When it comes to credit offers, the writing is always on the wall. By law, it has to be. The problem is, sometimes the writing can be as cryptic as clues in a Hollywood crime thriller.
Chances are, if you are like most Americans, you know what I’m talking about. Credit offers slide through our mail slots and pop up on our computer screens everyday. And it doesn’t matter if we have poor credit, good credit or excellent credit, the advertisements are usually littered with the same enticing catch-phrases for everyone: preapproved, prequalified, zero APR, up to, as low as, no annual fee, no interest and no payments, low money down, free rewards program, cash back, and so forth. The list goes on and on.
You are probably also familiar with footnotes and asterisk symbolswhat direct mail pieces call the IMPORTANT DETAILS.` They are usually relegated to the back of offers or hyperlinks and are almost too small to read. However, these details, if you take the time to read them and know what to look for, can be the difference between wasted money and financial freedom.
Rating offers: Revealing the real value of promotions
With spring upon us, you can expect to begin receiving more direct mail loan and credit offers. Why? Because according to the Remodelers Council of the National Association of Home Builders, Americans spent an estimated $238 billion in 2006 on updating our houses and sprucing up our yards, and home improvement, credit card companies and banks are eager to grab a piece of the pie.
This deluge of what many would call junk mail can be overwhelming. However, if you’re looking to borrow money to finance your home improvement project, these competing offers can help you secure the best rates and terms available, provided you know what to look for. Here are a few helpful hints:
1.One of the first things to look for on any offer is your status`are you pre-approved or pre-qualified? This distinction is significant, because it determines whether the offer you are looking at is guaranteed or conditional. Pre-approved offers are bound by law to grant you a loan or line of credit with the terms stated in the promotion, provided your pre-screen conditions do not change. Pre-qualified offers are little more than invitations to apply, meaning that terms and conditions will be based on a number of factors, including income and credit rating.
2.Carefully examine the terms. For example, if a line offers a great introductory rate, it is important to have a clear understanding of how long the rate applies and what the rate will be when the introductory period closes. Other terms to look for include repayment period, fees and prepayment penalties. For credit cards that offer zero percent APR for balance transfers, be mindful that a late payment can trigger the rate to around 20 percent, and that new purchases will carry interest and may not be able to be paid down until the amount of the balance transfer is paid of in its entirety.
3.Consider the reputation and accessibility of the lender. Do they have local offices and people you can speak with who know the needs of people within your region? If you have any questions regarding a company’s credibility, you can contact the Better Business Bureau, www.bbb.org.
Regardless of whether the loan or line you are interested in is a preapproved or prequalified, you still need to go through the application process. Items you will need to complete your application include:
current income;
pay stubs;
W-2 or two years of tax returns (if self-employed);
current expenses; and
the approximate value of your house (if you are interested in applying for either a home equity loan or home equity line of credit)
If you have a loan application denied, you are entitled by law to receive a written explanation as to why from the lender.
Financing home improvements: Deciphering loans from lines of credit
For most Americans, financing even minor home improvements out-of-pocket is not possible. This means that financial institutions are backing a great deal of the more than $100 billion people are putting into their homes every year.
Among the most popular way people finance these improvements are through home equity loans, home equity lines of credit and credit cards.
Home equity is the value of a home minus any mortgages or liens owed on the property. A home equity loan provides a fixed loan amount that the borrower repays in equal payments over a fixed period of time. Home equity loans are generally considered stable and are ideal for financing projects or events that have a predictable cost.
A home equity line of credit (HELOC) is more flexible and provides cash as needed at various points over time. As the loan is repaid, more funds become available and the line is replenished, much like a credit card (for more on the difference between credit cards and lines of credit, see the sidebar). This makes a line of credit ideal for homeowners who plan to use borrowed funds for home improvements they will make themselves or over a period of years.
The bottom line is that no matter how you pay for your home improvement, you should always be mindful of selecting projects that improve the value of your house, because not only is your home the roof over your head, it is also an investment in your future.
“