Low Interest Loans Explained: Save Big on Borrowing
Having a low income does not automatically disqualify you from buying a home. Many local and state housing initiatives are geared toward low-income homebuyers and offer affordable mortgages with competitive interest rates.
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For example, the Home Possible Mortgage program offers mortgages with a down payment assistance component for buyers who meet certain income and other eligibility requirements. Guild, Rocket Mortgage, New American Funding and other lenders also offer proprietary homebuyer programs that work with borrowers with low to moderate incomes.
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Forgiving Credit Requirements
Many lenders have minimum income
standards that borrowers must meet before they'll approve a personal loan
application. Lenders also look at a borrower's credit score and debt-to-income
ratio when making their lending decisions. Some lenders are more forgiving than
others, especially online lenders and credit unions. They may have fewer strict
borrowing requirements and consider factors other than credit and income when
reviewing applications.
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For example, some credit card
issuers offer cards with no annual fee and generous cash back rewards to
low-income borrowers. These perks can make it easier for borrowers to manage
their expenses and keep their debt payments at a sustainable level.
Borrowers with low incomes should
research lenders to find the right one for them. Some lenders have a low income
threshold that's higher than the poverty guideline, while others have lower
minimum income requirements. Also, be sure to list any other forms of income
you receive on a loan application, such as side hustles, child support, alimony
and Social Security payments. The extra income may help you qualify for a loan.
And if you have any savings, it's wise to include them on your application as
well. This way, you'll have a safety net in case you're unable to make your
monthly debt payments.
Flexible Payment Options
Having a low income shouldn’t
stand in the way of getting a personal loan. But before you apply, be sure to
review the interest rate, repayment term and monthly payment to ensure it won’t
stretch your budget too thin. Otherwise, missing payments could lead to credit
score damage and growing debt.
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The federal government offers a
variety of income-based loan repayment plans that cap your monthly student loan
payments at 10 percent or less of your discretionary income. Depending on your
family size, loan type and the amount of debt you have, these options can offer
significant relief for borrowers struggling with high debt-to-income ratios.
Unfortunately, only 15 percent of eligible borrowers enroll in these programs.
For example, the PAYE plan caps
your monthly payment to your adjusted gross income minus basic living expenses
and family size. After a certain number of years (20 or 25), any remaining
balance is forgiven. Other options include REPAYE, IBR and ICR, each with its
own set of eligibility requirements and forgiveness timelines.
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Many private lenders and even
some credit unions offer small-dollar loans for members with lower incomes.
These short-term loans typically have a maximum APR of 28 percent, making them
significantly more affordable than the 400 percent APR you’ll find with payday
alternatives. In addition, some federal credit unions offer small-dollar
emergency loans to their members. These loans are generally capped at $2,000
and have a maximum APR of 28 percent.
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