Used carefully, credit can be extremely useful. On the other hand, if not used responsibly it can cause major problems. “Good credit” typically means that you repay your loans on time, and don’t abuse the credit limits given to you. The better you maintain your credit today, the easier it is to obtain credit in the future.

When obtaining credit, there are usually additional costs associated with your transaction. This is called the “Cost of Credit”. Financial institutions can charge various fees depending on what type of loan you are given, and what you do with it. As an example, when using your credit card you expect to pay interest on any balance owed. However some cards also charge an annual fee, which is added to your balance. Cash advances and late payments also incur additional fees and can increase your interest rates. Mortgages and car loans also sometimes necessitate closing costs or down payments when opening the loan.

All these examples, plus interest, should be factored into your decision making when deciding to get a loan or not. But don’t be discouraged, the Truth In Lending Act helps protect the consumer by requiring lenders to disclose the amount financed, annual percentage rate, finance charge, and total amount of payments on contracts for loans.

While the cost of credit can sometimes seem high, keep in mind that getting a loan through a bank is normally less expensive than some alternatives that are out there. One alternative is rent-to-own. This allows you to use a product while making weekly or monthly payments on it. If you intend to buy the product, the store makes a payment plan for you to eventually own the product.

The difference between this and a normal loan is that legally the store owns the product until you make the final payment. If you miss a payment, the store has the right to take the merchandise back, in which case you lose all the money you’ve paid. Also keep in mind that adding up all the payments you would make in a rent-to-own arrangement is typically higher than if you had gotten a loan through a bank. another alternative to bank loans is “payday loans”. These services are based upon people needing money immediately, with the intent of paying it back on their next payday. Typically the interest rates are very high, and if you miss any payments, the fees can make the cost of credit skyrocket.

Having reviewed some different types of loans and lending institutions, you may also consider what factors go into the loan approval process? When you submit an application for a loan, there are several things every loan officer will take into account before making a decision.

The first is capacity. Does this person have the capacity to repay this loan based on their current financial situation. How much do they make? How much do they owe on other debts? How long have they been on their job? What kind of work do they do? These are just a few of the questions related to your capacity to repay a loan.

The next is capital. What is your net worth? How much do you have in savings? Checking? Investments? Typically this is more a factor in getting a mortgage than any other type of loan.

After this, they will look at your financial reputation, typically by reviewing your credit report. Here they will be able to see what kind of credit you have had in the past, what you currently have, your pay history, balances, limits, and more. And more often than not, the better your credit history, the less important the other factors come into play.

And lastly, they will look at the collateral being given for the loan. If it is a car, what kind of car is it? How old? How many miles? What is the current value of the car?

So with all these questions being asked by others, here are some questions you should be asking yourself:

· Do I need this?

· Do I need this now?

· Can I wait until I save enough money to buy it without a loan?

· Can I get credit?

· How much more will it cost me to get a loan than to buy it in cash?

· Can I afford the monthly payments?

· What is the total cost of credit?

· Are there other fees or expenses associated with this loan?

· What is the annual percentage rate for this loan?

Once you get a loan, here are some tips on maintaining your credit:

· Pay as much as possible towards your loan each payment cycle. This minimizes the amount of interest paid and shortens the length of time you will have to repay the loan.

· Always pay on time to avoid late charges or rate hikes.

· Always review your monthly statements for errors.

· Be careful when offered deferred payments on loans. Often while you are being allowed to skip a payment, your interest is still being accrued.

For more tips or information on our free credit seminars go to www.DLRCreditsolutions.com.

Steve De la Rosa has worked in all aspects of consumer lending for nearly a decade. From credit cards to lines of credit, auto loans to home mortgages, home equity loans to personal loans, De la Rosa has worked with consumers from the lending side and have seen the credit market become increasingly difficult for consumers to navigate. Steve has helped people with foreclosures, repossessions, bankruptcies, collections, judgments, charge offs, and more get the loans they want at interest rates they can afford. Now he wants to use his experience to help YOU find your way to credit success.

First let me explain that the term of no cost loan is used in the refinancing (refi) market therefore usually seen as the “NO COST REFINANCE LOAN” . It can be used in a purchase but would take a sharp loan officer to put it together. Anyway back to the refinance (refi) it is a way that you can roll all the cost of the loan into the loan without increasing your loan balance. Say you are paying off a $199,999.99 loan you would take out a new loan for $200,000.00 (FNMA, FHLMC, GNMA requirements to round off) and you would not lose any equity in your property that you have now.

The benefit here would be if your LTV (loan to value) is close to say requiring (80.01% or above) or not requiring (80% or below) Private Mortgage Insurance, the better way to go is to take the no cost loan. Now the kicker is that there is really no free lunch and you are going to pay a higher interest rate. But wait, no all is bad here. You got out of the PMI requirement, so you have a lower payment than you would if had to pay an insurance premium in addition to your principal and interest payment, and you have maintained your equity.

If it were really a free lunch it would allow you to get the same market rate that you see advertised to others with good credit and 20% equity. If the Lender was in the business of doing everything for free and had no bills to pay, that would happen. But enough of the fairytale dreams and back to reality. We all know that they have to make money, so they can be there the next time you need a loan. So how does that happen if you haven’t paid any closing costs? Who paid for the title, appraisal, credit report, tax certificate, underwriting fees and so on if you didn’t? Well you did. The lender charged you an increased interest rate so there is enough money to cover those fees.

Here is an example: you take out a $200,000 loan. If you were not doing a no cost loan you would be offered a loan at the interest rate of say 5.125% with 1 point. (a point is 1% of the loan amount) and you would pay the closing fees of $3,000 and the point to equal $2000 Which would be a total of $5000 cost to you. Now the no cost loan would be offered to you at the rate of 5.875%. The same loan exactly except the Lender who still needs $5000 to close the loan will get it from the investor (where the lenders get their money) who is offering a 2.375% discount on that rate which would be $4,750, so the lender gets to pocket an little extra for their trouble. Sometimes they even put in a little to make the deal work. So you can see there really is no free lunch.

Now this is different from a “no out of pocket” loan because they just lend you $205,000 and pay everyone out of the loan proceeds.

About the Author:

Randi @ Instant Quote Store
http://www.instantquotestore.com/randisblog