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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

How to Get A Loan When You Have Defaults

Everybody needs financial help at some point in their life. But if you have a negative credit file, can you still get financial support? Discover how to get a loan when you have defaults.

Your credit file tells it all. If you have defaulted on your payments to previous lenders and utility companies, these things will be listed on your credit file. While it is effortless for lenders to place default on your credit file, removing it is entirely a different story. You need to go through the dispute process, by contacting the reporting agency, and the credit bureau just to get that defamatory entry out of your credit file.  Many large telco companies and financing institutions don’t care about your reputation as much as they care about their collection. If you cannot pay them right away, then you may have to bear with the consequence of having your loan default reported on your credit file.

There are financing options for people who are seeking out the right loan despite loan defaults. For example, Australian Lending Centre understands that many financing companies easily put defaults on people’s credit files without giving them ample opportunity to recover financially, pay their dues or contest issue that could have otherwise prevented the recording of the default entry. Some lenders also fail to communicate with their customers properly before putting a mark on their credit report.

Common types of unpaid defaults

defaults

Utility Defaults

How many times have you missed your telecommunication bills? What about electric and water bills? Utility bills and telecommunication bills are common types of unpaid defaults. If you want to get a car loan, business loan or any other type of loan, some banking institutions may require you to resolve these debts first. Some financing institutions may disregard these utility defaults and will not require you to pay them first. But, you may have to prepare yourself for questions about why you have these types of defaults, and you may need to present some financial documents showing your capacity to pay the loan despite existing utility defaults.

Lender Defaults

Do you have outstanding defaults to another lender? You may find it difficult to get a loan when you have outstanding defaults to another financier unless you have a valid explanation with pertinent documents to prove it.

Most lenders will want your defaults resolved prior to approving your loan. But, if the amount of the unpaid default is small, lenders may be lenient to you. Still, it is important to prepare some documents that would justify your failure to pay on time. It could be a health emergency or a personal situation that made it difficult for you to settle your loan obligations on the due date. Lenders can show leniency to borrowers who are not naturally neglectful of their debt obligations but were not able to repay the debts for the time being because of uncontrollable or unavoidable situations.

Court Judgments or Writs

Did you fail to settle your loan obligations with a financing company or a collecting agency? Some companies file cases against borrowers in an attempt to recover the amount owed to them. There are also cases like alimony, child support and others that require you to pay a certain sum of money within a definite period of time. Judgment or writ that have become final and executory have to be complied with. Some court judgments may prevent you from getting a loan, especially if you have been declared bankrupt. If your case is still on appeal, you may have to show the lender some documentation that could convince the potential lenders to overlook the default and grant your loan application.

remedies

Remedies in case of unpaid defaults

  1. Get a guarantor. If you want the lenders to grant you the loan despite an unpaid default on your credit, having a guarantor lessens the risk of not being paid back. The lenders can go after your guarantor in case you fail to settle your loan obligations, so having a financially-able guarantor can definitely help. But make sure you don’t put your guarantor at risk of getting defaults for your actions.
  2. Apply for a short-term loan with reasonable interest rates. Not all short-term loans are expensive. In fact, there are low-interest short-term loans designed for people with bad credit. So, even if you have an unpaid default, you still have a chance of getting the loan you need. Just make sure that you enquire about the loan terms by getting a non-obligation credit enquiry. Remember that some loan agreements are deceiving; ask for the exact calculation of the total cost of loan before you sign the contract. Australian Lending Centre can give you a free assessment and the exact figures you are entitled to receive based on your current financial situation.

Do you want to have a free loan assessment to determine what loan product suits your situation? Get the best loan terms by calling Australian Lending Centre today.

Categories
Debt Management

What is the Impact of Becoming Bankrupt?

Bankruptcy does not last forever. Usually, its protection lasts only a year. During the period, the individual’s financial affairs will be put under restriction. That means there are certain privileges that the bankrupt person may not possibly enjoy even after bankruptcy has been lifted. Discover the impact of bankruptcy here in this article.

Furthermore, being bankrupt is not a guarantee that a person will be totally free from any financial obligation. In many cases, the individual is still required to pay a certain amount to repay debts from creditors following an assessment of current inflow and outflow of income. The repayment scheme under bankruptcy may continue even after the individual is discharged from the provision.

Needless to say, bankruptcy brings about serious implications. Its impact can never be underestimated and overlooked. Aside from the embarrassment and eroded self-esteem, an individual can face the greatest setback in his financial aspect.

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Financial Planning

How Can Financial Distress Impact Your Health

The stress caused by the economic downturns and financial shortcomings can literally make you sick. This is quite logical. In the recent global economic downturn, many evidences were recorded linking financial distress to various health conditions. That link is not surprising.

In 2005, a research was conducted in the US to identify possible health implications of financial distress. That study explored specific health effects that are often and logically associated with financial problems. It surveyed random individuals from across the country.

The results showed that there are various perceived possible effects of financial stress on both physical and mental health. Financial problems and poor health are associated. Stress is the main health impact of job loss, piling debts, loan defaults, and budget shortages. From there, many other health conditions can possibly ensue.

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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.