Money lending business has evolved. More than ever, borrowers are provided with different options. Even those with bad credit can still borrow money. Sometimes people associate bad credit with defaults and missed payments. But the truth is, one can have a low score because he or she has never had credit before. What loan options are there for individuals with bad credit? We want to remind you that having bad credit means more risks to the lenders.
You can struggle to get a loan, and even if you are approved for one, the interest rates are likely to be very high. Equipment financing can save such individuals better. But still, there are so many loans for bad credit. You can qualify for all secured loans even if you have bad credit. Today’s discussion is focused on how one can borrow against savings. This one of the best options that can help build credit over time.
Borrowing Against Your Savings
You can obtain a loan using the cash in your savings account. It may sound inappropriate to borrow money when you already have some cash in your account. Nevertheless, loans secured with cash have helped individuals build credit for so long.
As we earlier highlighted, it may be quite difficult to secure a loan in case you have never used credit previously. But Licensed Money Lender often accept saving-secured applications for everyone. This means any of these loan options can help you improve your credit history.
Go to your bank and identify yourself using valid documents. Upon identification, confirm your account balance. Generally, you are allowed to borrow up to the amount equal to your account balance. So, decide on how much you want to borrow. After that, you can speak to the representatives of the bank and ask about the interest charges. Let the bank know the amount you want to borrow and select a loan term based on the payment amounts. Be very careful not to take a short-term loan if you feel you cannot afford the payments monthly.
A certificate of deposit account will be opened for you. This is an illiquid kind of savings account with which you can borrow loans with and so you need to transfer sufficient funds from your savings account to provide for the loan amount.
Select a proper CD term, which must commensurate the loan term. This means if you intend to repay the borrowed amount within five years, this should be the term of the CD. Importantly, the interest rates vary with banks. While many lenders prefer giving promotional rates on short-term CDs, the best rates are often given on long-term CDs.
You will be required to have the CD contract. Make sure you are keeping a copy of the contract. Also, review the agreement to ensure everything agreed on is as quoted before appending your signature. The loan proceeds can be in the form of cash or check. Still, the money can be deposited right to your account.
If you are a business person, the insurance company may require that you maintain a certain balance in your bank to ensure you have sufficient funds for premium payments at all times. If it is difficult for you to obtain another financing option, you can still borrow using these cash savings with no effect on the insurance coverage. Nonetheless, if you spend the amount, the coverage may be dropped since you lack funds.
You also need to be careful and understand what you are getting yourself into. Whenever you borrow against your savings, a hard free is often placed on the account. What does this mean? At no point can you access the funds in the account unless you have repaid the borrowed amount if full. In case you fail to keep up with the payments, the lender is at liberty to liquidate the CD and settle the debt using the proceeds.
Make sure you are making payments in time, especially if you have bad credit. This applies to all loans, not only this one. Most lenders report payments, and so if you pay in time, the payments will be reflected in your history. What if you anticipate an inability to make a payment? We hope this does not happen. But in case it does, talk to the ender in advance, and you will be assisted accordingly. The help may involve readjusting your repayment schedule at a cost.
How it Works as a Financing Option
- The funds can be used for anything. The funds obtained can be used for whatever purpose provided it is legal. For instance, you can finance something you need or anything that will earn returns, for instance, home improvements. As we mentioned in the preceding section, you can receive the funds as a lump sum through your checking account.
- The rates are competitive. Even though the lender has your cash as security to the loan, you will still be required to pay interest. Nevertheless, you will benefit since the interest rates are always lower compared to other forms of financing.
- Fixed rates. The loans have fixed rates of interest, and this means your payment will remain to be the same throughout the repayment period. This provision protects you from the risks you are likely to face due to variable rates.
- The loan amounts. As we outlined earlier, you can borrow the amount that equals your account balance. Nevertheless, some lenders limit the amount to 90% of the funds in the account.
- Short terms. These loans are often characterized by short term repayment periods. The loan is expected to be repaid in less than ten years.
- Installment payments. You will be expected to repay the loan through monthly installments over the loan period.
An individual can easily qualify to borrow against the savings made. If you have bad credit, this might be the best financing option for you. In this blog, we have discussed how you can borrow against your savings and how the loan arrangement works. We believe this discussion has been helpful. Let us get your comments below.