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How To Get Personal Loans More Easily With Good Credit
Not everyone have money in the bank ever ready to be used to buy real estate. Usually people tie up their cash on investments which can be liquid or difficult to liquidate. This is why many people take up loans other than the mortgage to buy a house. In fact, the most straight forward way of zero-cash properties is to use a personal loan for the down payment, and then get a mortgage to shore up the rest. It can look like a sophisticated investment play on paper. But to execute it successfully is another story altogether.
The simple reason is this. Home buyers often buy properties that are proportionate to their income. The richer you are, the bigger the house you are going to buy. So when your income is just sufficient to support a mortgage, very little income stream is left for you to repay a personal loan as well. Lenders can identify this easily by putting your personal or household income side by side with the total projected repayments. And they usually lean towards lesser risks rather than more.
If under some circumstances where you absolutely have to get extra funding for real estate that you absolutely have to purchase, cash loans will usually be the solution that you will come up with. Although this lending behavior will put you into high leverage and gearing, who is anybody to tell you what you can or cannot do. The most important item to focus on first is good credit.
5 steps to good credit
1) Make timely repayments on what you owe. It could be the car loan, credit card bills, renovation loans, etc. Make payments on a timely manner. If you are truly unable to make full payments, at least make partial payments before the due dates. Late payments are sure items that will adversely affect your credit score. The best habit is to make full payments on a timely basis.
2) Have a steady job or business. When you are a frequent job hopper, it does not put you in good light in the eyes of the lender. Lenders like income stability. They prefer stable consistent income over volatile income even if both adds up to the same amount at the end of the year. The magic number is 2 year. If you have held onto a job or your business has been operating for 2 years, you will fall under the “stable” category. When you have just changed your profession, it might help your loan application if you provide your employment contract that verifies your long term future with the new employer.
3) Address. Another tell-tale sign of instability is the frequency of the change in residential address. It is almost certain that an individual with stability will not change his residence frequently. Think about how an individual with financial trouble might relocate from place to place. He might be unable to afford rental and have to move to somewhere with cheaper rent. And then do it again when his financial position deteriorates. And when all comes tumbling down, he has to move in with his mother. Address change might not be a big deal to many lenders, but just keep this point in mind.
4) Hold and use credit cards. People who are prudent might have a habit of staying on their own self-imposed budgets by forcing themselves not to get credit cards. Although this can be very healthy behavior, it does not do very well for your credit. Someone who has absolutely no credit facilities will have a satisfactory credit instead of a good one. This is because there is no data to assess your credit behavior and assign a score. To get good credit, you need to own credit facilities like credit cards and overdrafts. Then use them each month while making full payments before they are late. However, do not go overboard with credit cards. Having 2 or 3 of these is usually sufficient to demonstrate good-boy behavior.
5) Remember that good credit has to be built through time. Some lenders may only use your credit behavior from the most recent 6 months to assign a score. While others may have a longer time frame. Whatever the case, you can see that good credit cannot be built over a day by just paying off all your bills. You need to diligently keep track of your expenses and bills over time in order to obtain a score that will leave lenders smiling with glee.
Once you obtain a good credit score, you want to approach lenders who take them into account when assessing a personal loan application. If you go to a lender who does not care about your score, you have wasted your time trying to build up a good score. The 3 common places that you can go to are commercial banks, finance companies and credit unions. Private mortgage lenders often do not take credit into account.
Putting up a collateral
The riskier an investment is the higher a return is expected. This means that when you are applying for an unsecured loan, you can expect interest charges to be significantly more than a loan that is secured to collateral. This is why many people consolidate their debts by taking up a home equity term loan through refinancing and use the cash generated to pay off their credit card bills. Because interest rates on secured loans against property are considerably lower than those of unsecured credit cards. On a personal capacity, common assets that are used as collateral include stocks, bonds, and other assets that a lender finds favorable.
Getting a guarantor as a last resort
Nobody likes to get other people involved in their own financial dealings. But when you absolutely have to get your hands on extra cash and unable to get any commercial lender to grant you the money, your last resort is to get a guarantor. This means that a third party, possibly a family member with good income and credit credentials, will come in as a guarantor for the loan. Even though you will be liable for the repayments, a lender can go after guarantors should you default. In some cases, corporate guarantors can be considered.
Even though a property can look like a sure winner on the surface, be wary of getting over-leveraged. Economic setbacks that you have no control over can be unforgiving and often affect those with high gearing first.