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Long-term loans are debts that are spread over an extended period of time, usually two years or more. Since they are considered higher-risk, financial institutions have been offering them only to people with a good or excellent credit record. In the recent years, long-term loans have become available to borrowers with less-than-perfect credit. Many consumers have found themselves in debt with their scores falling.

Long-term loans are a good option for debt consolidation, because payments are spread over a longer period of time making them more affordable. Borrowers are more likely to pay their debts in full if they can afford to make payments. Those who have difficulties paying the bills eventually consider a debt settlement or bankruptcy. Today, lenders are starting to see long-term loans as a solution to the growing problem of debtors defaulting on their obligations. It is advantageous to offer a loan that a borrower who can afford to pay.

Unsecured Loans

These are loans without collateral, not backed up by any asset. They may also be referred to as signature or personal loans. A person with an adverse history may have difficulty gaining approval. A derogatory record in his file means that he has failed to pay an obligation according to the contract. If he has more than one of such records, it raises a red flag for the bank. He sees this applicant as a high risk and will not approve his application.

Collateral

Applicants who have past problems will have better chances of being approved if they have collateral that can serve as a guarantee. Lenders usually take assets, such as vehicles or stocks. A borrower can use a property that has enough equity in it. Some can use other items as collateral, such as jewelry, watches and other valuables. The collateral value must be higher than the amount that you intend to borrow. If the borrower defaults, the lender can sell the asset to pay off the outstanding balance.

Co-signer

When an applicant has a poor credit history and does not have any assets to offer as collateral, a lender can suggest that he finds a qualified co-signer. A co-signer is person who guarantees that the money will be repaid. If the primary borrower cannot make payments, the creditor will come after the co-signer for the remaining balance. Anyone can co-sign an agreement, as long as he meets the qualifications, such as a good credit record and a sufficient income. Many people opt for a co-signer when they are trying to borrow money to fund a college education.

Credit Management Agencies

These agencies may be a good place to start if you are looking to borrow money. Some agencies provide counseling and classes on budgeting and money management. They may also work closely with lenders who specialize in debt consolidation and can refer customers to them after they have completed the debt management workshop. This will enable you to gain control of your finances.

Terms of Lending

Not all long-term loans are created equal. Some businesses prey on people with bad credit and offer unfavorable terms, such as high and variable interest rates, prepayment penalties, and application and processing charges. The charges can add up to be more than half of the monthly payment. This forces borrowers deeper into debt. A fixed rate is better because it will remain the same throughout the term of the agreement. Late payment fees are common, but most lenders do not charge more than $35 per occurrence. Prepayment penalties can also add up to a considerable amount—often a percentage of the remaining balance—if you choose to pay the balance off early.

If you are looking for a long-term loan, shop around and do your research on lenders. Some websites match applicants with lenders that work with borrowers who have unique situations, including credit and income problems. If you can, find out the details before you complete an application. Be prepared for the interest rate to be slightly higher than average. Lenders are taking a risk by offering to lend money to a borrower with adverse credit.

Understanding the Application Process

Many lenders accept online applications. It makes the process easy for both parties. A borrower can complete an application at any time at their convenience. When completing an application, provide full details whenever you can. Do not attempt to lie because the lender can verify the information you provide. He will decline you if he finds out that you lied on the application. If there is a good reason why your history is poor, explain it to the loan officer. Lenders have experience with different situations, such as a divorce, a job loss or an illness, which may have a negative effect on a person's credit history. He will consider your circumstances when making his decision.

Multiple Applications

Resist submitting multiple applications in a short period of time. Every time you send an application, the lender pulls your report, and your score goes down by a few points. If you have a low score, you cannot afford to lose any more points. If a lender sees several recent inquiries in your file, it also raises a red flag that you are desperately seeking new credit. Do not submit more than one application in three to six months. Do your research before applying. Read online reviews from their past and current customers. Complete an application only if you see a good chance of being approved.