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Saving Yourself From Subprime Nightmare

January 26, 2017 By CHamler

saving-yourself-from-subprime-nightmare

To others, a subprime loan means redemption. To some, it is a nightmare. Subprimes have its pros and cons. And if you applied for one for the right reasons and with ample knowledge of what you’re getting into, you’d less likely be in a nightmare.

A subprime loan is known to have very high-interest rates, high monthly fees, have balloon maturities and allow prepayment penalties.  Since this loan provides financing for borrowers with bad credit without even a need for an income or asset verification, interest rates are higher compared to prime loans. The calculation of the interest and principal rates are risk-based; meaning the worse the credit, the more expensive the loan. Aside from that, it can also be a balloon mortgage. It is offered at a low introductory rate, which would then substantially increase and should be paid at one time at the end of the loan.

Study Your Situation

These things, if not studied well, can easily become a roller coaster going downhill. That is why the first thing you need to do is to do your homework. Research about this loan as much as you can. Ask as many lenders with as many necessary questions as possible. Whether you are still about to get a loan or already in it, examining your situation will help you foresee what course of action you may take to avoid such mishaps.

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Is Refinancing Possible?

If you feel like you’re in a constant struggle every month just paying for expensive rates, it may be time to try and bring down your monthly fees to a more comfortable amount. Refinancing a subprime loan is very possible. Keep in mind, though, that refinancing a subprime isn’t easy. First off, you have to review your FICO score and credit reports. If you have paid your dues diligently, you will see significant improvements in your score. Improved scores mean you can lower your rates. But if you’ve missed a couple of payments you may end up having an even higher rate, so be careful.

In refinancing a subprime, you need to prepare substantial documents to prove that you are worthy of it. Before you start contacting lenders, make sure you have your paperwork ready the moment they ask for it.

 

Balloon Loan: Paying it off Early V.S. Saving Up Money

Know to be balloon mortgages, this particular loan type can have a huge one-time terminal payment. Many ask, would it be wise to pay it off early or should saving until it is due be a better option. This boils down to what financial goals you have set and the assets and investment plan that you have.

Comparison between the loan rate and the income rate plays a big role in determining which path to take. If you’ve used the money as an investment and the earning rate is greater that the loan rate you need to pay, it is wise to invest the money first and let it grow. This way, you save enough money to pay for the balloon when it is due. If it is the other way around, paying it off early will save you more money.

 

Talking to Different Lenders

This works best when you are still planning to get a loan. Before taking on the bait, talk to different lenders and compare their loan offers. Scrutinizing the loan agreements and offers will pinpoint where the possible problems can arise once the loan is in effect. Also, do not limit yourself in talking to just the subprime lenders. You may also engage with lenders offering other loan types. Just make sure you compare apples to apples, and not to oranges.

While in the loan, regularly ask lenders on updates about your loan, how much you’ve paid so far and keep records for future reference. Also, try reviewing your loan agreement and discuss with your lender how they can make you afford the payments better.

 

Two Cents

In the end, what can possibly save you from a nightmare is strategy. Whether impending or already existing, subprime difficulties can be fixed through the ability to cross-examine the current situation and plan out a strategy that does not only fix the problem short-term but ripples it’s effect until the end of the loan. Discuss with a lending expert and get professional advice to help ease the burden. Subprime loans can mean redemption if used for the right reasons.

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Filed Under: Loans, sub-prime mortgages, Subprime Lending Tagged With: Balloon Loan, Subprime Lender, subprime lending, Subprime Nightmare, Subprime problems, Subprime pros and cons, Subprime refinancing

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