Loans, for most of us, are the only means of buying a home, buying a car, financing a college education or paying off the bar bill. Lending is the life’s blood of the world’s economy, and when it stops, everything stops – in fact, it crashes.

Secured loans are protected by “collateral” and because of this are considered “lower risk”. A mortgage is the classic example of a “secured loan”.

Auto loans are also secured by collateral (the vehicle). The biggest decision, when shopping for auto financing is the length of the loan. Remember that the longer the term of an auto loan, the lower your monthly payment—but the higher the total amount of interest you’ll end up paying. Interest rates are usually higher on used than on new vehicles. Strangely enough, it’s sometimes cheaper to finance a new vehicle.

texas home loansMortgages are the most common type of loan used to purchase real estate. The lender (bank), however, is given the title to the property until the mortgage is paid off in full. If the borrower defaults, the bank can repossess the property and sell it to get their money back.

Unsecured loans are considered “higher risk” and the interest rates on these loans are usually higher than on secured loans. Since this type of loan is not secured by any valuable property but only a “promise” of repayment, the borrower would be required to have a good credit history. The credit history is provided by a “credit report”. All lenders use credit scores to evaluate the potential risk, determine who qualifies for a loan, at what interest rate and what limits.

No doubt about it, a good credit score is a very valuable asset when looking for a loan. The interest rates applied to bad credit loans are higher. Besides simply finding a willing lender, someone with a FICO (Fair Isaac Corporation) score of 750 will pay $500 less a month for a $300,000 mortgage than someone with a score of 570.

You may be shopping for a bad credit loan:

  • If you have a history of late payments
  • If you have missed payments
  • If you have ever defaulted on a payment

Payday Loans are available online and are actively sought, especially since the economic meltdown. A payday loan provides the borrower instant cash with the understanding that he will pay back the amount on his next payday. These loans, also known as costly cash, are not secured.

Debt Consolidation Loans have become (quite understandably) popular and necessary recently and are seen by many as the most helpful of all the debt solutions. Debt consolidation is the process of combining all your unsecured debts into one lower monthly payment with the consolidation loan provider then distributing the payment between your creditors.

Have you been thinking about bankruptcy? Keep in mind that bankruptcy will hound you for 7-10 years and more, during which time you may not be able to get loans or credit of any kind. Debt consolidation could be an option.

Federal Student Loans (subsidized and unsubsidized) include Stafford, PLUS and Perkins loans and are a focus of the government’s economic recovery program. Private loans require credit checks, so you’ll need a good credit history or a co-signer to be approved. Most states and schools will use your FAFSA (Free Application for Federal Student Aid) to determine eligibility for non-federal aid.

Student Loan Consolidation is a reality for many students and graduates who find themselves in the current tight job market.

For businesses, assistance is essential in starting the company, purchasing inventory and investing in capital equipment. Small Business Loans, backed by the SBA (Small Business Administration), are available from many banks if you have a strong business plan and a well-prepared loan request.

The economic stimulus plan has relaxed many rules of the SBA, provided extra funds to the participating lenders and increased the maximum loan amounts. You will need your most recent financial statements along with a repayment plan plus collateral. A solid personal credit rating is also very important.

The government doesn’t back private lenders. If your credit history is bad or non-existent, remember, you can always get a co-signer, pay on time and soon you can have a good credit score and your loans.

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