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The ‘common misconception’ that could add to your mortgage
This financing arrangement is often considered a last resort, but according to a financial services CEO, avoiding it is not always a good idea either.
The ‘common misconception’ that could add to your mortgage
This financing arrangement is often considered a last resort, but according to a financial services CEO, avoiding it is not always a good idea either.
To the CEO at You’re Welcome Finance, David Lennon, the argument that taking out a personal loan should be a last resort for mortgage holders is simply a misconception.
Speaking to Nest Egg, he explained, “Let’s say you want to spend $100,000 to do a renovation on your property, the absolute first thing to do is to go to your bank and see if you can get a refinance, or see if you can use the equity in your home.
“[However] if you're going for a smaller amount, $25,000 or $20,000, I'd strongly advise you not to put that on your mortgage. You may get a better interest rate but remember, your mortgages are written over 25-30 years. The great thing about a personal loan is you know it's going to get paid off in a short space of time.”
That’s provided that the borrower has a stable job and a solid credit file.
“There’s absolutely nothing wrong with taking out a personal loan if you're doing it for the right reasons,” Mr Lennon said.
“I’d tell people to be careful how many inquiries for [finance] you're making because the more inquiries you take you're lowering your credit score and that's important. [Additionally], just make sure that you've got a bona fide lender.”
In his 15 years working in the personal loan space, Mr Lennon has seen inquiries for things as mundane as new furniture to life-altering surgeries, like gender reassignment operations.
“If you've got any product or service that's costing $7,000-$9,000 – that's a lot of money, not many people have that in cash sitting in the bank,” he said.
However, it is critical that potential borrowers use discretion when choosing a lender and loan type.
Payday lenders in particular have come under fire recently for dodgy contracts and sales tactics, Mr Lennon noted, while emphasising the distinction between personal and payday loans.
“I would just tell everybody, do your homework,” he said.
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