Most people don’t have access to large amounts of cash at a given time, so they take out a loan. Loans provide you with a way to go to college and afford things you otherwise would not have. Unfortunately, debt and a loan is only a good thing if you are able to make the required monthly payments on time.
Short Term Loans for Emergencies
If your money is not your and tied up in your rent, utilities and a car payment you may not have any funds set aside for an emergency that suddenly presents itself. This is an unfortunate situation that many people who live paycheck to paycheck face. Going the normal route of contacting your local bank and applying for a personal loan may not be an option that’s available to you. Banks look at assets and capital, your payment history and your debt-to-income ratio. Chances are if live the paycheck to paycheck cycle you have had a few late payments or even a month missed. Even 30 days late can drastically reduce your credit score and cause you to fall into the high-risk category to a lender. The good news is that there are other ways to acquire the money you need. For instance, most services providing online installment loans will typically overlook a low credit score as long as the borrower can show proof of steady income. While you won’t be able to borrow tens of thousands of dollars this way, you can usually get approved for a $1000 loan with relative ease.
Home Mortgage
Owning a home is something that many people work hard to achieve. However, a 30-year mortgage can cost you hefty sums of additional money in private mortgage insurance (PMI) if you aren’t able to put the full 20 percent down at the time of closing. In addition, the monthly payment for the first 5 to 10 years is mostly interest so very little of the payment goes toward the principal balance. So, for instance, if you buy a home for 250,000 you could end up paying 400,000 to 500,000 depending on the interest rate and your down payment. If your credit is good you will qualify for the lowest interest rates available at the time of your closing. However, if your credit is bad, your options for buying a home are limited to sub-lenders and an FHA. You’ll also end up paying a higher interest rate due to your low credit score and this means you’ll pay more each month all the way around. Thankfully, having a mortgage will improve your credit score, provided you keep it current, and in a few years, you can refinance the loan for 15-years versus 30 and avoid paying interest for an additional 15 years.
Car Loans
Car loans are among the easiest loans to acquire. Even if you have bad credit you should be able to get one, just prepare yourself for the high monthly payment that follows. Many banks also encourage you to apply a little extra each month to pay the debt down sooner versus later. Since a car loan works in much the same way as a mortgage, only on a much smaller scale, adding even an extra $25.00 each month can help you reduce the interest and pay the loan off sooner.
Student Loans
A large part of the population that attends college has at least one student loan. Many of these same people end up with a total of two or three once they finally graduate. Student loans are available to almost anyone. Of course, those available through a private lender, a typical bank, are reserved for those with good credit. Luckily, even if you have bad credit your child can apply for a student loan through the federal government. The nice thing about this type of loan is that you have 6 months after you graduate college before you even start to repay the loan. You have 10-years to repay the full amount. There are advantages to repaying the loan early. First, it would improve your debt-to-income ratio which can affect your ability to do things like renting an apartment, purchase a home and buy a car. Paying it off earlier will also put more money back in your pocket and help you to save on the total amount of the loan.
Having the ability to secure a loan plays an important role in most anyone’s life. Just make sure that you can afford the monthly payment to help improve your credit score rather than harm it. And, make every effort to pay it off as early as possible to save more money on the interest.
