Cost of a Bad Credit Rating
Folks with poor credit ratings can expect to pay as much as five times more in interest payments and fees over a life-time as compared to those with good credit ratings. When you think of all the things of modern life that are affected by credit ratings in one way or another, that is easy to understand:
- Mortgage or home loans (mortgages for those with bad credit)
- Small business loans
- Personal loans
- Vacation finance loans
- Telephone and cell phone agreements
- Cable and satellite TV
- Prospective employment
Mortgages for Those with Bad Credit
A rose is a rose, but mortgages for those with poor credit can carry many names: non-conforming financial loan, credit impaired loans., specialty loans, sub-prime loans, etc. These loans are for borrowers with unique financial situations and they do not meet the regular financial benchmarks found with conventional loans. These mortgages or home loans require higher interest rates, and often heftier down payments.
Benefits of a Mortgage for Those with Bad Credit
Despite the high cost, mortgages for those with poor credit can bestow a wonderful benefit - improved credit ratings. If a borrower is able to maintain proper and timely payments as stipulated in the home loan or mortgage contract, he or she will see a marked improvement on their credit scores. This could pave the way for future loans granted with significant reductions in interest rates and lending fees.
Credit History vs. Debt-to-Income Ratio
Lenders who grant mortgages for those with poor credit use a different sort of criteria when they determine the eligibility of a borrower. They do look at credit histories but they will look more closely more closely at the debt-to-income ratio - how much is going out and how much is coming in on a monthly basis. If those figures look good and if there is the potential for the economic growth of the borrower, the lender tends to overlook past mistakes. But, since the borrower does have a record of not paying back loans on time, they are obliged to charge higher interest rates and fees to cover the risk.
Compared to Other Loans
Pay Day Loans and Cash Advance Loans, though their interest rates are already almost usurious, also consider the past credit performance of their borrowers. These lenders have realized solid profits due to these interest rates. But, the rates of interest and the fees are reflective of an individuals past financial reliability and therefore often understandable.
Withdrawing Carte Blanche
Some economists have argued that granting home loans or mortgages for those with bad credit is just another way to give money to people who cannot afford and allow unscrupulous lenders to prey on these high risk individuals, extracting fees and rates that would make a loan shark blush. As a result, new lending regulations have been set up to make getting a mortgage for those with bad credit somewhat more challenging.
Life Insurance - Bad Credit Means Risk
Life insurance companies have developed a little skepticism about insuring individuals who have a mortgage for those with bad credit. They believe that reckless financial responsibility means reckless personal responsibility. More claims come from those with such loans. Insurers use this reasoning to substantiate increased payments for those with poor credit.
Auto Insurance - Bad Credit Means More Accidents
Automobile Insurance companies raise their insurance payments when underwriting holders of a mortgage for those with bad credit. And for good reason. Motorists with poor credit file more claims at the rate of 40% more than their good credit fellow motorists.
Back In The Groove
In spite of all this negative information, a home loan or mortgage for those with bad credit is a start to getting your financial life back into the right groove.
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