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Homeownership Can Boost Your Approval Rate
Regardless of the loan type you are applying for, you can get a boost on your approval rate if you are a homeowner. Homeowners have better chances of getting approved for home loans, home equity loans but also for unsecured personal loans, student loans, car loans, business loans and many other loan types.
The reasons for this can be explained analyzing the effects that homeownership has on the loan terms and requirements for approval. There is a variable that is greatly modified by homeownership which has important incidences on all loan terms and requirements: the risk of default for the lender in the financial transaction.
Risk Of Default And Approval
The approval process is ruled by the lenders fear of default: The higher the risk of default, the lower the chances of getting approved. In the event of default, the lender is actually loosing his investment because there are little chances of recovering the money unless the lender has sufficient assets to compensate for the loses.
The risk of default and approval are thus, greatly related. If the applicant can provide any aid to reduce the risk of default, the lender will be significantly more comfortable at lending the money that the borrower needs. Thus, it is important to know which modifiers can reduce the risk of default and boost the chances of getting approved.
Consequences of Homeownership
Along these modifiers we can analyze various options: collateral, simple homeownership, down payments and a co-signer. Collateral provides the best form of guarantee as it is a particular asset that is used for security of a loan and the lender can take legal action of repossession in the event that the borrower defaults on the loan.
A down payment is useful for certain secured loans that already have collateral but the risk of default is still high. Then, the borrower offers a certain amount of money that has already been set aside by him, so as to reduce the amount of money needed to purchase the home or the car and thus, leaving the property with a higher amount of equity left. The property guaranteeing the loan is then worth more than the debt it is guaranteeing.
A co-signer is obliged to repay the loan along with the main applicant and thus provides an additional guarantee for repayment. This is also associated with homeownership. If both the applicant and the co-signer are homeowners, chances of getting approved are greater as the lender has additional properties to obtain repayment from in the event of default.
Finally, we have reached the modifier that can provide a great risk reduction without too many hassles. Simple homeownership provides a reduction on the risk involved in any financial transaction regardless if the property or properties are used as collateral for the loan. This is due to the fact that all of the applicants assets guarantee in a way the repayment of the loan. All the assets legally guarantee any debt that the owner may have and thats the reason why a co-signer who is also a homeowner provides an additional guarantee and lowers the risk even more: He does not only provide an additional income but also, an additional real estate guarantee or guarantees.
Availability of Student Loans With No Security
Many wonder if there are student loans offered with no collateral. There is no simple answer to this question as it really depends on the applicants qualifications. There are of course federal loans that require no security and even private loans that do not require security but qualifying for them is not such an easy task.
Thus, in order to know whether you will be able to obtain a student loan with no security you need to know the different loan types offered and whether you meet the requirements needed to get approved for federal or private unsecured student loans. Also, if you can provide collateral to secure a student loan, you should rethink your decision of not doing so.
Federal Student Loans And Private Unsecured Student Loans
Federal Student Loans are student loans subsidized by the government, the interest rate they charge is significantly low since they are meant for promoting education and handled by government agencies with that purpose. The interest rate charged by these loans is even lower than the rate charged for home loans or home equity loans. However, the rest of the loan terms are not so advantageous. Though the repayment program can be long, usually, the loan amount you can obtain through these loans is not good enough to cover all college expenses.
Besides, these loans are awarded according to the needs of the applicant because they are meant to promote education for underprivileged applicants and thus, not everybody can apply for these loans and get approved successfully. Only those that meet these particular requirements of federal student loans should contact the government agencies to obtain further information on these loan programs.
Private unsecured student loans do not require collateral either. Thus, non homeowners can easily apply for these loans. However, the interest rate charged for these loans is usually high. Thus, only those that can afford the monthly payments on unsecured student loans will be able to get approved for them.
Unsecured student loans subsidized by private non profit organizations charge a lower interest rate but suffer the same restrictions as government loans. These loans are either awarded according to the needs of the applicant which excludes those with repayment capacity or according to merit. This last group of loans is meant to promote those who have had an outstanding performance on previous studies and thus, the institution wants to support their career.
Reconsidering Secured Loans
As you can see, getting approved for unsecured student loans is not that easy. So, if you are a homeowner or you have relatives or friends willing to offer an asset as guarantee of the loan, you should reconsider applying for a secured loan as you will get approved more easily and you will also get better terms on your loan including lower interest rates, higher loan amounts, longer repayment programs and thus, lower monthly payments that will be a lot easier to afford. As regards collateral, as long as you make sure you can repay the loan installments there is no reason to fear repossession of the property.