Non Conforming Loans have been designed to help borrowers who do not meet standard lending guidelines.
By: Hitesh Khan/
Borrowers who include those having impaired credit, are unable to provide the usual documentation required in support of their loan, or simply do not meet the lending criteria of mainstream lenders, may benefit from non conforming loans some lenders provide.
But non conforming loans can be more expensive than standard or ‘conforming’ loans to cater for the perceived greater risk to lenders.
Non bank lenders offer loans which fall out of the standard bank lending criteria. Examples of non conforming parameters are: different income type, credit impairments, non standard property or zoning.
There are several advantages to taking up a non conforming loan. For example, you may be able to get a fully featured business loan with more options, and such a loan will be different with more practical lending criteria. There may also be several disadvantages in that the interest rates will usually be higher, and also, higher fees and charges are applied to such non conforming loans.
Non conforming loans are useful for times in your life which may be challenging, difficult or don’t fit within the standard bank lending parameters.
Some reasons to consider non conforming loans:
- Difficult security – a borrower seeking non-traditional security such as company title, studio apartments, serviced apartments, warehouse apartments, vacant land or resort style accommodation.
- No financial statements – a business or investment borrower unable to submit formal income confirmation.
Irregular income – business investment or home loan borrower with irregular or partially unsubstantiated income details.
- Self employed people with a short business history.
- Credit problems – a borrower with poor credit history ranging from slow repayments on any current loans to a credit default.
Selecting a Non Conforming Lender should be the same way borrowers would find a standard broker or lender. Ask friends, family, associates or work colleagues for referrals of people or organisations they have used to obtain finance. Finding Brokers that are reputable have relevant industry qualifications, associations and offer testimonials are important as well.
When you make contact with likely organisations, assess how quickly they respond to your requests, their level of customer focus and service and the size of the organisation you are dealing with is important as well – a ‘one man band’ is never a good idea.
Ensuring the broker you find has access to more than one non conforming lender and the person advising you is rewarded the same way – irrelevant of loan or lender they recommend to you. This will ensure their focus is on your benefit, rather than the highest commissions for non conforming lenders.
Non conforming personal loans are slowly making a re entry into the local lending market. The terms of these loans are a stricter than the standard loans and the interest rates are a little bit higher to cater for the increased perceived risks, but overall, it’s a similar product as the standard market.
The things to watch for are exorbitant fees and charges which may be masked through low interest rates. These fees can be brokerage fees, loan processing fees or unreasonable valuation fees. As a guide, you should not need to pay any brokerage fees for the broker to organise a loan for you as they will get paid from the lender directly. The valuation fees should not vary too much from a standard lenders fees.
The best advice one can get is to only use brokers who have an association with one of your friends, family, business or work colleagues. If you don’t have one, search for reputable, well-established brokers. Finding brokers or lenders randomly off the street is rarely a pleasant experience.
Mr Paul Ho, chief mortgage consultant at iCompareLoan said, businesses need to consider non conforming loans when they do not need money. He added: “When your business is struggling and you need additional funding to tide over a tough patch, then you will find that your access to funding is completely cut off and end up with very expensive funding.”
It may be wise to plan 6 to 12 months ahead for any potential funding needs. Remember, lenderss assess your credit and affordability at the point of application, so you should apply when your status is good, not when you have further deteriorated. At that time, no banks will lend you.
You can read more about the different types of funding here. If your business is profitable and you only need short term funding, but your access to bank’s working capital is temporarily cut off, then you should consider personal loans as a source.
How to Secure Personal Loans Quickly
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