Unless you are in the top two percent of the wealthiest members of the population, you will probably need a personal loan in order to achieve educational and personal goals. Personal loans are not evil, but in many cases, they are necessary. The main thing is to be in control of your finances.
Qualifying for Loans
There is no way around it, the first thing a bank looks at to determine your credit worthiness is your credit report and FICO scores. Once they have scrutinized the reports, they go on to evaluate your income stability.
For most people, it means how many years they have worked or remained with the same company; for others, the amount and rate of the loan will be based on how much steady income they receive from annuities, pensions, retirement funds, social security and money received from trust funds. The interest rates assigned to each individual are based on their income-to-debt ratio and their credit scores.
We begin at the beginning. Most consumer loans start out when we are young and we pay for them long past the marriage vows in middle-age. Educational loans have become easier to reduce and dispose of in recent years thanks to new government guidelines and forgiveness based on services provided and educational field chosen.
Do you need a student loan with low-interest rates? You need to know how to apply and understand how to qualify. Do not take on more loans than you need and be aware of what the repayment agreements are before you end up covered in debt.
Students and parents need to ensure that their loans meet the criteria and are obtained through government managed products. It is wise to finance an education through grants, scholarships and a 529 savings account first and borrow as little as possible to fill in the gaps since there will be the need to borrow additional funds as time goes on to finance homes and vehicles and it can all add up into anxiety-causing perpetual debt.
Living in a large metropolis can help people avoid borrowing for a personal vehicle, but most of the United States population lives in rural and sprawling suburban developments that never planned for reliable public transportation. The dealerships want to make sure all the convenience in the world is available to their customers, alongside their high interest rates. Unnecessary services and vehicle coatings and treatments that are useless and will cost the customer thousands of dollars in interest over the life of the loan. It is best to secure a loan through a bank or credit union to save on interest rates and stick to a budget that will eliminate impulse add-ons encouraged forcefully by the salesperson.
Dealerships and banks report payments to the three major credit bureaus and assess substantial fees that will damage your ability to negotiate low-interest loans, or obtain loans for future purchases. Avoid late fees and damaging your credit score.
- Bank vs. Dealership Financing
Interest Rates and Mortgages
Do you need a mortgage loan? Five people could buy the same house at the same price and have lower payments and lower terms than you. Why? The terms of the loan are better for some than for others even when it is obtained from the same financial institution.
Some loans are promotional in nature to bring new customers in and others are just rewards for having a great credit score and a low debt-to-income ratio for new and existing customers. Come armed with questions and understand what the answers mean to you and your bottom line.
Credit Cards: Unsecured Loans
The quickest way to understand a secure loan is to think of a mortgage loan because the house is physically representative of something the bank owns until the loan is payed in full. We just get to live in the structure if we keep up with the payments, otherwise, the bank can take the house back.
An unsecured loan is represented by the pieces of plastic taking up space in your wallet. The amount of credit available to you is called unsecured because the institution is allowing you to borrow money through their plastic card based on your credit rating and income-to-debt ratio. Your credit report and FICO score play an important role on the interest rate the credit card company charges you annually but a savvy consumer can lower their rates even further by using their credit cards responsibly and understanding the different offers made by banks and credit unions.
You Are in Charge
Keep in mind at all times, no one can force you into a deal you don't want to accept or fully understand. You get to choose how you spend your money and if you need help clarifying terms or making the right decision for you, consult a financial adviser or do a quick online search to clarify terminology. If you have a great experience obtaining low-interest rates or making a great deal on a loan, please share it with our readers by leaving a comment below. Other people will appreciate and benefit from your experiences and insights.