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Debt Management

Debt Agreements FAQ

What are the basic facts about the debt agreement that every borrower need to know? A debt agreement is one of the ways for the creditor to recoup some of their losses when the debtor is not able to pay them back in full and when it is difficult to collect on the debtor’s outstanding loan. The creditor and the debtor put new payment terms in writing, to allow the debtors to at least make partial repayments. Read our debt agreements FAQ and learn more about debt agreements.

When do I have to enter into a debt settlement agreement?

It is applicable when you owe a lender an amount of money and you are not able to pay it back in full. You need to document the new terms of the loan whenever you and your creditor agree to settle the debt.

Why do creditors settle for debt agreement?

By entering into an agreement, the creditors no longer have to waste time chasing you down. Instead, both of you reach an agreement on how much you can pay them.

What are the contents of a debt settlement?

The agreement contains the following:

  • How you will make payment
  • A statement that in case you fail to make timely payment, the total amount you owe becomes due.
  • The date by which payment should be made
  • The new debt settlement amount you agree to pay
  • The original amount you owed
  • You can also add other terms such as liability clauses and other things both of you would like to include.

Why do banks frown upon applications from borrowers in debt agreements?

The major banks may not approve a loan from someone who is under a debt agreement because they are very cautious when lending money to someone who has a bad credit history. They don’t want to put the company at risk in approving a loan for a borrower who cannot make timely payments.

Can I refinance a loan when I am still bound by a debt agreement?

Specialist non bank lenders like Australian Lending Centre allow borrowers like you who are still in a debt agreement to refinance your current mortgage so you can pay your agreement in full. If you have been in agreement for a year, but you made updated repayments, you might be able to borrow up to 70-80% of the value of your property. However, it is important to arrange for a pre-qualifying assessment to ensure that you have a realistic calculation of your home equity.

What are the benefits of entering into a debt agreement/settlement?

If you have limited financial resources and your situation does not allow you to pay back your debts in full, you can enter into this agreement. By doing so, you can avoid going bankrupt—which would have a terrible impact on your credit rating. It also helps you overcome difficult financial situations, by giving you some extra money to settle your debts and to pay for your immediate needs.

Other benefits of debt agreements include freezing the interest accruing on your debt, and paying a single monthly repayment instead of dealing with multiple repayments.  If you have debt agreement administrator, he or she handles all the communication with your creditors, not you. That means lesser pressure on your part. Debt Agreements are appropriate for applicants who are at the verge of bankruptcy. It can help you avoid the major consequences like having a bad credit score that could result in countless rejections of credit applications. Bankruptcy must always be the last option. So, one of the effective alternatives a struggling borrower should consider is a debt agreement.

Is there an alternative to debt settlement?

If you don’t want your future creditors to know that you are struggling financially, to the extent that you entered into an agreement to repay your debts, try debt consolidation. It can help you negotiate payment arrangement with your creditors and it is definitely a practical alternative to bankruptcy.

Final thoughts

A debt agreement is a contract driven by the desire of both parties to settle the debts. The lender wants to get back the money while the debtor wants to pay it off.

Take a good look at the content of the debt agreement. It controls and directs the borrower on how to pay back the loan and how much to pay. But, if you don’t want to have a record of debt agreement on your credit file, you can simply take out a second mortgage or a personal loan, or any other affordable loan product to pay off the debts.

What is important is that you would satisfy the full amount of your loan, and at the same time enjoy an affordable and convenient repayment for the new loan.

When you have finally settled your debts, try to practice good financial habits. Pay your debts on time, spend less and try to grow your money either through investments or additional source of income. This way, you wouldn’t have to face the same dilemma of signing debt agreements anymore.

Categories
News Financial Planning Personal Loans

Private Lenders: An Alternative Source of Financing

Whenever Aussies need a loan to finance a new car or house they go to the bank. Still, they seem to forget that there are also alternative sources of financing in the form of private lending. But what are private lenders and why should someone consider these alternative sources of financing when there are plenty of banks?

Sometimes, traditional banks don’t always approve your loan application due to many different reasons, so people have to look for alternative sources. With a private lender, maybe you will finally get that new car you have always wanted.

What Are Private Lenders?

They can be either an organisation or a private individual. Unlike traditional funding sources, like banks, private lenders don’t have traditional qualifying systems, meaning that getting access to a loan is much easier.

However, because of its “different” nature of funding, lenders come with higher risks for both the borrower and the lender.

What Are the Benefits?

To begin with, private lenders can easily approve your request for a loan. In other words, if you have bad credit or are self-employed or cannot provide proof of your income, a private lender may be more accessible when it comes to requirements. So, no matter your income and your credit score, a private lender will get you the loan you need.

Another reason for applying for private funding is due to the straightforward process they have. Unlike traditional lenders, the private ones will accept your request very fast. Not only that, but your loan could be available right after your application is approved. This can bring a lot of advantages if you are on a tight schedule.

drawbacks

Drawbacks of Using Private Lenders

It almost sounds too good to be true, but private lenders do come with a set of drawbacks that can make them inaccessible to some Aussies.

The first thing to know is that their rates are typically higher than those of traditional lenders. This is how they compensate for the increased risk and they will have high interest rates for those with bad credit.

Some lenders may feature high fees, from the start until the finish of the loan term. In any case, be sure that you know what you are paying for.

Another drawback is that some loans are offered for shorter terms in comparison to what traditional lenders offer. This happens especially when it comes to mortgages. When conventional mortgages have a twenty-five to thirty year terms, private lenders offer smaller mortgages that just fill the gap until securing more traditional finance.

The private mortgages can also be used to cover needs like the construction of a house. They can also cover for the period between purchasing a house and selling one. The term on these mortgages is one or two years, which means that you will have to move fast to pay the loan back.

Another thing you should know about private lenders and their services is that some of them do not offer the same features as traditional lenders do. In other words, some loans may lack features such as redraw facilities or offset accounts. So, if you were hoping for these types of features, you might have a problem.

How Can Private Lenders Help Me?

Private lenders can offer you a lot of options when it comes to loans. Here are a couple of them:

  • Caveat loans are fast-settling loans secured against a property. These loans are short, last sixty to ninety days and settle very quickly.
  • Bad credit loans are the ones you need if you have a low credit score. Be careful though; these loans come with high interest rates, so use the money wisely and make sure you pay back the loan fast.
  • Bridging loans can be offered by private lenders and can be used by the customer to build or purchase a new home before the sale of their old home. These loans have a term of twelve months, and they are paid back when the old property is sold, making them quite useful in the long run.
  • Second mortgages are also offered by private lenders. These loans are available for those who already have a mortgage on a property who are in need of extra funds for multiple reasons. Depending on the lender and the loan terms, these loans could have high interest rates and extra fees. With all these factors in mind, any client should think twice before applying for this kind of service. So be very careful if you do.

Conclusion

Private lenders are here to stay, whether you like it or not. They have a lot of advantages in comparison to traditional lending systems, but they also have some drawbacks. At Australian Lending Centre, we offer second mortgages at competitive rates and flexible repayment terms that can be catered to your specific needs. Contact us today for a free assessment via our enquiry form now!

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Bridging Finance

Banks Decline Homeowners from Bridging Finance

You may have found your dream home but have not yet managed to sell your existing property.  Without the proceeds from the sale of your current property, many people can find it difficult to buy the new property.  Bridging finance enables people in this situation to purchase a new property, whilst you await the sale of your existing and offers financial relief during this period. Unfortunately, banks sometimes decline bridging finance leaving you in a difficult situation.

According to industry experts, bank lenders are increasingly blocking homeowners from receiving bridging finance.  This strict position by the major banks is restricting the property market by delaying home purchases and forcing homeowners to sell their homes before they’re able to buy a new one.

Bridging Finance

Some mortgage experts believe that the banks are claiming that bridging finance can produce bad debt – so basically it’s just not worth it for the banks to offer.  Effectively bridging finance becomes like a second mortgage on the first property and banks don’t like increasing the amount of money they lend, because in many cases they don’t have enough collateral to secure that extra money against.

Once upon a time when banks weren’t getting a good margin, they would have to lend as much as they could, now that they’re getting a much better margin, they’re less inclined to approve riskier loans. For this reason, banks are known to decline bridging finance.

Mortgage experts also believe the banks’ dislike to bridging finance may be due to the fact homes in certain areas are taking a lot longer to sell these days, which elevates the risk lenders assume when providing a bridging finance loan.

At the Australian Lending Centre we have access to a panel of non-bank lenders who offer bridging finance during the sale and purchase of property.  To speak with a loan consultant regarding bridging finance today, simply call 1300 138 188 or fill in an enquiry form to your right and a loan consultant will call you shortly.