump at the first loan that you see, even if it sounds pretty good. With any loan, you are making a commitment to take on some debt, so you want to be absolutely sure that you’ve done some looking around, compared interest rates, understand what the total amount that you’ll be paying back is and so forth. Remember that not all personal loans are created equal, and of the many variables that go into what kind of deal you’ll end up getting, one of those variables is You.

#2: Check your Credit Report: It is usually a very good idea to take a look at your credit report to ensure that it is accurate, and that there are no errors or other unusual issues on it. Obviously, creditors will look at this, and the better you look in their eyes, the more at ease they will be about giving you a better interest rate. The good thing is that our government has mandated that every citizen has a right to one free copy of their credit report each year, and you would be doing yourself a favor to take advantage of this by contacting one of the big 3 credit bureaus, namely Experian, Equifax, or TransUnion.

#3: Maintain Good Credit: Another way to make a positive impression in the eyes of lenders is to make sure that you are caught up on all of your bills. Again, this is a sign to them that you are trustworthy and responsible, both of which can figure into what kind of personal loans that you will be able to get from them. When they see that you are paying these bills on time and that your credit report looks good, then as long as you’ve done your research, you should be able to get a really nice personal loan.

Personal loans can often be a great option to lend a helping hand in times of need, but they aren’t your only option. It is worth noting that sometimes things such as a home equity loan, or using your credit card in certain instances may in fact be the better option when it comes to interest rates. However, this may not always be the case, or even applicable to all people in all situations. It really depends on a case by case basis, and even though personal loans may not be perceived as the best option in every instance, they are certainly far from being the worst. The worst would be things like having to resort to borrowing from your 401k if applicable, getting a payday loan, etc. While a personal loan can have a higher than “normal” interest rate, it is going to be nowhere near as high as the payday loan, and you aren’t borrowing from your retirement. Those two points alone are major pluses when it comes to considering this type of loan.

What You Should Know Before Applying for a Personal Loan

Bad debt is heck on this type of loan. Since lenders already look at this as a more risky type of loan because there is no collateral involved, it is to your benefit to have your financial house in as much order as possible to avoid sending up any unnecessary red flags. As with any kind of loan, it is important to know not only what you are getting into regarding the total cost of the loan, the repayment schedule, monthly payments, etc. but also what your credit report is saying about you. You have the right to a free copy of your report once per year, and you should obtain this and check it over carefully to be sure everything is correct. You can get a copy by requesting one from Experian, Equifax, or TransUnion. This will enable you to see what lenders are seeing, and give you the ability to correct any mistakes before the wrong impression is made.

Another thing you should do to level the playing field is to make sure that you are caught up on all of your bills. These two steps alone can make a huge difference in your favor when it comes to applying for personal loans. Remember, lenders are called lenders for a reason, because they want to make loans and forge new business relationships, while making a little money in the process. Knowing the facts about loans, as well as doing some smart shopping for the right loan, can mean the difference between whether your deal is sweet, or sour.

While knowing what kind of interest rate you’ll get for personal loans, and how to go about securing the best ones possible is important, there are other vital factors to consider as well. Getting a loan can be stressful, but if you do your homework that stress can be greatly reduced, and you’ll end up being much happier in the long run, because of the better deal that you got yourself by being savvy.

The following tips can help you along these lines:

Ask the lender about any processing fees. These are commonly paid up front as a percentage of personal loans, although some lenders have a flat fee. You will want to keep a running tally of all associated fees so that you can better assess the total cost of the personal loan.

Are there any penalties for pre-payment? You will want to know the details concerning early payments, and whether you can make them, when you can make them, if they are penalized, and if so, how much is the penalty?

Be aware of late payment penalties. They usually range between 2% and 3% of the total loan amount. Obviously you want to avoid this if at all possible, otherwise you’re increasing the cost of your loan.

Another thing that you want to make sure you don’t let happen is if you have set up automatic billing for your loan payments (which can often get you a lower interest rate by the way) make sure at all times that you have the money in your account to cover the payment. In this way you will avoid additional charges for overdraft fees, etc.

What, if any, are the documentation charges? Most banks will employ an outside/third party to verify your documents and process the loan application. It is in your interest to understand these charges, and factor them into your total loan cost to make the most informed decision.

When you take the time to consider all of these aspects associated with personal loans, along with the interest rate that you are being offered, you are able to get a clearer picture of the total cost. As with all types of loans it is a good idea to acquire a copy of your credit report. With this you can arm yourself with additional knowledge, and it’s also a good idea to periodically check it to make sure that it is accurate. By going to any of the big 3 credit bureaus, you are able to legally request a free copy of your credit report each year.

Personal loans are taken to fulfill various needs and desires. Some people take out a personal loan to obtain a little extra cash to cover expected or unexpected bills, send your child off to college, or for various other reasons. There are times when personal loans are the right choice for the extra funds you need. Some short-term personal loan options include payday loans and cash advances. Personal loans are typically short-term loans with loan amounts of less than $2,500. Consider other options if your needs require longer terms or larger loan amounts. Whatever the loan type you choose, do your homework first so you can make an educated decision about the option that is right for your personal financial situation.

Home Equity Loans

If you are homeowner, then a home equity loan or line of credit may be preferable over personal loans that also tend to carry a higher interest rate than equity options. The primary difference between the two types of loans is the collateral. Personal loans typically do not require you to put your home on the line, but equity loans do. An equity loan option also requires that you have equity in your home that you can borrow against. In a suffering housing market, this may be a challenge.

Credit Card Loan

Another short-term solution to a cash crunch is to take a loan out on one of your credit cards, which is often called a cash advance. Most credit cards charge a cash advance fee (a percentage of the amount you borrowing with a minimum amount fee such as $10). The interest rate charged by your credit card for a cash advance may or may not be better than the rate charged for personal loans. If you have to go this route, be sure to choose the credit card with the lowest interest rate on the cash advance and the one you carry the lowest balance on. The reason you should choose the card with the lowest balance is that when you make payments on the card, the payment is applied toward the credit card purchase balance first and the cash advance balance second. In situations where you need more money than is available to you as a cash advance on your credit card, then personal loans may be one of the only options.

Personal loans tend to be easier to obtain than other types, which is what makes these types of loans attractive. Other times, personal loans are the only option because of bad credit, lack of collateral or a myriad of other reasons. When it comes down to deciding whether personal loans are the right option for you, you’re the only one that can decide.

Sometimes, bad credit personal loans are the only option that is available to some folks. Let’s face it, life just doesn’t always work the way that we want it to, and at times, through no fault of your own, you find yourself with less than a great credit rating. One way to look at this is to be discouraged and overwhelmed by the situation, but the better way to view it is as an opportunity. You know the situation that you are in, and what you can do is start to try and repair your rating, perhaps with an unsecured personal loan. There are several reasons that people often explore this option, and here are a few of them:

Debt consolidation is a real priority for some people, who are trying to get their finances back on track. By being able to combine all of their bills into one monthly bill with a lower payment they are able to take control of the situation and start turning it around.

Money for education is another commonly reported reason to explore a personal loan offer. Schooling is expensive, but it can pay great dividends when graduation day comes and you are able to get a better job. Sometimes, this kind of trade off is worth it, knowing that you’ll be making more money down the road.

House payment or down payment are also reasons to look at taking out a loan, and bad credit personal loans can work for these reasons too. Whether trying to get a new home, or stay in the one that you already have, there is a need for money and an unsecured personal loan can help in certain situations.

Just married and in need of a honeymoon to relieve all the stress that came with planning the wedding. This is what you might call a debatable use of the money, as far as whether it is a smart reason to use it, but many people figure “how many times do you get married?” and feel that it is important to celebrate this milestone in their lives.

These are just a few of the reasons that people take out bad credit personal loans. When there is no other choice, there is a least one choice left, but as with any loan, you should shop around for the best deal that you can find, even if it isn’t a cheap personal loan. That being said, this kind of loan can offer some relief, and if you take the time to get the best deal that you can and manage the money wisely you could be well on the way to repairing your credit score.

A personal loan may be right for you, under certain circumstances. Times are tough for a lot of people, and finding the best personal loan for your situation will take some research, but it will be time well spent. If you find yourself needing a little extra money to help with some unexpected bills, college tuition, or another circumstance, it may be the right thing to do to get a personal loan to avoid other, less attractive options. We’ve all heard the nightmare stories about payday loans and their horrendous interest rates, but know that even though most options are better, they are not created equal.

What About Home Equity, And Other Types of Loans?

While a home equity loan can be a viable option for some, think long and hard about this option before deciding to take that path. Ask yourself, is this realistic? Is it a safe bet? What if the housing market doesn’t bounce back right away, and I’m just digging myself an even bigger hole to have to climb out of?

Another possibility might be a credit card loan. This may not be available in a large enough amount for many people, and there’s no guarantee that the interest rate will be substantially better than what you might get when you apply for a personal loan. Obviously, only you will be able to determine if that is the case, but the point is that when it comes to loans, there isn’t a “one size fits all” kind of loan, and it is important to shop around, even regarding the same types of loans. As the old adage says, it never hurts to ask.

There are many different kinds of loans available to people; some are good, and some are not so good. Often a personal loan is the right choice because they are relatively easy to get, have understandable payment terms, don’t require any collateral, and can be used for many different needs. A good example might be someone who takes out the loan to make some needed home improvements. This is usually a sensible use of the money, as it typically raises the value of your home so that you see a return when you go to sell your home.

Only you will be able to determine which of these options is going to be the best one for you, but knowing that there are options is half the battle. Hopefully, with these few insights, and a little research and shopping around on your part, you will be able to find the best loan for your situation, and maybe it will be a personal loan.

Is the still struggling U.S. housing market, with its high rate of foreclosures and plummeting home values, destined to send consumers to debt consolidation loans in the years to come? Will the residential housing slump continue to act as a drag on the national economy’s recovery? A recent story by the Chicago Tribune suggests that “yes” is the answer to both questions. And for anyone hoping that the fragile economic recovery will soon pick up momentum, this comes as bad news.

The Housing Market’s Woes

The residential housing market has wreaked havoc on the health of the national economy since it started to slump in late 2006. Last year, for instance, the United States saw a record 2.8 million foreclosure filings made against properties, according to foreclosure data company RealtyTrac. Now comes the news that housing sales slumped in May, thanks largely to the expiration of the first-time and move-up homebuyers tax credits on April 30. Even worse, the Mortgage Bankers Association reports that housing values are continuing to fall. The Tribune story quotes the bankers as saying that the national median home value reached an eight-year low earlier this year. And when U.S. consumers feel pressured, they don’t spend.

Confident Consumers Needed

The U.S. economy needs confident consumers to thrive. If consumers aren’t spending money at shopping malls, restaurants and hotels, the national economic recovery will continue to be a painfully slow one. And with housing values falling and foreclosures rising, there’s no reason for consumers to boost their spending. They’re still wisely in saving mode; they’ve learned an important lesson during the Great Recession about the value of socking money away and not overspending. Other consumers who have lost their jobs or who have seen their annual incomes fall may be turning more frequently to debt consolidation services. These loans will help consumers slash away at their debts. But they don’t make for confident consumers; it’s hard to picture consumers who’ve just taken out debt consolidation loans heading to their local electronics store to buy a new flat-screen TV.

Housing’s Influence

None of this is new, of course. The housing market has always had a major impact on the fortunes of the U.S. economy. Remember after Sept. 11, 2001? The strong housing market helped pull the country out of an economic slowdown. Now, the housing market is having the opposite effect. It’s pulling the country’s economic recovery down. Consumers won’t resume their spending until they’re confident that they can pay their mortgage loans, that they won’t lose their residences to foreclosure and that their homes will finally start rising in value again. Unfortunately for the country, it doesn’t seem as if this will happen any time soon.

Debt consolidation has an almost magical ring to it. The idea that someone could take all your debt – all these things that are weighing on your mind – wrap them up into neat little bundle, and charge you one low payment per month sounds almost like a fantasy. The sad truth is that, in many cases, it is nothing more than a fantasy. There is no such thing as financial alchemy and, you can bet, that you will pay for the illusion.

Advertisements touting that “you can save up to 50% or more off your monthly payments” or “debt relief is a click away” sound great until you read the fine print. However, tens of thousands of people make the mistake of falling for them every day. If you are thinking of consolidating your debt, here are three mistakes you should take care to avoid:

HARD-MONEY LOANS

One of the biggest myths about debt consolidation loans is that they are easy to get. However, if you are considering debt consolidation, your credit is likely in disrepair. As such, your only options may be creditors offering hard-money loans. The problem is that while the loan is certainly easy to get and your monthly payments are rock-bottom low, you are locked into an interest rate of 20 percent or more and payments for the next several years. In the end, you end up paying several times the amount of the loan.

DEBT CONSOLIDATION COMPANIES

Another fallacy is that of the debt consolidation company. They promise to negotiate a lower interest rate on your debt, reduce your monthly payments, etc. “all for one low, easy payment.” The reality could not be more different. This type of company builds in a fee as part of your monthly payment, typically as high as ten percent. They also may neglect to make a payment to your creditors on the assumption that an overdue account is more likely to inspire the creditor to consider adjusting the terms. In the end, you end up paying for someone to do what you can do on your own. While there are some legitimate debt consolidation companies out there, they are few and far between. Instead, try using an online debt consolidation calculator. Many are free, and they can help you see the difference paying a little extra each month on your debts can make.

BALANCE TRANSFERS

The third mistake you should avoid when consolidating your debt is balance transfers. Transferring your debt to a low-interest or zero-interest credit card can seem like a great idea, and it can be if you have the discipline to pay the card off before the low introductory rate expires. The problem is that eventually the low interest rate expires, and you are left with a high-interest rate, and usually more debt than you started with, so, you open a new card to take advantage of that card’s introductory rate. However, transferring balances frequently is a red flag on a credit report, and it can lower your score drastically. As such, you end up transferring balances so much that you get to a point where you cannot get another credit card, cannot get a low rate, or cannot get a spending limit high enough to continue your balance transfer cycle. The best idea is to never start. Only take a balance transfer if you can pay off the sum in full during the low-rate period.

You know the debt consolidation and settlement industries are doing well when even the New York Times devotes a front-page story on its Web site to the good fortunes of the industry. It’s debatable, though, whether the New York Times story will do much for the industry’s reputation. The long feature story paints the debt consolidation and settlement industries as being filled with unethical businesses that take money from desperate consumers and then provide them with little to no service. The story highlights the cases of consumers who did spend good money for debt relief only to find that the companies with which they worked did nothing to reduce their debt.

A Thriving Industry

The Times story covered the annual meeting of the United States Organizations for Bankruptcy Alternatives, a trade group that includes debt consolidation and settlement companies, held in Palm Beach, Florida. The meeting was an extravagant one, according to the Times story, featuring plenty of cocktails, live music and loads of food. It’s a sign that the debt-relief industry is doing well as consumers struggle to keep their debt levels down. This isn’t surprising: Many consumers have lost high-paying jobs. Others have seen their annual incomes cut as employers force them to take unpaid days off. These consumers are putting more purchases on their credit cards, building up their debt as they do so.

Predators?

The Times story quotes several industry watchdogs who say that debt consolidation, settlement and other industry companies have built their profits by fleecing desperate consumers. Some debt-relief companies charge fees as high as 15 percent to 20 percent of the credit card debt being carried by their customers, the Times story said. The story also cites the experience of a Kansas City woman who spent $4,000 on a debt-relief company only to eventually drop out of its program after a credit-card company sued her for payment. She discovered that little of her debt had actually disappeared.

Consumers’ Burden

The truth is that the debt consolidation and settlement industries are like most others: There are unethical businesses in the industry. But there are also honest ones that do provide valuable services for the fees that they collect. The key is for consumers to do the research necessary to determine which debt-relief companies are ethical and which are not. Consumers should always ask debt-relief companies for a list of their fees, in writing. They should also ask how long it will take them to either pay off or settle their debt. Without doing this research, consumers run the risk of losing even more of their money to debt consolidation or settlement companies that are scam artists.

What’s the wiser choice, debt consolidation or transferring your large credit card balances to a new cards with lower interest rates? Not surprisingly with such a big question, the answer is a solid “It depends.” Before deciding on either course, consumers need to take a long look at their finances, the amount of debt they owe and their past money management behaviors. Only by considering all of these factors will consumers make the right decision when it comes to debt consolidation versus the credit card shuffle.

Pros and Cons

There are several pros and cons with each method of dealing with a large amount of debt. When you transfer credit card balances from one card to another, you do get the benefit of transforming your high-interest debt to debt of the low-interest variety. This means that you’ll spend less money each month paying it off. There’s a downside here, though, too. First, the obvious one: Consumers who transfer their debt from one credit card to another often continue to rack up even more debt after the move. They then have to search for another low-interest credit card to begin the process all over again. Consumers who do this are not addressing their debt problems. Also, as credit card debt continues to rise, consumers’ three-digit credit scores will fall. They will then struggle to qualify for mortgage, auto and other loans that don’t come with exorbitant interest rates.

The Debt Consolidation Alternative

Taking out a debt consolidation loan comes with its own set of pros and cons. A debt consolidation loan takes all your debt and, as the name suggests, consolidates it one loan. You then make one monthly payment until this debt is paid off. While doing this, you’ll no longer receive the harassing phone calls from collection agencies. The benefit of debt consolidation is obvious: You’ll be dealing with your debt, reducing it steadily and at a pace that you can afford. Debt consolidation loans can provide you with peace of mind as you whack away at your debt. Unfortunately, there are some negatives, too. Debt consolidation loans often come with high interest rates. They, too, will cause your credit scores to fall.

The Important Factors

The biggest factor in your decision should be the size of your outstanding debt. If you owe less than $10,000 in credit card debt, you can probably pay it down yourself if you are disciplined enough. Simply transfer the debt to a card that features low or no interest for a period of time. Then set up a budget designed to erase that debt over time. If you owe a significantly higher amount, though, a debt consolidation loan might be your best option.