Non-Conforming Loans, Bad Credit Loan, Unsecured Personal Loan

Who can avail of non conforming loans?

Chances are you've just came in from overseas, or you are transitioning between jobs or just started a business, or recovering from a financial wipeout, divorce, illness or an accident. Banks classify people in certain situations as higher risk, making them unwilling to serve them standard interest charges; amongst them are pension-age borrowers, freelancers, and those with a history of unpaid debts. In all of these cases, lenders can offer you non conforming loans, banking on your future ability to pay.

Casual and seasonal workers with no established track record of regular income can also apply for non-conforming loans, as well as borrowers with no documents to prove a regular income or personal business receipts. If you have large amounts of tax or consumer debt, lenders will give you loans in order to capture your potential interest payments on top of the principal.

You may have the option to get lower interest rates later on as you build up a record of consistent payments. This process enables you to rebuild your credit-worthiness over time.

Should you avail yourself of non conforming loans?

It all depends on your financial goals. If you can make the higher-interest payments and you're building equity on your house by taking on a mortgage, a nonconforming loan can work out for you in the long run. However, watch out for hidden fees that come with requests to see your loan records and when changing lenders. A good way to avoid this is by keeping good records of your payments and by researching your lenders well.

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Loan packages differ with every lender, and if you do a good search, it might be possible for you avail of non conforming loan features like a withdraw option against advanced payments for emergencies, and offsetting of savings on mortgage payments.

A word of caution

Unlike Europe and the US, the issuance of non-conforming loans is not regulated by an Australian government agency. Loan brokers band together in the Mortgage Industry Association of Australia, practising self-regulation. However, many brokers with predatory policies do not take part in this association, and the most severe punishment available for erring members amounts only to simple expulsion. To ensure you're dealing with a reputable loan lender, check their association details and records.

How do you make the most of a non conforming loan?

In a nutshell, take on a loan that you are confident paying down month after month. Too many people rely on nonconforming loans as an opportunity to go easy on payments, only to be swamped by drastic interest rate hikes and penalties, leading to bankruptcy. It's often the little things that will either take you out of the money blues or drown you in it.

Take a look at extra expenses asociated with your loan's purpose. With a home loan, for example, you may baulk at the extra fees involved like stamp tax, insurance on your mortgage, builder's fees, bonds and more.

Maintain records of your non conforming loan payments as you go along, so that you'll have proof in case you discover any discrepancy between payments demanded from you and the actual interest rate.

In case your interest rate escalates later on and you do not wish to be trapped in an open-ended interest clause, see if you can take on a consolidating loan, which allows you to get out of your non conforming loan and determine a minimum balance to pay regularly. For this tactic to work, your original loan agreement should not have penal clauses for early payment and your total cost of switching loans must be lower than potential interest savings.

We do not claim to represent any Australian bank, lender, or financial institution. Thank you for consulting
this overview on non-conforming loans. Copyright 2008
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