Be Careful With Military Loans

By Tim Parker. May 7th 2016

If you have served in the military, there are many benefits available to reward you for your service. One common bonus afforded to members of the military is customized personal loans. These unique loans are well deserved, but like all financial decisions, if you don’t do your research, you could find yourself regretting signing up for the credit.

Types of Military Loans

Home Loans - Military personnel know about the VA Loan. This is a loan specifically for the purchase of a home, and it comes with a variety of benefits. First, this loan doesn’t require a down payment by qualified borrowers.

Next, there is no mortgage insurance premium, closing costs are lower, and a one-year warranty is required by the builder if the loan is used to purchase a new home. The VA works with lenders throughout the United States. These loans do not come directly from the VA.

You cannot use a VA loan to purchase an investment property. Borrowers must occupy the home within 60 days after closing.

Auto Loans - Numerous private lenders offer military auto loans. Much like home loans, these come with lower rates, a lower down payment and lower approval standards. Military personnel may be able to qualify even if their credit is damaged.

Personal Loans - Whatever your needs, many lenders offer “no questions asked” loans even if you’re deployed and can’t be present to sign the papers. Loans with favorable interest rates are available with as little as a 90-second approval process.

There’s Cause For Caution

1) They’re Not Government Backed – Military loans come from private lenders. Even a VA loan goes through private lending institutions. Because of this, those applying for a loan should perform the same due diligence as they would if they were applying for a civilian loan.

2) It’s Not Necessarily Better - Just because it says “military loan” doesn’t automatically make it a better deal. Compare the terms to a non-military loan to make sure you receive the best rate and terms possible. For example, one lender specializing in military loans recently advertised a new car loan for as low as 1.9%. Other non-military credit unions advertised the same rate.

While it’s true that military loans may come with lower down payments and other favorable terms, are they really that favorable? A lower down payment will result in paying more interest over the life of the loan. It may be favorable today but not in five years.

3) Use Good Financial Judgment - A quick look at the lenders that offer military loans reveals websites that use language like “you deserve,” “we’re here for you” and “we honor our men and women in uniform.” Those are all nice phrases that make customers feel appreciated, but the only difference between these loans and any other debt you take on is that they’re called “military loans.”

Some sites encourage taking out a loan for a computer or dream vacation. No matter what your service record reads like, purchasing something you can’t afford today is setting yourself up for potential disaster. If you take on more debt than you can afford, you’ll still face possible bankruptcy and financial ruin.

Strip out the “military” portion and ask yourself these questions:

  • Do I NEED it or do I WANT it?
  • Is it worth paying thousands of dollars more in interest over time?
  • What is my plan to rapidly pay it back?
  • Does my income support taking out this loan?
  • Just because the lender says I qualify, is that actually true?

The Bottom Line

In 2010, the United States Census Bureau found that one out of every six Americans was below the poverty level, and many of those were military or ex-military personnel. No loan - even a military loan - will save you from an ill-advised financial decision.

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