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People with less than perfect credit history
can view a CD loan as a cornerstone for re-establishing shaky
credit history. Mortgage and car lenders like to see a history
of on-time loan payments as they determine loan approval.
Robin Leonard, a consumer debt attorney and author of Money
Troubles: Legal Strategies to Cope with Your Debt suggests
asking the following questions before signing on the dotted
line. And, get the terms of the loan in writing.
Does
the bank report these loan payments to credit bureaus?
This is key because lenders will need to see that you have
made on-time payments against the loan. If the bank doesn't
report your progress, the loan is a waste of time if your
goal is to establish a credit history to show mortgage or
potential lenders that you can make timely payments.
What
is the minimum deposit amount for a CD loan?
This is typically the amount of the CD but deposit
amounts may vary -- don't make any assumptions.
What
is the interest rate of the loan?
The interest rate is typically the annual percentage
rate of the CD plus an index, but again, don't make any assumptions.
Get the interest rate in writing and ask whether the rate
will fluctuate or if it based on a specific index.
What
is the maximum amount you can borrow?
Often, it's the full amount of the CD. For example the full
amount on a $1,000 CD. Some banks only secure the loan against
a certain percentage of your deposit, however.
What
is the repayment schedule?
As with the loan's limit, the payment schedule typically
will be the term of the CD. For example, five years to pay
off a loan secured by a five-year CD. Some banks will offer
a grace period, or allow borrowers to refinance the loan when
the CD is renewed. Ask about penalties for late or missed
payments or pre-payment penalties.
-- Posted: Nov. 13, 1998
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