At some point, most of us will require extra cash to deal with some financial problem or to have the funds to begin some new project like home improvement or pursue a business venture. In other words you will probably get a loan of one type or another whether it is for a house, a car, or to further your education or that of your children. Even for people who have had to file for bankruptcy, these situations will come about. Though it may seem like a major obstacle to get approved for loan if you have been declared bankrupt, this is not necessarily the case. In fact, bankruptcy does not have to be barrier at all to you obtaining a loan or a line of credit.
However, that being said, if you are looking for a loan you will have to deal with specific conditions. Most lenders will attach certain requirements to any loan applications they approve from those borrowers who have declared bankruptcy at some time in the past. There are three typical conditions that borrowers will have to account for when they seek to get a loan after bankruptcy.
* Collateral - Since bankruptcy is seen by many lenders as a palpable risk, they will require some sort of security in the form of collateral in order for you to receive a loan or a credit line. Most of the time, collateral will include assets like houses, cars, real estate, or other valuable possessions that can be pledged to cover any losses suffered by the lender if the borrow defaults on repayment of the loan.
* Higher interest rates - From the lender's perspective, you are a riskier borrower when you have poor credit history and especially because of the presence of the bankruptcy on your record. This translates, for many lenders, into a tendency for the borrower to miss payments, become habitually late with repayment from month to month, and possibly default on the loan entirely. In order to counterbalance these obvious tendencies, lenders who do offer loans to recent filers of bankruptcy will often charge higher interest rates. Thus, as a borrower, you will likely pay an interest rate that is at least one or two percent above the average rate.
Higher financing fees - Lenders may also carry over these risk management efforts to other financing fees. Just as with higher interest rates, these other fees including annual fees on credit cards or late payment charges. These higher charges are just a part of doing business with those borrowers who have declared bankruptcy.
Once you realize that there will be some differences as far as the overall cost of the loan, you will be better prepared. It is entirely possible to obtain either credit lines or loans after declaring bankruptcy. Different conditions and terms may apply so you, as the borrower, should do research. You should be prepared to pay more for the money that you actually borrow if you do not have significant collateral to allay the lender's fears. In the end, regardless of the extra costs, you will be able to enjoy the benefits that security a loan can provide after bankruptcy!
If you think that bankruptcy can hinder you from applying for a loan, then think again because whether a person is bankrupt, a loan can still be arranged especially if you own a home with a fair amount of equity. Of course it is not that easy and some conditions will still have to be met albeit very fundamental ones, however, being bankrupt will not be one of them. These specially designed home loans are exclusively intended for those bankrupt individuals thus helping them meet the needs and conditions to organize their fiscal affairs.
In some cases, the application for the interest rates normally reserved for home equity loans is simple enough as the standards involved for these loans are much lower than normal but in this case, where a bankruptcy has occurred, a standard equity loan with decent interest rates, the process to determine the loan is figured on the percentage of equity available.
To put it simply, a home equity loan will be taken from the eighty five percent of the remaining equity after the mortgage has been deducted, A good example, let's take a person owning a one hundred thousand dollar home - after you have deducted the mortgage say at about fifty thousand dollars, then you will be left with an even fifty thousand dollars and from that is where the home loan can be taken. The equity release is accessible as a portion of the leftover equity in the home. If the outstanding mortgage were paid off in its entirety, then a much higher loan could be secured.
Even though the home equity loan is being made to someone who has went bankrupt, they will receive good terms for the loan because it is secured with the property, which also ads to a greater amount that can be borrowed. With this type of loan, all the advantages seem to be with the individual borrowing the money as they are getting better interest rates than someone who has bankrupted would usually expect in addition to better repayment conditions. And with better payment conditions, the installment payments should be easier to handle.
Usually, standard credit checks are not that detailed and don't show the collateral in the property and this is something lenders are conscious about so make sure you list all equity on the application so it does not get overlooked. When you show that your home has equity, you may be surprised at a swift resolution, since the requirements for this type of loan will have been have reduced.
Once the credit verification has been completed, only a couple of steps remain, the first of which is the careful analysis of the house's deeds. And also the individual borrowing the money needs to establish that they are in employment and have not only the means but also that the repayment is not going to overburden them financially.
Lenders will need to be assured that the borrowers meet their guidelines and that the monthly instalments will not exceed forty percent of the borrower's income. They will will usually request current copies of pay checks to verify the borrower has the means to repay and maybe other documents as well. In such cases where it is seems to burdensome for the borrowers, adjustments such as reducing the sum of loan that the borrower is able to comfortably repay may be the solutions. In any case, having went bankrupt, is no means a deal breaker when it comes to borrowing money. Having home equity is good, but even that is not necessary. Expect to start receiving credit card offers almost immediately after your bankruptcy has occurred.
Both Joseph Kenny & Kay Brown are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.