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Loans: 4 Keys To Better Loans and a Better Credit Score! (Page 1 of 2)
How you manage loans impacts your FICO score more than any other factor in your credit history. It’s true, you are scored heavily on the kinds of loans you have, how many months or years you have had those loans, how much you owe, and your repayment history, are key clues that credit bureaus use to arrive at your credit score. If you can wisely manage your loans, you will add points to your credit score quickly. Here are 4 key tips…
1. When the time is right you should try to refinance your high interest loans.
If you have high interest rate loans, especially on big ticket items like a motor vehicle or home mortgage and interest rates drop two points or more in the market, investigate refinancing some or all these loans. This is especially true if your credit score improves to above 700, even above 750 would be better. But, be wise about how you carry out this tactic.
First, shop loan sources other than the creditor that has your loan now. This way you may force your current lender to compete for your continued business by offering a more favorable interest rate. At the same time, do this only with those lenders who are obviously only interested in making money on you. Stick with lenders with whom you have a good long-term relationship but advise them that you are looking for a lower rate on your loan.
When shopping for credit give potential creditors only your credit score, not your Social Security number, for them to come up with a quote. Giving your S.S. number results in inquiries on your credit report which can damage your score. When they use only your score, no inquiries are recorded.
When seeking loans, you are looking for a lower interest rate or better repayment terms or both. By getting a better interest rate you will save hundreds, perhaps thousands, of dollars in interest. At the very least, getting more favorable monthly repayment terms that you can comfortably afford, will enhance your loan repayment history and automatically improve your score.
Refinancing is ideal for someone who is living from pay-to-pay and having a tough time making their monthly bills and who has been getting late notices or collections recorded in their credit history. It’s also a good idea for someone who has been paying bills on time with no recent negatives in their credit history and who has a good credit score. They will have an easier time refinancing for a better interest rate and more favorable repayment terms.
2. This is not my favorite solution but, if you must, there are loans available for folks with a poor credit history.
If your credit score is really low and you need a loan, you should look into services that provide loans to people with poor credit scores. But, be very careful you do not go even deeper into interest rate debt. There are legitimate lenders who know that some folks with poor credit scores will still make their payments on time if given a second chance and they are willing to speak with anyone that other lenders have denied.
Increasing Demand Could Mean Easier Access to the Cheapest Secured Loans
A popular website centered on the UK economy, FinancialReproter.com, posted the results of a poll that sheds light on a phenomenon that could open doors for individuals and businesses shopping for low interest rate secured loans. The poll, which tallied the responses of over 1,000 financial advisors, showed that 70 percent of participants would be interested in a model that allowed them to create their own loan products. Such an innovation would have implications for anyone searching for the cheapest secured loans.
The Poll
The poll asked: “As the loan markets improves, if there was an ‘out of the box’ model to help you set up your own loan/debt solutions business with direct agencies and full support, would that be of interest?” Over half of the advisors answered positively, at 52 percent. A third of participants–29 percent–answered “no,” and 18 percent were unsure.
Steve Walker, director of Promise Solutions, has stated that such an out-of-the-box solution could confer serious benefits to the loan market and that he felt it was possible due to the technological systems available today. He went on to say, “The key seems to be giving brokers the systems, control and additional income they need to be effective whilst ensuring the lenders have the comfort they want.” According to Walker, Promise Solutions has begun looking into the possibility of creating such a system with its partners.
Potential Game Changer
Many mortgage companies and banks have tightened their eligibility requirements for secured loans considerably since the collapse of the housing market in 2007. Despite overall improvement in the economy, the personal loan sector is recovering relatively slowly. The result is that while demand for loans from the public is increasing, on the whole, banks continue to wait for more favorable lending conditions. Consequently, the self-employed and those with weaker applications continue to struggle to secure loans even if they have valuable collateral to put up.
This could change if a turnkey financial services solution became available to sophisticated investors. If financial advisors could start their own businesses specialising in small secured loans, banks would be forced back into the arena or else risk losing their grip on an eager customer base.
Banks have already seen losses due to the emergence of online peer-to-peer lending schemes over the last few years. These platforms allow independent investors to offer loans directly to customers, completely bypassing bank involvement. To make matters worse for financial institutions, these individual investors can often afford to offer customers lower interest rates as they have lower overhead. In fact, the peer-to-peer platform itself covers the costs of collecting payments and virtually everything else. Typically, an investor’s only cost is a one-off fee or a commission per loan. If the peer-to-peer platform is auction-based, the investor may face stiffer fees, but ultimately, this is a pittance compared to the operating costs of even a small bank.
On top of that, If a simple-to-deploy solution hits the market that would allow financial advisors to get in on the action, banks may sit up and take notice rather than fight a battle on two fronts. All of this is wonderful news for you if you’re looking for the cheapest secured loans. Intense competition between lenders means lower interest rates overall, especially if financial advisors want to offer financial services to clients directly. Such a model is untested, and these entrepreneurs will have to overcome a certain amount of market hesitation before they can expect to turn a profit.
On another front, the proposed model could provide a viable alternative to payday loans, which have received widespread criticism. Although these loans generate lots of tax revenue, there is concern that they are easily available to persons who are unable to repay them. This is primarily because payday loan companies target individuals that earn less than £25,000 a year and then tack on exorbitant interest rates. Customers can easily find themselves falling behind, with no clear path to paying their debt.
Price War
This perfect storm of financial product diversification could result in a price war between the traditional banks and the more exotic services. Peer-to-peer loan auction site ThinCats, for instance, has already loaned over £25 million to businesses across the aisles, all the while keeping that money out of the hands of hungry banks. At the end of the day, anything that gives consumers more choice will ultimately result in lower prices as competition winnows profit margins.