Different Types of Loans – Top 10 Mistakes To Avoid!
1. Home Equity Loans
Home equity lines of credit are a great tool homeowners can take advantage of for making large home improvements, paying off high credit card debts (only in case you are getting a lower rate with your equity types of loan) or paying off other higher interest types of loans. The general rule of thumb is to avoid spending home equity loans on home remodeling projects that are not going to increase the value of your home by over-improving or making unnecessary changes. A good example of bad attempts to increase home values is adding a bedroom by taking away garage space, putting in an in-ground pool or adding a home theater room. All these improvements will not considerably raise the market value of your home and will just put you deeper into debt. Instead, focus on kitchens and bathrooms if these truly need repairs.
2. Student Loans
Low rates of student loans make these very attractive for people heading off to college or grade school. Unfortunately, not everybody is using these types of loans wisely maximizing their potential without getting into too much debt. Some people use student types of loans to fund expensive purchases, weddings or cars which are the worst mistakes one can make. Plan your student loan expenditures wisely and make sure you do not borrow above your necessary limits. Go to an expensive private school only if this will realistically help you land a higher paid job after you graduate not because it is prestigious.
3. Debt Consolidation Loans
Debt consolidation or various “fix your credit fast” clinics are not always a smart decision. These services are going to charge you money that could have been otherwise put towards paying off different types of loans instead. Avoid such services at all costs and take control of your own life and finances by setting a firm household budget to stick to, streamlining bill pay online, setting monthly pay bill reminders and reducing unnecessary recurring expenditures.
4. Mortgage Refinance Loans
Mortgage refinance with no closing costs always draws attention of homeowners and many people fall into this money trap. As we all know, in order to refinance your mortgage we need to pay a certain number of fixed fees like home inspection fee, notary fee, title insurance, recording fees and others. In order to get clients, lenders make mortgage refinancing more attractive for homeowners by offering seemingly “no closing fees” deals. In fact, these fees will still be paid by the borrower and reflected by a higher than average mortgage refinancing rate. In order to assess the reality of no closing costs mortgage refinance offers, compare them to standard mortgage refinance options and see which one makes the most sense for you.
5. Large Credit Card Purchases
Making a large credit card purchase before applying for a home mortgage loan has to be one of the worst mistakes to avoid. This decision will almost always result in fewer chances of you getting a low mortgage interest rate by lowering your FICO score. Mortgage loans with bad credit mean that homeowners will be forced to incur additional expenses and higher interest rates. It is always wiser to work on improving your credit score before applying for a home mortgage.
6. Credit Score Evaluation
Credit score is essential for getting almost any types of loans. In order to get a low interest rate, you need to evaluate your current credit score, file disputes in case there of miscellaneous errors or if you feel like there is a potential of an identity theft fraud. The way you can improve your credit score is by getting organized and starting to pay your bills on time, reducing credit limits on your credit cards and otherwise living within your means. The hard work you put into improving your FICO score will result in significantly lower interest rates you can get from the best home mortgage lenders.
7. Car Loans
There are a lot of mistakes that car buyers make that could otherwise have saved them lots of money. New and used car loan rates are not the only figures that should be carefully analyzed before signing your car purchasing agreement. Car dealerships offer an endless list of services and add-ons requesting for you to pay upfront like upholstery protection, various coatings and even upfront oil changes. Most car buying experts warn against agreeing to these because all these extra add-ons are not only necessary, they could be purchased from various other places at a much lower price.
8. Reverse Mortgages
Reverse mortgage types of loans could present a great opportunity for homeowners of 62 and older, however, these must be handled wisely in order to become worth the risk. Reverse types of mortgages are right for you if you have enough money to pay the hefty closing costs, including upfront fees paid to mortgage insurance companies. If you or your spouse are not planning to stay in your house due to poor health or other related issues, getting into a reverse type of mortgage means that the surviving spouse will be faced with a nightmare of having to pay off all mortgage amount at once. In order to make reverse mortgage a success, you need to learn all the requirements from reverse mortgage lenders in detail.
9. Offshore Credit Cards
Every consumer with poor credit has probably once or twice considered opening an offshore credit card that offers an opportunity to access credit without credit check requirements. While this offer might sound rather attractive, there are a lot of mistakes one can make while opening offshore lines of credit, namely paying too much in interest charges, huge security deposits, enormous annual fees that are simply not obtainable for people with bad credit. It is much more practical to work on one’s personal credit score and then applying for various types of loans, including domestic credit cards and small business credit cards if you qualify that come with much better rates and are much more secured opposed to offshore ones.
10. Investment Property Loans
First time property investors often run into investment property loans by miscalculating the actual renovation costs they might need to increase the market value of their real estate investment. Getting in over their heads and purchasing properties that require major renovation like foundation work, new roofing, bedroom or bathroom add-ons is like an invitation to a financial disaster especially for new property investors. Major renovations very often entail hidden fees and might cost you more money that you are ready to pay. If you are a real estate newbie, stick to properties that only have a list of minor cosmetic repairs to do so you can get your feet wet in the real estate investing world.