Subprime Loans

A growing number of banks and credit grantors are now doing what are called “subprime loans.” Subprime loans make it possible for people with bad credit to get mortgages, car loans or credit cards. But not all subprime loans are created equal and not all lenders are reputable, so do your homework if you are in the market for subprime financing.

If you own a home, here are three subprime loan options to consider.

Mortgage Refinancing Subprime Loans
This is when you pay off your original mortgage with a new loan, a move often prompted by getting a lower interest rate. This can drop your monthly payment and allow you to take some of your home equity out in cash.

How can you tell if a mortgage refinancing subprime loan is the right step? Here are some positive indicators.

Second Mortgage Subprime Loans
If you don’t want to refinance your first mortgage, a second mortgage is another way to access your home equity. It’s a good choice when you need cash for home improvements, buying a car or clearing up debt.

A second mortgage will give you a fixed amount of money repayable over a fixed number of years. Second mortgage subprime loans come with either a fixed or adjustable interest rate.

Fixed-rate second mortgages guarantee the same monthly payment, excluding property tax and escrow fluctuations. If you get a fixed-rate loan and you don’t sell your home for several years, you’ll save money over adjustable-rate loans as interest rates rise.

Adjustable-rate mortgages (ARMs) come with terms ranging from one-to-ten years or longer. The interest will go up or down (usually ‘up’) with whatever financial index the rate is tied to. There will be a cap on how high the overall rate can go.

One advantage of second mortgage subprime loans is that the interest you pay is usually tax deductible. And, since the loan is secured by tangible property, the APR (annual percentage rate) will often be lower than it would be on an unsecured loan.

Debt Consolidation Subprime Loans
A debt consolidation loan can save you thousands of dollars in interest. When you make a minimum payment on a credit card or loan payment, you are mostly paying interest. With the cash from a debt consolidation loan, you can pay off the principal all at once and save the interest.

If you’re paying more than 15% interest on anything, you should seriously consider a debt consolidation loan. The right terms could drop your monthly payments by 35% - 50%, depending on interest rates, origination costs and tax consequences.

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