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| Haunted by 619? Get a subprime loan |
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"There's a great old song, 'You've got to shop
around,'" says Williams. "Do your homework, and many times
a lender can offer you a specialized product."
Even if a lender can't offer you the best deal possible,
he may work with you and suggest that you clear up a couple of things
on your credit report and come back in a few months. "It might
be better to wait until the credit score improves, and maybe some
of your other debts come down," Williams says.
If your credit score is 650 or
above, steer away from subprime lenders because you can find a better rate elsewhere,
Jones says. If your credit score is between 620 and 640, you might be able to
qualify for some prime loan products, but your better bet might be to clear up
some problems on your credit report to get the score higher. Rules
for the wary
If a subprime loan is the best you can do, there are some
steps you can take to make sure you get the best deal possible.
- Know whom you're doing
business with. "Find out if it's a reputable organization,"
says Alexandria R. Morris, financial adviser for Polaris Wealth
Management in Chicago. "Check the Better Business Bureau,"
she says. Find out if there are any complaints about the company.
- Avoid
lenders that approach you. If someone calls and asks you to make a financial
decision, say you'll get back to them and research the lender, as well as some
others who might be able to offer you more favorable terms.
- Steer clear of high-pressure
sales tactics. If someone tells you the deal can't wait
until you've had ample time to think about it, it's not a good
idea to do business with that person. "If a loan candidate
wants time to talk to one of the larger lenders to see if they
qualify for a traditional or a nonsubprime loan, that should be
fine," says Jones. If a lender discourages you from doing
so, run in the opposite direction.
- Read
the fine print. "If a lender is vague or not declaring what the rate
might be, that's a warning sign," says Williams. Read all paperwork carefully
and if you don't understand what you're agreeing to, hire an attorney to help
you sort through all of the terms.
- Watch out
for fees. Lenders do have paperwork and processing charges,
but when those fees become unreasonable, it's time to walk away. When shopping
around for a loan, compare the fees to make sure the lender you're dealing with
has comparable charges.
Before agreeing to a subprime loan, make sure you
factor in all of the costs. That means figuring out how much more
a higher interest rate is going to cost you over the long run.
"Is
it worth getting into the house at the price of maybe 5 or 6 percent above the
average rate that a customer with good to excellent credit would pay?" asks
Williams. Only you can be the judge of that.
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