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Five Tips for Obtaining a Personal Loan After a Foreclosure

[Mar 13, 2009.]


It has been reported in the press that fully one in eight homes in the United States is in some stage of mortgage delinquency. Foreclosure, the last step in this process, has reached epidemic proportions.

This is troubling on a number of levels, not least of which is the idea that people with a foreclosure on their record will not be granted credit for a very long time, or granted credit only under extremely onerous terms.

Someone who has just undergone a foreclosure has often tapped savings, 401K plans, loans from relatives, and most anything else in an effort to save their home. When that doesn't happen and foreclosure does, the person may need some sort of personal loan just to get into a different living situation.

Here are five tips on obtaining a personal loan after a foreclosure:

1. Get Letters of Recommendation

Not everyone with a good credit score is a good credit risk. And not everyone with a bad credit score is a bad credit risk. A foreclosure wreaks havoc on a credit score, but may not mean that a personal loan can't be achieved. It may take some doing, though.

Specifically, some writing. From anyone who can attest to the fact that a borrower is a good credit risk. These letters of recommendation should not be about the charming personal traits of a borrower, but how and why, specifically, a borrower is trustworthy.

A letter from an employer is often a good place to start.

2. Make It Personal

The above suggestion is part of a general strategy of making personal loans personal. Because that is, at bottom, what a personal loan is all about, especially when it's unsecured by other property and purely based on the perceived credit risk of the borrower:

Is this person deserving of a personal loan, and will they pay it back? Going the extra mile to be a friendly person when going to the bank, getting to know the tellers and personal bankers, or even being a friendly person when out and about in the world, can pay real dividends when seeking a personal loan.

People with personalities can get personal loans other people can't.

3. Pull Out That Credit Report

If a foreclosure is the only black mark on a credit report, it may not indicate that a borrower is a poor credit risk whatsoever. On the contrary, many, many people, as noted, have gotten caught up in the housing mess.

When that's the case, and everything on the credit report looks strong except for a recent foreclosure, pull out that credit report and point out all the successes. Don't let people focus on that one problem area.

Foreclosure hurts a credit score, no doubt, but shouldn't be the end of a personal loan conversation.

4. Keep Paying Other Bills

The temptation when a person is suffering from foreclosing proceedings is to just say "forget it" and stop paying bills entirely. People become emotional when they're scared and feeling helpless.

But paying other bills, especially trade lines like utility companies, is essential to maintaining good standing with creditors who can understand a foreclosure, but not a "forget it" mentality.

5. Say Why a Personal Loan Is Not Just Wanted, But Needed

Creditors that offer needed products are usually able to offer lower interest rates to buy those products than creditors that sell flashy things whose value dissipates immediately.

If the reason for a personal loan is for something extremely important, such as a deposit on an apartment or a car used to get to work, talk about that reason. Convey it as a need, rather than a want.

Needs are much more valuable than wants, and easier to lend on.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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