Need A Loan After Bankruptcy? Everything You Need To Know And Do In Order To Secure A Loan After Bankruptcy
Getting a loan is one of the most common ways to fund certain activities that do not fall within the range of someone’s normal budget. This is why people who may be starting a business, per se, apply for financing and try to split the costs of the start-up expenses with others. In a lot of cases, however, one may not be able to get a favorable personal loan that has the terms which they are looking for. Although the reasons for this turn of events could be numerable, one of the most common causes boils down to bankruptcies.
What Exactly is a Bankruptcy?
Bankruptcy is a process where one leverages the law to reset their current debt by having it wiped off or at least delayed. Due to the fact that there are two different approaches, people who must file for bankruptcy will choose between Chapter 7 and Chapter 13. So, what exactly are the differences between these two legal notions? Well, under Chapter 13, the party that has accumulated too much debt to pay will negotiate with the lender to create a payment plan. Authoritative figures will generally review the plan to ensure that it falls within the range of income from the person that owes the money. In the end, both sides agree to stick to this plan for three to five years.
Chapter 7, on the other hand, has nothing to do with payment plans. Instead, the parties that are owed money will get together and sell the debtor’s nonexempt assets to try and get their funds back. Once this type of bankruptcy happens, the person will not have any debt anymore as it becomes wiped. So, which one of these two chapters for bankruptcies is a better option?
Choosing Between the Chapters
Although it may seem that Chapter 13 would be much more beneficial, given that one is not forced to give up their assets to pay people off, this is not always the case. For instance, having to rely on this route means that the person will still have to make decent-sized monthly payments for up to 5 years. Well, given their financial struggles, this type of commitment could be quite dangerous. The reason why is that loans carry interest that will increase one’s payments. Also, missing a payment or two will raise the remaining ones by a noticeable amount.
Of course, this does not mean that Chapter 7 is the polar opposite. Although this type of bankruptcy gives one the right to eliminate all monthly payments and get a fresh start, it results in a larger drop in consumer credit. On average, people who file for Chapter 7 bankruptcy will lose around 200 points. Also, this particular solution spends more time on one’s credit report aa Chapter 7 lasts a whopping 10-year period. Chapter 13, on the other hand, disappears after 7 years.
Life After Bankruptcy?
Contrary to the popular belief that arose as a byproduct of misinformation in the market, there is life after bankruptcy. If there was not, the government would not allow thousands of people to file for it every year. In reality, however, that life might be quite limited in what one can purchase for a fairly long period of time. Enter personal loans again!
The most common misconception is that bankruptcies make one ineligible for all loans in the market. This is not true. Bankruptcy does not make one ineligible for a loan, it just adds a few more steps for them to go through. Moreover, it limits their ability to get favorable terms in terms of interest that has to be paid on the lump sum. So, people who have a history of bankruptcy and it is still on their credit are probably going to have to spend some time working on a few things before filling out a loan application.
Stop Using All Credit Accounts
The only thing worse than having a bankruptcy on one’s credit is having a bankruptcy and still using those credit cards on a regular basis. This is because every creditor communicates with the reporting agencies and provides insight into the client’s activity. In general, consuming more than an average of 35 percent of the limitation will start bringing the credit score down in an exponential way. Thus, those who may have a few cards with $1,000 spending limit should never use more than $350 per card per month. Doing so can help improve the credit score and bring one closer to being approved for their dream loan.
Secured Credit Cards
Although the ultimate objective of this process is to get a loan that the client needs, they may have to spend some additional time building their credit through the secured-account method. In this approach, the client pays down whatever they would want their credit card limit to be. That way, it that person ever reaches that limit, the card is no longer useful because over-spending is not an option. Similarly, if the card is never paid off, the bank will be covered by the deposit while the client’s credit will be ruined nonetheless. So, why are secured credit cards such a powerful vehicle for building credit?
Because the person can get whatever spending limit they want to have as long as they back it up with actual cash. Then, spending no more than 35 percent of that limit for a number of months will build the trust in the client who may end up getting their deposit back. At the point, the secured account is slowly shifted to an unsecured one.
Look for a Flexible Financial Intermediary
The last important step towards getting a personal loan after bankruptcy is to look for a reliable lender who is willing to work with people that carry poor credit. In order to be successful with this approach, however, one must know exactly how much money they are looking for, what is their preferred range for the interest rates, and many other variables that determine if they will be able to make a compelling case to the lender or not. Therefore, people who fit the description should waste no time and begin reaching out to prospective lenders immediately. Doing so is going to maximize the chances of getting a loan.
Associates Home Loan of Florida can guide you through the lending process! Apply Now or Call us today at (866) 257-9476