If you have a good credit score, your monthly debt minimum payments are low and you meet the documentary requirements you can get consolidation loans easily. But, that’s the ideal scenario-many borrowers who have the capacity to pay have bad credit score, while others have no credit history at all. Others have irregular income and cannot provide income tax returns for the past three years, nor pay slips to prove income. Because of these borrowing limitations, people are looking for alternative financing that would allow them to consolidate their loans at an affordable rate, despite their inability to meet the minimum requirements traditional lenders require.
If you think you do not qualify for debt consolidation loans from your bank, here are tips to help you find the right loan to meet your needs:
Collateral is a great way to secure a loan. The reason for this is because it reduces the risk for the lender, particularly if you cant pay back the loan. In this case, they will use your property(for example) as collateral. There are certain factors that also influence your ability to borrow, even though you have property. Thing like the value, LVR and location can all play a part in the collateral.
If you are applying for a substantial amount, you can use your home as collateral. Some lenders will also consider other forms of collateral such as a motor vehicle. But, bear in mind that they can foreclose your property in case you fail to pay your monthly dues.
Fix your credit score
It may take a while but if you have negative listings, it is worth acting upon. You can request for a credit report from Australian Lending Centre and other credit reporting companies in the country. Next, study all those transactions-including the reported late payments, defaults, and existing debts check if you have really incurred those debts, and if the entries are accurate. If you know that you have paid on time but it was reported late, or if you have already settled the debts but it still appears as ‘unpaid,’ contact the reporting agency immediately. You can also file a dispute with the credit company that submitted an inaccurate report. Late payments and high amount of debts could drag your score down, so it is crucial to ensure that the entries are correct.
A good credit score can qualify you for low interest consolidation loans. You may also get the best rates with discounts, especially if you have a high net worth.
Decide whether debt consolidation is what you really need
Would you be able to save more money each month, or would you pay more interest even with lower monthly payment? While your debts may be paid off, it is advisable to look into the structuring of the loan. Read the fine print-calculate the exact costs of the loan, including the penalties and other fees you may incur in the process. If the cost would be higher than what you originally intended, you may think about ways on how to pay your debts without getting another loan. For example, you can automate payments to ensure you pay on time. You can also try creating a debt management plan that would ensure that debt repayments are included in your monthly budget.
Apply for second mortgage
If you have emergency expenses and existing debts, aside from your home loan, perhaps you should consider getting a second mortgage. The proceeds of the loan can help you pay for emergency expenses, bad debts and the remaining debt you have on your mortgage.
Personal loans and other types of consolidation loan use your income to debt ratio as one of the criteria in evaluating the loan amount you qualify for. On the other hand, the amount you could get from a second mortgage depends on the equity you built on your home.
Second mortgage is also known as ‘home equity loan’ because you will simply borrow from the equity you have on your property. Equity is the value of your home minus the amount you still owe on your mortgage.
Let’s say your home is valued at $400,000 and you still owe $100, 000 your equity on the property is $300,000.
Create a spending plan
It will help you stick to your budget and prioritize spending. You may not need to adjust if you are expecting a higher income after obtaining the loan. But, if your income shall stay the same—it may really help you if you can create a budget that you can follow so that you will not be tempted to touch the money for your repayments when things get rough. The spending plan shall also serve as a guide in looking for the type of debt consolidation loan that would meet not only your financing needs, but your borrowing capacity.
Consolidation loans can help you meet your financial goals. But it is equally important to find the right loan product that matches your income. It also helps to check your financial healthy form time to time. Choose to follow a budget, save as much as you can and invest any free money so you can pay for your future needs. If you need further advice, contact Debt Consolidation.