If you are part of a low-income family, you may feel that your options for finding a low-cost loan are limited.Generally, lenders factor in a household’s income when determining whether to approve a loan application, and those who don’t measure up will be turned away.But there are options available, as long as you are willing to do a little work.Here’s how to track down a low-cost loan when you’re in need.
Be Smart About Your Borrowing
When keeping the costs of a loan low is a priority, you need to make sure you are smart about your approach.First, you need to determine the minimum amount you need to accomplish your goal, whatever that may be.Typically, the less you borrow, the lower the total cost.Smaller amounts pose less of a risk to the lender, so you may be more likely to be approved and get offered a more favorable rate.
You also want to keep the term as short as possible, as this can also save you money when dealing with traditional lenders. Low Income Financial Help has provided some options to consider when looking for a loan. Here is also a list of different type of loan options for low income earners.
A loan backed by collateral, such as a home or car, is often less expensive than an unsecured loan.The lender gets additional assurance since they can take possession of the associated asset should you fail to repay the agreed upon amount, making it easier for them to offer lower rates.
It is important to realize that the penalty for not meeting your obligation means the lender could take control of the collateral, so you are putting your home or car at risk in these agreements.If you anticipate not being able to repay the loan, then this might not be the best option.
Talk to Your Bank or Credit Union
In some cases, your bank or credit union may have an option that would work for you, even if it isn’t widely advertised.Plus, if you have a long-term relationship, they may view your application more favorably, especially if you have good credit. This approach isn’t guaranteed to work, but it is a wise place to start.
When finding a low-cost loan is a priority, you need to shop around. Different lenders have different products, interest rates, fee structures, and lending limits, so taking a close look at each one is a smart financial move.
Generally, credit unions offer better rates and terms than many other lenders, so start there if you qualify for their services. Many credit unions have restrictions regarding how can join, such as only families associated with a particular employer or who live in a specific area, so you’ll need to do some research here.
After that, look to traditional lenders likes banks. If you have a high enough credit score, you could find a solution at a small, local bank or a larger, national bank, making it wise to do a thorough search of all potential lenders in town. You can also explore peer-to-peer lenders online, as these can have favorable rates for individuals with a reasonable debt-to-income ratio and strong credit.
Normally, options like payday lenders are guaranteed to have high costs. This means you’ll need to bypass them if you want to keep your costs low.
If you have trouble qualifying, determine whether it is your income or your credit score that is actually responsible. If you have poor credit, there might not be any low-cost options until you improve your score. But, with time, you may be able to bring yours open, opening up new opportunities.
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