Mortgage Loan | Bad Loan Credit- The Bottom Line

September 4, 2010 – 1:23 am

When getting a loan, most of think that we automatically get the advertised interest rate. Some of us even think that whatever rate is advertised by that particular institution at the time we apply goes for all loans. This is not usually the case and most of us don’t even realize this until the very end or until its too late. Unless you specifically ask, most lenders usually don’t like to discuss what your interest rate will be until right before you sign your papers (unless the rate is very favorable of course). There is nothing more frustrating than finding out that you are stuck paying a higher interest rate for the duration of that loan because you didn’t know to ask. Interest rates vary depending on your credit history and the type of loan that you are applying for. Having bad loan credit will directly affect your interest rate a great deal, and depending on what type of loan, this could take just an average car loan and make it look like a mortgage loan on a small house. That’s why it is so important to keep a good credit rating and avoid having bad loan credit.

Lets take a closer look at this just to be sure its completely understood. Usually, when we finance a home or a piece of land, it can stand for itself, meaning that the bank can resell it more easily if something goes wrong and you can’t finish paying for the loan. This doesn’t mean there going to give a loan to anybody of course, but there are programs out there you can join that will at least make getting a mortgage possible for you. Now of course at the beginning of the payment schedule, if you do indeed suffer from bad loan credit, you will in fact have to pay a higher interest rate. However, if you make your payments on time, and begin improving your over-all credit rating, soon you will be able to refinance this loan and get a better rate.

Now on the other hand, lets look at a car loan. As we all know (0r at least we should), once we drive the car off the lot its value begins to depreciate. Because of this, the lender is taking a bigger risk on you and your ability to repay. Sure they can (and will) reposes and then resell the vehicle, but as we have already determined, it will be at a lesser value. The way this is offset of course is to charge the borrower an extremely high interest rate. The higher interest rate will make up for the vehicles depreciation should you default. This is how bad loan credit works in its simplest form and how it will effect you.

So is there any good news to all of this, sure there is. Having bad loan credit today doesn’t mean that you will never see lower interest rates again. In fact nothing could be further from the truth. You must understand that this will not happen overnight and you must also realize it can only happen by you taking that first small step. By enrolling in a reputable program, and if you stick with it (meaning doing what your supposed to do), it wont be as hard or take as long as you originally thought it would be to erase that bad loan credit from your files forever and re-establish yourself as credit worthy