If you recently started a business, you might be wondering whether itâs a good idea to take out a small business loan. Small business loans can make it easier for you to buy equipment, hire…
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Bankruptcy is not the end of the world. In fact, while it is more difficult to acquire loans and credit cards, itâs not impossible. In this guide, weâll show you how you can get short-term loans and long-term loans even after you have filed for bankruptcy.
Whether you have debt to repay, bills to cover or credit to build, you can get back on track with a personal loan, even if you have recently filed for bankruptcy.
Challenges in Getting a Personal Loan After Bankruptcy
You will face a few issues when applying for an unsecured personal loan after bankruptcy. Firstly, lenders will insist that you wait a while before you apply. The exact timeframe will depend on the individual lender and the type of loan, but generally, youâll need to give it at least 2 years.
Your credit score is also important. Bankruptcy can reduce your credit score by over 200 points, and it can do all kinds of major damage before you file. Loan companies are not interested in lending to individuals with poor credit scores and recent bankruptcy filings. This is especially true if they filed for Chapter 7, in which case all debts were discharged.
It makes senseâcreditors base their activity on statistics and probability. If you have a recent filing and a terrible credit score, statistically youâre much less likely to meet your monthly repayments.
Some lenders will be more willing to take a risk on the basis that an individual who has recently filed is unable to file again for another few years. However, in these cases, they are still taking a massive risk and to offset that they will offer you massive rates.
Whatâs more, while it seems like they are doing you a favor by taking a chance when no one else will, theyâre actually just taking advantage of your desperation, offering you an unsecured loan when youâre more willing to accept.
Most Common Challenges and How to Overcome
The biggest issue you have when applying for personal loans after bankruptcy concerns your credit score. Your score will likely be very low, and many lenders refuse to offer low-rate loans to consumers with scores less than 660. If you have a score of 550 or less, you may still be offered a loan, but the rates will be high.
The good news is that things get easier with time. A bankruptcy discharge essentially wipes your slate clean, eliminating your monthly payments. This leaves you with more money in your pocket, which means you should have less need for an unsecured personal loan.
If you need a car, try a car loan instead. The fact that it is secured against the vehicle should ensure you receive better rates, even with a low credit score. If you simply need to build your credit score, try a secured credit card instead. Providing you meet your monthly payments on this secured card, youâll get your security deposit back and your credit score will improve, as lenders report all activity to the credit bureaus.
How Bankruptcy Affects Your Ability to Get a Personal Loan
A bankruptcy can remain on your credit report for 10 years and do some serious damage to your credit score in that time. The effects will diminish with each passing year and in the final few years, you shouldnât have any issues whatsoever. However, it will take a few years before your credit score improves to a point where you donât need to limit yourself to high-rate loans.
Your credit score isnât the only issue, either. Many home, car, and personal loan lenders refuse all applicants who have filed for bankruptcy within a fixed period of time, often between 2 and 3 years. If you need a loan during this time then your options are limited, to say the least. You will be forced to choose one of the following options for unsecured credit:
- Bad Credit Car Loans: These loans offer respectable sums and terms, but they have high-interest rates, and these may increase if you donât meet your monthly payment obligations.
- Payday Loans: High-rate and low-limit loans offered over a short period. The idea is that you take the loan when youâre struggling to make ends meet and need some assistance before payday. These loans are not as bad as they once were due to restrictions and regulations, but they are still not ideal. They are also illegal in nearly half of all US states.
- Unsecured Credit Cards: You can also get a revolving line of credit with an unsecured credit card. However, as with bad credit loans, these have high-interest rates and very poor terms.
To trick you into paying a higher APR, lenders wonât always advertise their rates and will instead charge a fixed sum every month. This can be the equivalent of an APR over 20%, much higher than the average, which is around 16%.
Best Installment Loans After Bankruptcy
Before applying for a personal loan, take a close look at your finances. Calculate your debt-to-income ratio, and make sure you can comfortably afford the payments. If you have recently filed for bankruptcy, you canât apply again for several years which means youâve lost your get-out clause and canât afford to fall behind on your payments.
If you struggle to meet your payments, lenders may still offer a repayment plan and financial hardship programs. However, if youâve already been through debt issues then your options decrease and they may be less willing to lend a helping hand.
Only when youâre absolutely confident in your financial situation and your ability to repay should you seek to acquire additional debt.
Here are a few providers and options that can help:
- Upstart: Accepts credit scores as low as 580 with APRs as high as 36%.
- Lending Club: You need a credit score of at least 600 to apply.
- OneMain Financial: There is no minimum credit score and monthly payments begin at just over $200.
- Lending Point: A minimum credit score of 585 is needed for loans of between $2,000 and $30,000.
- Avant: Get up to $35,000 with an APR ranging from around 10% to 36%.
What Happens if you Get Refused?
If you get refused for a personal loan because you have a poor credit card or have recently filed for bankruptcy, there are a few options:
Patience is the best policy in this situation. It doesnât matter how bleak things seem right now, they will improve in time. The longer you wait, the older your accounts will become, the more your payment history will improve (assuming you have active accounts) and the further away that bankruptcy filing will be.
If you donât have any active accounts, waiting can still help, but you should also look into acquiring a credit card with a security deposit, which can greatly improve your credit score in just a few months
A credit builder loan can also help, as can lending circles. These options are easy to apply for and donât require stringent checks, great credit or a clean bankruptcy history. But before you get excited, they donât give you cash sums in advance and are designed purely to help you rebuild your credit.
Appeal to the Lender
Bigger lenders use a long list of criteria to determine which applicants to accept and which ones to reject. No amount of begging or explaining will change their minds and if youâre rejected, you just need to move on, improve your score, and try again in the future.
However, if a smaller lender rejects you because of your recent bankruptcy filing, itâs worth contacting them to explain your situation. Explain how you have turned things around, show them proof if you have it, and ask them what would be required of you for them to accept. You might not get them to change their minds, but it should give you some valuable insight into their process.
Look for a Co-signer
A co-signer with a strong credit history can back you for a personal loan. However, itâs a very sensitive area and a huge favor to ask of anyone, even someone who loves you.
If you stop meeting those payments the co-signer will become responsible for them, putting their credit in jeopardy. Choose carefully, donât place anyone in an awkward position, never assume they should help you just because you need help, and always make your monthly payments so they are never required to cover for you.
Seek Other Options
There are other creditors, other loans, and other optionsâtry a credit card, borrow from a friend or family member, sell an asset, use a pawn shop. We live in a credit hungry society and there are more options than anywhere else. Use these to your advantage and donât get stuck chasing the same loan.
Personal Loans After Bankruptcy is a post from Pocket Your Dollars.
Need a car loan soon? Whether you’re about to buy a car soon or just thinking about it, chances are you will likely finance it (unless, of course, you have the cash to buy it right away). So why not learn a few steps along the way to help you get a car loan. A little knowledge about the process can go a long way; so far as saving you thousands of dollars in the long run!
Ready to start comparing car loan already? Start now… it’s Free.
Step One: Review your credit file
You may need to get a free credit report and make sure you have a good credit score before applying for a car loan. The better your credit score, the higher your chance to get approved and save on interest.
Step Two: Compare interest rates
You should shop around, compare auto rates and fees before you apply for a car loan. The worst thing you can do to yourself is to apply for multiple loans at the same time, as this can affect your credit score.
So, look at multiple rates at one place so you can make the best decision. Also, remember you can choose a fixed rate or variable rate on a car loan.
Whichever you choose depends on what you’re comfortable with. Remember that a fixed rate will stay the same for all of the term of the loan. That means, your repayment will be predictable and you’ll be able to budget for a lot easier than with a variable rate.
Click here to compare car loan rates through LendingTree.
Step Three: Dealer Finance or Car loan?
You should always compare bank/independent loan to dealer finance.
Granted dealer financing may get you a auto loan with a very low rate, but that does not mean you get the best deal. Sometimes dealer financing can be more expensive in the long run. So you may want to compare rates from 2-3 lenders with a dealer finance rate to make sure you get the best rate possible.
Step Four: Get pre-approved
Before you commit to a car you should get pre-approved first. Plus, walking into the car dealership with a pre-approval letter in your hand, gives you greater negotiating power.
Step Five: Gather your documents and go car shopping
Once you decide on an auto loan that you’re happy with, it’s time to go car shopping! So gather your financial documents such as your pay stubs, bank statements, tax returns, and W2s.
Want to explore your car loan options? Visit LendingTree to compare the best car loan rates.
Related: How to save money for a car
Speak With The Right Financial Advisor
You can talk to aÂ financial advisorÂ who can review your finances and help you reach your goals. Find one who meets your needs withÂ SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals,Â get started now.
The post How To Get A Car Loan in 5 Easy Steps appeared first on GrowthRapidly.
Hi, Money Girl. I’m interested in refinancing and getting a lower interest rate on my mortgage; however, I may need to sell my home and relocate in a year or so. In that case, does a refinance still make sense? If so, what factors should I consider?
Jason, thanks for your question! It’s a perfect time for homeowners to consider refinancing because interest rates are at historic lows.
If you’re a homeowner, your mortgage payment is probably your largest monthly expense, so it’s wise to stay alert for opportunities to reduce it by refinancing. Plus, your financial circumstances and needs today may be very different than they were when you originally got your mortgage.
It’s a perfect time for homeowners to consider refinancing because interest rates are at historic lows.
I'll answer Jason’s question by reviewing what a mortgage refinance is, explaining common reasons to consider doing one, and covering five ways to know if it’s a good idea for your situation.
What is a mortgage refinance?
Refinancing is when you apply for a new loan to pay off an existing loan balance. The new loan could be with your same institution or with a different lender. The idea is to swap out a higher-interest loan for a lower-interest one, which decreases the amount of interest you have to pay and may also reduce your monthly payments.
When you take out a mortgage to buy a home, various factors determine the interest rate you get offered. While your credit, down payment, and income history are critical, lenders base mortgages on the prevailing interest rates.
An interest rate is simply the cost of money for borrowers. Rates in the U.S. fluctuate according to the monetary policy of the Federal Reserve or Fed, which is our central bank.
A good rule of thumb is to consider refinancing when the current rate dips at least one percentage point below what you’re paying for your mortgage.
When interest rates are low, it’s like money’s on sale, as strange as that sounds! Banks should display a big banner on their front door or website that reads “bargain basement prices on dollars” or “we sell money cheap” because that’s what happens when interest rates go down. Low rates are great for borrowers, but not so good for lenders.
The Freddie Mac website shows historical data for interest rates on 30-year mortgages since 1971. In August 2020, the average for a fixed-rate, 30-year mortgage was 2.94%. A year earlier, the same loan was 3.62%, and ten years before, it was 4.43%.
Since interest rates change periodically, the rate you’re currently paying on a mortgage may be significantly different than the going rate. A good rule of thumb is to consider refinancing when the current rate dips at least one percentage point below what you’re paying for your mortgage.
What’s the cost to refinance a mortgage?
You need at least one percentage point between the going rate and yours because there’s a cost to do a refinance. Closing a loan means you must pay fees to various companies, including your lender or mortgage broker, property appraiser, closing agent or attorney, and surveyor. Plus, there are fees required by the local government for recording the mortgage, and maybe more costs, depending on where you live.
The total upfront cost of a refinance depends on the lender and property location. It could be as high as 3% to 6% of your outstanding loan balance. The trick to knowing if it’s worth it is to figure out when you’d break even on those costs. In other words, when do you go from the red to black on the deal?
If you pay for a refinance but don’t keep your home long enough to recoup the cost, you’ll lose money. But if you do keep the property beyond the financial break-even point (BEP), you’ll feel like a genius because you saved money in the long run!
If you pay for a refinance but don’t keep your home long enough to recoup the cost, you’ll lose money.
You may be able to roll closing costs for a refinance into the new loan, which means you would have nothing or little to pay out-of-pocket. But adding them increases the amount you borrow and may also increase the interest rate you pay for the life of the loan. For that reason, it’s essential to ask the lender for a side-by-side comparison of all the terms for each loan option so you can carefully evaluate them.
So, how do you figure the BEP to know if doing a refinance is wise? Here’s a simple BEP formula: Refinance break-even point = Total closing costs / Monthly savings.
For instance, if your closing costs are $5,000 and you save $150 a month on your mortgage payment by refinancing, it would take 34 months or almost three years to recoup the cost. The calculation is $5,000 total costs / $150 savings per month = 33.3 months to break even.
For help crunching your numbers, check out the Refinance Breakeven Calculator at dinkytown.com.
Since how long you own your home after a refinance is critical for making it worthwhile, I’m glad that Jason brought it up in his question. For instance, if he finds out that he’d need to own his home for five years to break-even, but he only plans on staying in it for two years, that should be a deal-breaker.
How to get approved for a mortgage refinance
If you believe that doing a refinance could be wise, you’ll also need to consider if you qualify. Lenders have different underwriting requirements, but most require you to have a minimum amount of equity in your property.
Equity is the difference between your home’s market value today and what you owe on it. A critical ratio for refinancing is known as the loan-to-value or LTV.
For example, if your home value is $300,000 and you have a $150,000 mortgage outstanding, you have $150,000 in equity, an LTV ratio of 50%. But if you owed $250,000, that would be an LTV of 83%.
You typically need an LTV less than 80% to qualify for a mortgage refinance.
You typically need an LTV less than 80% to qualify for a mortgage refinance. So, Jason should do some quick math to make sure he doesn’t owe more for his home than this threshold based on the current market value. Lenders may still work with you if you have a high LTV and good credit, but they may charge a higher interest rate.
If you have an existing FHA or VA mortgage, you may qualify for a “streamlined” refinance program that requires less paperwork and less equity than a conventional refinance. Check out the FHA Refinance program and the VA Refinance program to learn more.
Reasons to consider refinancing your mortgage
There are a variety of reasons why it may make sense for you to refinance a mortgage. Here are some situations when doing a refinance may be a good solution.
- Rate-and-term refinance. This is when you get a new loan with a lower interest rate, a different term (length of the loan), or both. It’s probably the most common reason why homeowners refinance their mortgages.
Example: If you have a 30-year, fixed-rate mortgage at 5%, you could refinance with a 30-year mortgage at 3%. That would reduce your monthly payments and the amount of interest you pay over the life of the loan.
- Cash-out refinance. This is when you get a larger loan than your existing mortgage, so you walk away from the closing with cash.
Example: Let’s say your home’s market value is $200,000, and your mortgage balance is $100,000. If you need $25,000 to pay for college or renovate your home, you could do a cash-out refinance for $125,000. After paying off the original mortgage of $100,000, you’d have $25,000 left over to spend any way you like.
- Cash-in refinance. This is when you pay cash at the closing to pay off an existing mortgage balance. That could be necessary if you don’t have enough equity to qualify for a refinance, or you owe more than your home is worth.
Example: You might do a cash-in refinance if having a lower LTV qualifies you for a lower mortgage rate or allows you to get rid of private mortgage insurance (PMI) payments. Read or listen to How to Avoid PMI on Your Home Loan for more information.
You may also need to refinance a mortgage if you want to remove a co-borrower, such as an ex-spouse, from your loan. But if one spouse doesn’t have sufficient income and credit to qualify for a refinance on his or her own, your best option may be to sell the property instead of refinancing the mortgage.
5 ways to know if it’s the right time to refinance
Here are five ways to know if doing a rate-and-term refinance is a good idea.
1. You have an adjustable-rate mortgage (ARM)
Buying a home with an adjustable-rate mortgage comes with lots of advantages like a lower rate, a lower monthly payment, and being able to qualify for a larger loan compared to a fixed-rate mortgage. With an ARM, when interest rates go down, your monthly payments get smaller.
Instead of worrying about how high your adjustable-rate payment could go, you might refinance to a fixed-rate loan.
But when ARM rates go up, you can feel panicked as your mortgage payment increases month after month. There are caps on annual increases, but your rate could double within just a few years if rates have a significant spike.
Instead of worrying about how high your adjustable-rate payment could go, you might refinance to a fixed-rate loan. That move would lock in a reasonable rate that will never change and make it easier to manage money and stick to a spending plan.
2. You could get a lower interest rate
If you bought a home when mortgage rates were higher than they are now, you’re in a great position to consider refinancing. As I mentioned, you need to do your homework to understand the cost and BEP fully.
I recommend shopping for a refinance with the lender who holds your current mortgage, plus one or two different companies. Let your mortgage company know that you’re shopping for the best offer. They may be willing to waive specific fees if some of the necessary work, such as a title search, survey, or appraisal, is still current for your home.
3. You don’t plan on moving for several years
Once you know what a refinance will cost, make sure you’ll own your home long enough to pass the BEP, or you’ll end up losing money. For most homeowners, it typically takes owning your home for at least three years after a refinance to make it worthwhile.
4. You have enough home equity
As I mentioned, you typically need at least 20% equity to qualify for a refinance. If you have less, you may still find lenders that will work with you. However, unless your credit is excellent, you’ll typically pay a higher interest rate when you have low equity.
Also, if you don’t have 20% equity, lenders charge PMI. Adding that to your new loan could cut your savings and give you a much longer break-even point.
5. Your finances are in good shape.
The higher your income and credit, and the lower your debt, the better your refinancing terms will be. If you’re unemployed or your credit took a dive due to a hardship, wait until your overall financial situation has improved before making a mortgage application. Good credit can save thousands in mortgage interest.
Good credit can save thousands in mortgage interest.
If you investigate doing a refinance and decide that it’s not worth the cost, another strategy to save money is to ask your lender for a mortgage modification on your existing loan. You may be able to negotiate modified terms, such as a lower interest rate, without having to pay for a full-blown refinance.
If you’re unsure how much home equity you have or know that you have very little, don’t let that stop you from inquiring about your refinancing options and saving money. Getting advice and refinancing quotes from your lender is free and will help you understand your range of financial options.
Many businesses are laying off employees or shutting
doors, at least temporarily during the coronavirus pandemic. Only you
can make the decision about what’s right for your businessâand you should do so
in consultation with business experts such as CPA advisers or business coaches.
Youâll also want to make sure that you are following the guidelines established
by your local government.
But if you’re looking for ways to weather the storm,
consider these five tips for keeping your business afloat during COVID-19.
1. Offer Delivery
For many businesses, a lack of foot traffic is crushing
cash flow. But that doesn’t mean you don’t have products that others want and
need. During this time when many people are unable or afraid to leave their
homes, you can continue to meet consumer demand by offering delivery.
Many restaurants are already waiving delivery fees or
making deliveries when they didn’t previously. This technique could be
especially lucrative if you offer products, such as books, games, movies or
crafts, that can make quarantine life easier for others.
If delivery isn’t an option, consider contactless curbside
service. Let people buy items online or reserve them over the phone or via chat
service and pick them up without getting out of their cars.
2. Create a Subscription Box
Even before COVID-19, the market was enamored with subscription boxes. In fact, 54% of online shoppers had at least one subscription in October 2019, and many shoppers had more than one. Businesses that can put together a weekly, monthly or quarterly box for patrons can create stable cash flow throughout the COVID-19 stay-at-home periodâand beyond.
Think about what you offer, what people might need or want
on a regular basis and how you can put it together in themed boxes. Consider
meal, beverage, home salon, self-care, craft, entertainment and education kits.
Such subscriptions can help build customer loyalty and maintain cash flow.
3. Scale Down
In some states, nonessential businesses have been
required to close their doors. In others, businesses can remain open as long as
they can maintain social distancing or allow no more than 10 people on the
premises at a time. Consider whether you can scale your business down to
accommodate smaller crowds.
One way any type of store can help ensure smaller numbers and social distancing is offering shop-by-appointment options. Invest in an appointment tracking software that lets people make appointments on your website and then arrive at the store during their allotted time period.
Creative tips for keeping your business afloat during
COVID-19 like this can actually have two benefits. First, they allow you to
generate some revenue. Second, they let you get to know more customers better,
which can be a boost for future sales.
4. Review Support Options
Make sure you’re leveraging all potential funding and relief sources. If your company qualifies as a small business, you may be able to seek a small business stimulus loan. Some of these loans are being offered through the Small Business Administration and its partners and others are being offered by traditional banks.
If you have an existing relationship with an SBA Express Lender, you may be able to get an Express Bridge Loan. The SBA is also offering some debt relief for businesses with current microloans or 7(a) or 504 loans.
The Paycheck Protection Program
The Paycheck Protection Program (PPP) was created to provide small businesses with the funds to pay up to eight weeks of payroll costs. The fundâ$349 billionâran out in just thirteen days. The Senate has approved additional funding of $310 billion, which includes $30 billion specifically for community lenders and credit unions. The money must be used to pay employees, rent, utilities or mortgage interest. Approved businesses that use the money as instructed and keep all employees on payroll for eight weeks don’t have to pay back the loan, as it’s designed to provide an incentive for businesses to keep workers on their payroll.
Economic Injury Disaster Loan Emergency Advance
Qualifying small businessowners can get an advance up to $10,000 that doesn’t have to be repaid. You do have to apply for the loan and meet the eligibility requirements, which include financial distress and loss of revenue related to COVID-19. The SBA is not currently accepting new applications, but keep an eye on potential future funding.
5. Take Out a Small Business or Personal Loan
Not everyone qualifies for the stimulus loans, and in some cases, that relief may not keep your business afloat during COVID-19 on its own. You might consider leveraging your business or personal credit history for a loan, especially if you have good credit.
Find Your Loan
Find out if you qualify for a short-term personal or business loan. Because these types of loans are rarely secured, you can use the funds for anythingâincluding paying your employees, covering bills and invoices or purchasing inventory and supplies.
If you’re planning to put one of the tips above into
action, you might need the temporary cash flow to fund the pivot in your
business model that helps you stay afloat during the pandemic.
The post 5 Tips for Keeping Your Business Afloat During COVID-19 appeared first on Credit.com.