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Home Loans

What Happens When You Default On Home Equity Loans?

If you default on home equity loans, the consequences can be severe.

Maintain your financial health and homeownership with the help of this blog. We discuss the consequences and reveal 6 tips to avoid defaulting on your loan.

2 main consequences of Defaulting on Home Equity Loans

1. Collection Agency Involvement: When borrowers default on their home loans, lenders often sell the debt to a debt collection agency.

These agencies will attempt to recover the outstanding balance through persistent calls, demand letters, and possibly sending collectors to your home. This process can be stressful and damaging to your credit score.

2. Foreclosure: In more severe cases, the lender may initiate foreclosure proceedings to recover the money lent. Foreclosure means the lender can sell your home to recoup their losses. The primary mortgage lender takes priority over the home lender during a foreclosure sale.

If the primary lender holds the certificate of title, they are entitled to the proceeds first. However, depending on the completion status and holder of the certificate of title, refinancing complications can affect which lender gets paid first.

Bad credit

6 Tips to Avoid Defaulting on Your Home Equity Loan

1. Communicate with Your Lender:

Avoiding your lender’s calls or ignoring their letters will not improve your situation. However, being transparent about your financial difficulties can encourage them to assist you.

If you’re struggling with payments, contact your lender immediately. Explain your financial situation and express your willingness to find a solution. They understand that working with you increases the likelihood of recovering their money

They may offer to modify the loan terms, adjust interest rates, or restructure your repayment plan. This can help to make the loan more affordable so you can avoid defaulting on your home equity loan.

2. Explore Foreclosure Alternatives:

If you’re struggling with payments, you could explore alternative options to provide temporary relief and prevent foreclosure.

It is worth noting that you should only do this if you lack funds due to a short-term cash flow issue. If you can’t afford repayments full stop because your circumstances have changed or you have racked up an uncontrollable amount of debt, then taking out another loan will only add to this financial burden.

Alternative forms of finance that might be suitable to prevent foreclosure include:

3. Consider Debt Consolidation:

If multiple debts overwhelm you, consolidating them into one low-rate loan with manageable monthly payments can help you regain control of your finances.

4. Refinance Your Mortgage:

Refinancing can lower your monthly payments and interest rate, making staying current on your loan easier. However, carefully consider the terms, as extending the loan term can increase the total cost over time.

5. Consult a Financial Advisor:

A financial advisor can provide valuable guidance on managing your finances and exploring potential solutions. They can help you create a feasible financial plan to navigate through tough times.

6. Resell and Downsize:

While drastic, selling your home and downsizing can be a practical solution. Use the proceeds to pay your mortgage and secure a smaller, more affordable living arrangement. This option can alleviate financial pressure and prevent foreclosure.

Don’t Default On Your Home Equity Loan

Contact Australian Lending Centre today to learn more about your options and find a suitable financial solution available to you.

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Refinance and Refinancing

Will Lender Approve a Home Loan With Unpaid Defaults?

A lot of people think that repaying unpaid defaults is important when it comes to being approved for a mortgage, but this isn’t always the case. Yes, you can get a mortgage without your defaults because there are many flexible lenders who are more than happy to approve your application despite a poor credit score. But don’t jump at the first home equity loan available-because lenders aren’t created equal. Here are some factors to consider when applying for a home loan with unpaid defaults.

1. Payment status

Mainstream lenders look favourably to applicants that carry mortgages with settled defaults than those with unpaid ones. Some creditors are concerned with the date default was registered and not when they were paid. Others also use certain parameters in assessing your risk—which includes all other financial information that could boost your eligibility for a mortgage.

2. Existing credit issues

It is difficult to get a mortgage if you have other credit problems. Lenders consider your debt-to-income ratio. So, if your debts are too high, it would surely have a strong impact on your eligibility, loan rate, fees and repayment terms. If you’re using payday loans, it will also affect your chances of getting a loan.

3. Amount of the default

Before applying for a home loan with defaults, it is important to consider how much your default amounts to. Most lenders can approve a loan for you despite a small paid default which is less than $500. If you have a paid default which is less than $1,000 and you have settled it more than 6 months ago, even prime lenders can lend you money, especially if your financial situation is already stable. If you have a bad credit because you have over $1,000 unpaid defaults, you may not have the best of luck with mainstream lenders. Nonetheless, a specialist lender can give you reasonable loan terms. But beyond that amount, you need an alternative lending specialist like Australian Lending Centre, especially if you have more than $5000 of unpaid defaults.

4. Type of loan

Default on secured loans

What would happen to your home loan application if you default on your mortgage? First and foremost, let’s look at the nature of the loan. It has collateral—which is your home. In case of default, your creditor has the legal right to foreclose on your home after issuing a notice to a client in default and asking you to make good on your payment—and you failed to comply. If the bank takes ownership of it and puts it up for resale at a public auction-you can redeem your property by paying the full amount of debt plus fees. Or, you can refinance your home loan using Australian Lending Centre’s Mortgage Arrears program to pay the total amount due even before the lender decides to foreclose your house.

Default on unsecured Loans

Unsecured loans aren’t as risky on the part of the borrower-although the risk of not being repaid is high for the creditors since there is no collateral that they can take in case of default. Not paying after 60 days can cost you late fees and increase. If you don’t pay yet, you’ll definitely have to look for the default status on your credit file. But, the government does not leave you unprotected. You still have to receive a default notice first.

If you have missed payments on your credit card or from a personal loan lender, you have the right to receive a Default Notice which specifies the number of payments you failed to pay and other requirements of the credit contract that you haven’t complied with.

The notice specifies the amount to pay and the period of time you have to do so.  It will also warn you of the consequences of failure to pay within the period of notice-such as demanding repayment of the whole credit card balance or loan amount, not just the monthly balance you missed to pay.

How do I apply for a loan when I have unpaid defaults?

Default explanation letter

You have to increase your chances of approval by writing an explanation letter for your default with supporting evidence. For example, if you have missed payments because of sickness, temporary unemployment (but you’re employed now) you must provide evidence of the same. It will back up your explanation of why you defaulted on your loan.

Payment

Pay unpaid defaults and get the credit provider to update them into “paid” on your credit file before you submit your loan application.

Specialist lender

Apply with a lender like Australian Lending Centre that can accept borrowers with defaults. We can help with your home loan arrears, so we suggest that you talk to our financial specialists today at 1300 138 188 or Enquire now.

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News

Factors to Consider before Signing a Debt Agreement

A debt agreement is a contract that is legally binding between you and the parties concerned – the creditor, debt collection company or third persons involved. Consequently, each party can legally enforce the terms of the agreement against you if you don’t comply with your contract. Learn about the things to keep in mind before signing a contract that can make or break your finances. Always take serious consideration before signing a debt agreement.

The debt agreement process

When entering into a debt settlement, you have to understand that the creditor expects you to be ready to pay your debts. So, prepare to negotiate a certain sum of money or asset to pay for a percentage of your combined debt. Make sure that you can afford to pay it over a limited period of time. In debt settlement, you don’t pay your creditors directly. Instead, you make repayments to the administrator of your debt agreement.

Negotiation takes a little bit of patience and persistence because creditors also know that once they agree to a particular amount, they cannot recover the full amount of debt anymore. Knowing that they cannot get back the full amount you owe, they may give you a hard time during the negotiation process.

Legalities of your debt agreement

A valid contract is an agreement where all the parties agree to it. Meaning, there is mutual consent between you and your creditor. It must state the object of the contract—or the consideration which is typically a sum of money, or asset paid by the debtor to the creditor. The agreement must not allow you to do something illegal in return of debt forgiveness or reduction of penalties. It is also important to be mentally capacitated to enter into an agreement. You must be mentally sound and at least 18 years old to ensure that you are competent enough to enter into a binding agreement.

negotiations

It is important to note that the object of the contract or the “consideration” must be something to be negotiated upon. An agreement is impartial. It gives you the perfect opportunity to discuss and compromise on the terms of the debt agreement before reaching a final contract that is acceptable to you and your creditor. But, take note that there are non-negotiable contracts, but you can still look for ways to ensure that the terms will be satisfactory not only to your creditor, but to you as well.

The agreement must not contain provisions that disagree with the contract laws in your state. You can talk to an attorney to verify the terms of your contract before signing it. Or, you can educate yourself and check whether there are illegal terms in the contract that will jeopardize not only your finances but your reputation as well.

Negotiation points

Write down your objectives for entering into an agreement. What is your desired outcome? Do you want to pay your debts in full while paying for it at a lower rate? Or, do you intend to let go of your assets to finally eliminate your debt? Before you negotiate a contract, have a specific outcome in mind. For example, if you want to extend the loan term, then you should know exactly how long you would like the loan extension to be.

Before beginning negotiations, you should know where you stand. Are you financially capacitated to respect the terms of the contract? Take note of your financial standing and the surrounding circumstances that may prevent you from abiding by your agreement. It is also important to determine your bottom line. Know the highest repayment amount you can make and the lowest one that you think the creditor can accept.

check-options

Check other options

Do you think it’s time to give up and take up bankruptcy instead? If you have no income, and you’re not in any way capable of making even the minimum repayments because of unemployment, and you can’t meet your daily needs, maybe bankruptcy is a better idea. But, it will definitely ruin your credit score, take away your assets—and probably leave you on the streets. The only upside is that your debts will be eliminated.

If you think you can still get a job, improve your business or get any additional source of money to keep up with a minimum payment each month, debt agreement is a better idea.

It is important to note that debt agreement does not refer to debt consolidation. When you consolidate loans you simply roll your existing debts to a new loan; with lesser monthly repayment, lower interest rates and fees and in one easy payment method each month. While debt consolidation companies sometimes negotiate with creditors to lower the repayment each month, there are companies that simply pay off all the loans and charges a new rate to their customers.

Is debt agreement the right solution to your financial situation right now? Talk to us today!

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Debt Management

The Wrong Ways to Pay Off Your Debt

Being in debt can be stressful, no one denies that. And the pressure can place you in a range of challenging positions, forcing you to cave in and make the wrong financial decisions. Embracing the right ways to pay off your debt is more than mandatory.

But how do you know which are those? Well, you must get acquainted with the practices that should be avoided, and this is what we’re going to discuss in today’s article. Keep on reading to discover the wrong ways to pay off your debt.

Consolidate with a high-interest loan

Debt consolidation makes sense when the financing solution provided by the lender is actually favourable. If the loan terms are convenient for your financial situation, you should go for it. Nonetheless, choosing debt consolidation for the wrong reason and failing to analyse the implications of the term will do you more harm than good.

In the case in which the only loan you can obtain has an interest rate that is higher than your credit card debt, you should leave it aside.

At first, you may believe that your monthly repayments appear lower with debt settlement. Nonetheless, that is only because the loan has an extended timeframe. If you were to calculate the interest you’d end up paying during the life span of the loan, you might come to realise that such a solution is not the best. So, this is definitely one of the wrong ways to pay off your debt.

Misusing your home equity loan

The second on our list of one of the worst ways to pay off your debt: choosing a home equity loan. Even though you may assume that this could be the answer to all your problems, this is not always the case. Of course, there are many situations in which this option actually works. As always, everything depends on each person’s financial conditions.

However, if you’re struggling with high-interest credit card debt, you should pinpoint the root of the problem. For example, your debt situation might be a result of reckless spending and poor money management skills. If you don’t aim at solving the problem from its root, you are prone to end up in this exact scenario in a year or two. So, it goes without saying that a home equity loan won’t work as long as you don’t fix the underlying issue. In the case in which the loan ends up being unaffordable, you might lose your home as well.

Choosing the support of a debt settlement company

Accepting the guidance of a debt settlement company is, without a doubt, one of the most unfavourable ways to pay off your debt. As it is expected, these kinds of businesses advertise as being the solution to everybody’s money related problems. Nonetheless, after you manage to settle your debts, by paying significantly less than you owed, your credit rating is terrible, and you’re back where you started. Not to mention that we’re talking about a lengthy process. Even if your attempt is successful, you’ll have to work on rebuilding your credit score for years.

So, try to stay away from the methods mentioned above. There are other ways to pay off your debt without affecting your credit score in the process. Speak with a financial expert like Australian Lending Centre who offers free consultations on paying off debts and managing people’s finances.Save

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Debt Consolidation

When Is a Debt Consolidation Loan Feasible?

Debt consolidation loans are meant to pack multiple small loans into one that is more manageable. It is one of the most common forms of debt relief. However, not many people seem to know when a debt consolidation loan is feasible.

There are some things you must take into consideration when you’re tempted to amass your loans into one.

So when is a debt consolidation loan feasible?

  1. When you pay extremely high-interest rates

Credit cards, usually, have the highest interest rates. When you need to pay a lot of interest, the debt is growing at an alarming pace, faster than you can repay it. Debt consolidation loans, on the other hand, might offer you better interest rates altogether. If you pay more than you can afford in interest, you should definitely consider a consolidation loan.

  1. An endless number of bills

Getting tons of bills can make it so easy to forget to pay a certain debt. You simply cannot keep track of everything. A consolidation loan is feasible if you’re in such a situation since you’ll be receiving just one bill until you’ve dissolved your debt. This will automatically lead to better management of your time and money.

  1. When the loan is unsecured

If a loan is “unsecured,” it means that it is not attached to any of your assets, like your house and car. Secured ones are certainly not a good idea because if you fail to repay the debt, you could get homeless or devoid of the asset you’ve secured the loan on. Try to stay away from secured loans at all times. It’s just better to find another way to pay your debt without risking your house as collateral.

  1. When you’re willing to repay for a longer time

Debt consolidation loans allow you to pay less than you paid on your previous debts, but that means that the repayment is going to take longer. Are you willing to do that? This can be a hassle for some people who want to get it over with as fast as possible. Still, if you have no problem with that, then you should consider taking such a loan.

  1. When you don’t end up paying more interest

Yes, it is possible to end up paying more interest on a consolidation debt than you would’ve paid for all the other separate loans. Surely, that will impact your credit score if you fail to pay. And before you know it, your credit rating will be so damaged that you will find it even harder to get another loan in the future.

Debt consolidation loans can truly be a great help, but you must know when you need them. Moreover, there are many other aspects that come into play, like the ones mentioned above. So, review your situation thoroughly before you take such a debt consolidation loan because it can have disastrous consequences if you go for it lightheartedly.

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Debt Consolidation

Are You Falling for these Debt Consolidation Traps?

Do you feel burdened by several credit card debts and other outstanding loans and you think debt consolidation could provide some serious relief? Debt consolidation is a new loan that allows you to pay off your multiple balances in one monthly payment. It doesn’t erase all your debts but simply makes it easier for you to repay. So, if you want to have a clean slate for keeps, make sure that you don’t fall into these debt consolidation traps:

Ignoring the cause of your debt problems.

Debt consolidation helps people manage the repercussions of bad debts. But it is just a temporary solution to your problem. Addressing the root cause of your debts, such as your lifestyle, money-management issues and other related things can help you analyze why you sunk in debt and how you can get out of it.

It is important to ask yourself, “What got me into a pile of debt?” Remember that it takes a while before debts become unmanageable. It is almost impossible to come up with a quick solution to internal debt issues when you fail to see where and how it started.

Debts did not grow overnight so unless you come up with a concrete idea with what got you into a financial mess, the same situation is likely to repeat itself.

Australian Lending Centre has in-house professionals to help you in retracing your financial actions. We can help you with our debt management plan and debt consolidation loans to deal with your present debts as we help you identify your spending habits.

Perhaps you were taking high-interest loans without knowing it or you are not paying your loans right. In other cases, the problem could be as simple as forgetting the due dates or the existence of debts itself.

Not making a proactive effort in searching for the best consolidation loan.

Here are some factors that you need to consider when choosing a loan consolidation program:

    • all of your outstanding debts
    • interest rates
    • lenders’ willingness to negotiate a lower rate
    • consolidation options

Consolidating debts has its own implications. Some lenders offer rates and fees that creep up over time. Others will charge you hefty fees that may put your assets in line in exchange of deceiving interest rates.

Australian Lending Centre gives you different options to pay for your debts. If you want to pay a lump sum to settle all your debts for less than what you actually owe, we can help you do that. You can also talk to us about our debt management program and see whether or not it can work for you. A debt management plan usually involves making an agreement with your creditors to consolidate the full amount of your loans. The negotiation is successful if you get lower interest rates or longer repayment period.

Thinking that you are finally out of debt.

Debt consolidation is still a loan. While you no longer have to deal with angry collection calls and you are not pestered with high-interest credit card bills, you cannot go back to your old habits. One of the big debt consolidation traps is forgetting he your debt problems were caused in the first place. Avoid falling back to maxing out your credit cards once again. Don’t give in to the temptation of charging all of your credit cards with zero balances once again, especially if there is no urgent need to do so.

Bear in mind that you still have a substantial amount of outstanding debt. So, if you cannot close most of your credit cards leave them at home and put only your low-charging credit cards in your wallet for emergencies.

Call us today!

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Debt Management

How to Avoid a Default

It is a mortal sin for every loan borrower to fall into a default. That is because doing so would lead to bigger trouble. If you default on a loan, your loan provider may take various types of action, which might all be disadvantageous to you. First, you may face the burden of litigation. Second, you may be imposed with more penalties. Third, your collateral might be repossessed. And lastly, your credit history would surely be eroded.