Bad Credit
Here’s The Secret To Finding Low Mortgage Rates
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Rate watchers are eagerly keeping tabs on mortgage interest rates, as they continue to slide. The 30-year fixed-rate fell to 3.07% over the Fourth of July weekend, another milestone low, according to Freddie Mac. But the reality is not everyone will qualify for a mortgage rate that low.
Credit score and down payment are both significant factors in the rate you get, but so is where you live and which lender you choose. A recent report by Haus, a home-financing startup, showed that getting a low rate was not entirely dependent on your credit profile.
“Lenders look at FICO scores to help determine interest rates. Financial prudence is going to be wrapped up in credit score. But where you live and which lender you use is also going to have an impact on your rate,” says Ralph McLaughlin, chief economist at Haus.
The report, which is based on Haus’ analysis of more than 8.5 million mortgage originations between 2012 and 2018 of borrowers with the same down payment, existing debt and credit score, produced two compelling results:
- Who you choose as your lender could impact your mortgage rate by three-quarters of a percentage point.
- Where you live matters, as there was more than a third of a percentage point difference in rates across metropolitan areas.
Here we’ll look at what those results mean for today’s borrowers and what you can do to improve your chances of getting a low rate as quickly as possible.
How Comparison Shopping Can Save You Money
All things being equal, borrowers who shopped around for a mortgage rate likely got a better deal than those who went with the first lender they found. Among mortgage lenders, there was a 75 basis point (bps) difference between rates, the report shows. A basis point is one one-hundredth of a percentage point. So, as an example, the same borrower would get a 3.25% interest rate with the least expensive lender compared with a 4% interest rate with the most expensive.
Without considering other housing costs (property taxes, homeowners insurance) or down payment, the difference in total interest paid between a 30-year fixed-rate mortgage with a 3.25% rate and a 4% percent rate on a $300,000 home is $46,000. The person with the 3.25% mortgage interest rate also will pay about $122 less each month.
“One of the biggest takeaways from this report was the enormous spread between rates different lenders offer,” McLaughlin says. “If you’re a homebuyer or refinancing your mortgage and you want to get the best rate fast, [the key is] not going to be to improve your credit score, unless you have a bunch of cash to pay down debt. Shopping around is what will help you immediately.”
According to the report, the lenders with the lowest rates were New York Community Bank and Chicago Mortgage Solutions (operating as Interfirst Mortgage Company), coming in 75 bps lower than their costliest counterparts, which were Citizens National Bank and Texas Capital Bank.
5 Least Expensive Mortgage Lenders
- New York Community Bank
- Chicago Mortgage Solutions
- USAA
- PHH Mortgage
- Provident Funding
5 Most Expensive Mortgage Lenders
- Citizens National Bank
- Texas Capital Bank
- Plaza Home Mortgage
- Pacific Union Financial
- GMAC Mortgage
Metro Areas with More Banks Offer Lower Rates
Along with shopping around, where you live can affect your interest rate. Borrowers in metropolitan areas with a dense concentration of banks typically received a lower interest rate than their counterparts in areas with fewer banks, according to the Haus report. The difference between the areas with the highest concentration of banks and the lowest was about 35 bps.
Dubuque, Iowa; Springfield, Illinois and Lima, Ohio had the cheapest mortgage rates while Sandusky, Ohio; McAllen, Texas and Danville, Virginia were among the most expensive places for home loans.
“If there’s less competition in an area banks can afford to raise their prices without losing business,” McLaughlin says. “This is especially true if borrowers choose to use local, brick-and-mortar banks rather than online banks, for example.”
Another reason why areas with fewer banks might charge more is that these areas are likely rural or away from urban cores, where home prices are lower, McLaughlin says.
Loan size affects interest rates based on two main factors: mortgage processing costs and risk. Smaller loans offer less exposure to banks, but they can be more costly.
“While smaller loans generally are less risky, the profit from a larger loan will be considerably more, which will cover the mortgage processing costs,” says Joseph J. Zoppi, vice president at New Jersey-based Templar Real Estate Enterprises. “On a smaller loan, this is not possible so the lender will charge a high rate or additional fees to cover the mortgage processing cost.”
For folks in areas where mortgage rates are several basis points higher than the national average, go beyond brick-and-mortar banks. Online lenders are accessible from anywhere and might offer a more competitive rate than what’s available locally.
“Don’t be afraid to use banks you’ve never heard of. So long as the rates are good, the fees reasonable and terms fair, there won’t be any issues,” says Leslie Tayne, founder and head attorney at Tayne Law Group in New York.
How to Shop Around and What to Ask Lenders
The first step in getting a competitive rate is to know what the national average for mortgage rates are. There are different rates for different types of mortgages. The most common mortgage, a 30-year fixed-rate, usually has a higher interest rate than home loans with shorter terms, such as 15-year fixed-rate mortgages.
The national average will give you a target to aim for. Because your credit score and down payment have the most influence on the rate you get, be sure you factor those in when you’re comparison shopping.
“The difference between a good and bad credit score may be reflected in the rates you’re quoted, with less favorable credit scores sometimes resulting in a 1% or more increase to your rate,” says Chris de la Motte, president of Simplist, a digital mortgage marketplace.
Start by contacting financial institutions you already have a relationship with, as you might qualify for certain discounts. Consider including online banks and mortgage brokers in your research as this will give you a broader reach.
Brokers have access to several lenders so they can offer you a variety of options without requiring you to spend a lot of time gathering quotes. However, mortgage brokers charge a fee for their service—typically between 1% and 2% of the loan amount.
Keep in mind, the cost of your loan includes more than just your interest rate. It also includes closing costs, any discount points and loan origination fees. The total cost of your loan is reflected in the APR, or annual percentage rate. The APR will vary by lender, which means two lenders can offer the same interest rate but one might charge higher fees, which raises the cost of your loan.
“It’s possible to negotiate your mortgage rate, but it’s not as simple as trying to bargain for a better rate. You will need to demonstrate that you’re creditworthy of the lower rate. It’s sometimes easier to negotiate some of the lending fees, which can total in the thousands,” Zoppi says.
Cosigners don’t get any rights to the vehicle they signed the loan for. However, if the cosigner is trying to take your car, it may be time to take some action.
Cosigners and Ownership
Cosigners can’t take the vehicle they cosigned for because their name isn’t listed on the title. A cosigner isn’t responsible for making the monthly payments, maintaining car insurance, or really anything else. Cosigners simply lend you their good credit score to help you get approved for the auto loan, and if you can’t make payments, the lender can require them to pick up the slack.
Since you’re the primary borrower on the vehicle and your name is listed on the car’s title, you have ownership rights. Your cosigner can’t come to your residence and take possession of the vehicle – even if they’re the one making the car payments right now.
If you do default on the loan and the vehicle is repossessed, the cosigner still can’t take the car.
But My Cosigner Did Take My Car!
If your cosigner did somehow take your keys and your vehicle without permission, it’s considered theft. If you want to take action, you can report the car as stolen.
However, a better first step is probably contacting the cosigner and letting them know that they don’t have any ownership rights (if you want to maintain a relationship with them). You can ask them to return the vehicle and explain that their name isn’t on the title.
Removing a Cosigner From a Car Loan
If things are dicey with your cosigner, then it may be time to consider removing them from the auto loan. The easiest way to remove a cosigner is by refinancing.
Refinancing is when you replace your current loan with another one. You can work with your current lender or another one, but most borrowers look for another lender to refinance with.
You don’t need a perfect credit score to refinance your car loan – it just has to be good or better than it was when you first got the loan. Another common requirement of refinancing is that you’ve had the loan for at least one year.
Other common requirements for refinancing are:
- You’ve stayed current on payments throughout the loan
- You have equity or your loan balance is equal to the vehicle’s value
- Your car has less than 100,000 miles and is less than 10 years old
Most borrowers usually refinance to lower their loan payments. Since you’re replacing your current auto loan with another one, many borrowers try to qualify for lower interest rates or extend their loan to lower their payments. If your credit score has improved, you may even be able to get a better interest rate and remove your cosigner!
Can’t Refinance to Remove the Cosigner?
Refinancing isn’t in the cards for everyone. However, another efficient way to remove a cosigner is by selling the car. Cosigners don’t have to be present at the sale of the vehicle, since they don’t have to sign the title to transfer ownership.
If you sell the car and get an offer large enough to cover the entire balance of your loan, you and the cosigner can walk away from the auto loan scot-free.
However, many borrowers need cosigners because their credit score isn’t the best. If you want to sell your vehicle to remove your cosigner, but you’re worried you can’t get a car loan by yourself, consider a subprime auto loan for your next vehicle.
Bad Credit Auto Loans
Since many traditional car lenders don’t work with borrowers who have poor credit histories or lower credit scores, they often ask them to bring a cosigner. But what if you don’t want a cosigner (or can’t get one) on your next auto loan? Enter subprime car loans.
Subprime lenders are teamed up with special finance dealerships, and they operate remotely. When you apply for financing with a special finance dealer, you work with the special finance manager who acts as the middleman between you and the lender.
You need documents to prove you’re ready to take on an auto loan – typical things like check stubs, proof of residency, valid driver’s license, a down payment, and other assorted items depending on your credit situation. If you qualify, the lender determines what your maximum car payment can be, and you choose a vehicle you qualify for from there.
What sets subprime auto loans apart from traditional car loans is that they assist borrowers in tough credit situations and offer the opportunity for credit repair. Some in-house financing dealerships that don’t check credit reports don’t report their auto loans, which means your timely payments don’t improve your credit score.
Finding a Car Dealership Near You
The best way to improve your credit score is by paying all your bills on time. Payment history is the most influential piece of the credit score pie. There are many lenders willing to work with bad credit borrowers, you just have to know where to look!
Here at Auto Credit Express, we’ve already done the searching, and we’ve created a nationwide network of dealers that are signed up with subprime lenders. Get matched to a dealership in your area, with no cost and no obligation, by filling out our car loan request form.
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In the face of unexpected events, most Americans don’t have enough cash to cover their needs. Statistics estimate that more than half of all Americans have less than $1,000 in a savings account.
It’s challenging to get through everyday life without expecting anything to go wrong. Any emergency — be it a car accident, a hospital visit, or even a broken refrigerator — will put Americans in trouble.
To add insult to injury, poor credit can make an emergency even more challenging. That’s where installment loans come in.
For consumers that have a bad credit score (below 630), installment loans can be the best option to get quick money. Installment loan funds are distributed all at once. Afterward, the repayment of the installment loan follows either a fixed monthly payment.
Online installment loans are ideal for emergencies as access to fast cash. Here’s everything you need to know before taking out an installment loan.
Online Installment Loan Basics
Installment loans are actually a broad category that includes many different kinds of loans, such as mortgage loans, car loans, and other personal loans. They tend to be long-term loans that require credit checks.
Payday loans are another type of installment loan. However, its structure is different. They must be repaid over a shorter period, have higher interest rates, but require no credit checks.
Installment Loans
As stated above:
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Installment loans deliver quick cash in one lump sum
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Installment loans require a credit check
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Installment loans describe many different loan types
Furthermore, installment loan terms depend on the type of loan and can range from 3 years for car loans to 30 years for mortgage loans. In contrast, a personal installment loan lasts for approximately 12 months.
To get approval for any of the above loans, the individual will be subject to a credit check (more to know on that here: https://www.wisegeek.com/what-is-a-credit-check.htm ) and a fairly long application process.
Installment loans offer an APR of 36% or below, and user payments can be made online, over the phone, or by check.
Another advantage of installment loans is that they help borrowers improve their credit rating — as long as they pay on-time. It provides immediate access to cash, while at the same time, it’s a means to an end toward recovering a bad credit score.
How well individuals can do often depends on the terms of the installment loan that they receive. Keep reading to get more advice on how to choose an installment loan that is right for you.
Choosing an Online Lender
Like any other loan, picking a lender requires a fair amount of research and work. It’s not going to be a simple task, and there are several factors that individuals need to look out for when picking the right loans.
Below are the most important features that individuals need to keep in mind when choosing an online installment loan.
Compare Rates
All the different installment loan options out there are going to offer different percentage rates. These range from 6% to 36%, and you should sift through all possible options to get the most favorable rates.
Ideally, individuals should opt for the lowest rates to ensure that the monthly payments are as low as possible.
Online lenders can offer potential borrowers their interest rates ahead of time. This usually requires a soft credit check, which does not impact a borrower’s credit score.
However, applicants need to be careful, as different vendors have different requirements. Understanding these requirements will help avoid any mishaps.
Understand All Fees
Every vendor has different fees, these fees might have different names like an “organization fee” or a “service fee,” but they generally range from 1% to 6%.
In contrast, other vendors might charge a prepayment fee for early repayment. Under no circumstances should a borrower agree to a loan deal before the lender discloses all fees.
It’s up to the individual to be as vigilant as possible because certain vendors will keep some fees to themselves, and may not disclose them until the last minute.
To avoid any excess costs in the future, make sure to go over the contract in its entirety.
Choosing Manageable Terms
Installment loans offer a lot of advantages for needy consumers:
But, one thing to remember is this: the longer the loan term, the higher the interest individuals will pay. Taking longer terms might give borrowers more time to pay, but it also means that borrowers will have to pay more interest.
In contrast, shorter terms are harder to manage, but it means paying a lower interest rate. When choosing the right installment loan, individuals should calculate the monthly payment based on the term length.
Many online vendors offer software that automatically calculates the amount. Everyone should employ a strategy to assess different term lengths to see what monthly payments are the most manageable.
Vendor Perks
Not all vendors are the same, and it’s already established that they offer different rates for different prices. However, while already offering different rates, vendors also offer different perks — specific features tailored to the individual.
If the individual is consolidating debt, certain lenders will send loan money to creditors on behalf of the loanee. Other vendors offer the ability to change due dates or provide hardship plans if the borrower encounters any financial difficulties.
It’s crucial to consider all these factors before taking out an installment loan. It’s best to have everything working to your advantage with an already poor credit history before taking out an installment loan.
Our Top Picks for Online Installment Loans
There are hundreds of online installment loan options out there, and looking through all of them can be a hassle. Furthermore, those new to the industry won’t be able to identify scams or loans meant to exploit.
Upgrade
Upgrade is one of the best installment loan vendors for those with a bad credit score. They accept a minimum score of 600 and will provide potential applicants with an offer in minutes. Their APR rates range from 7.99-35.97% depending on the amount, duration, and purpose of the loan. Users can easily apply for loans and get ideas on rates using the company’s website.
Simple Fast Loans
Simple Fast Loans is also among the best installment loan vendors for individuals that have a bad credit score. They offer loans ranging from $200-$3,000. These loans have terms up to 5 years.There’s no prepayment penalty, and applicants will also get next day funding. To get an idea of the rates, users can easily apply using their website.
LendingPoint
For users that have a credit score below 600, a great option to choose is LendingPoint. They accept a minimum credit score of 585 and offer loans for $2,000-$25,000. The APR rates for these loans are on the higher side ranging from 9.99-35.99%. Money becomes available to the applicant the next day, and there’s no prepayment penalty on the loan.
Avant
Another installment loan vendor for users that don’t have a good credit score is Avant. They require a minimum credit score of 580 and offer loans for $2,000-$35,000. The APR rate is between 9.95-35.99%, and they offer the ability to change payment dates. However, applicants will have to pay a loan origination fee, and there’s no option to include a co-signer on the loan.
Online Financing Options to Avoid
Online installment loans are a great option for individuals with bad credit scores, and, if used correctly, are a way to improve credit scores.
However, the same can’t be said for all online financing options, and certain ones are important to avoid.
Payday Loans
Payday loans function similarly to installment loans. In addition, they have recently been rebranded as short-term installment loans.
The loans are usually under $1,000 and are due on the next payday. With payday loans, an individual will have to either submit a post-dated check or provide access to the bank account.
It might sound relatively okay, but the issue with payday loans is that it’s nearly impossible to pay them back. Lenders will let individuals roll over the loans with more interest to pay the next day. Interest rates are typically 400% APR on these loans, and individuals get caught in the payday loan debt cycle.
No Credit Check Loans
These loans might seem like a good idea for those with bad credit scores, but they’re essentially just a debt cycle. The combination of high-interest rates, short terms, and lump sum repayment means that borrowers are stuck in a cycle of ever-increasing debt. It’s best to find loans that offer some sort of credit check and security to get the best terms.
Upfront fees
While certain loans might require a small percentage to process the application, some can be a complete red flag. There are plenty of up-front loan scams, and there are several signs that borrowers need to address. If a vendor asks for money upfront, then there’s a good chance it’s a scam.
Additionally, these issues tend to arise the most with vendors that don’t offer credit checks. Lastly, do enough research to recognize an offer that seems too good to be true.
Conclusion
Keeping all these things in mind, online installment loans are the best option for borrowers with a bad credit score. They are a useful resource and, if managed correctly, are a path to recovering a good credit score.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes
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