According to the Federal Equal Credit Opportunity Act, lenders have no legal right to discriminate against applicants based on their race, skin color, sex, religion, and other personal features as long as an applicant is eligible for a loan. However, there are still some acts of discrimination against Hispanic people when it comes to getting a loan.
Knowing your rights and available options can protect you from illegal actions against you and show you what ways of financing are open to you when you need it most. Let’s talk about financial products available to Hispanic individuals, potential homeowners, and entrepreneurs in Massachusetts.
Personal Loans for Latinos
Hispanic individuals who need money for personal needs can consider the following options.
Traditional loans are borrowing options offered by conventional lenders, such as banks and credit unions. These loans are known for having favorable terms. This includes extended repayment periods and low interest rates and ranges between 5.99% and 35.99%. The repayment is made in fixed monthly installments, usually within up to 60 months.
However, there’s a pitfall in the form of minimum credit score requirements. Conventional lenders are usually willing to work with applicants who have good to excellent credit. Therefore, they perform hard credit checks to determine a borrower’s creditworthiness. These checks not only lower your current credit score by a few points but also make the process of getting the money longer. Plus, having bad credit may result either in a higher interest rate or in a loan rejection.
Secured loans can be a good way to get a higher loan amount at a lower interest rate. However, you need to provide some of your valuable assets as collateral. It can be almost anything, from your car or house to your crypto holdings or savings account balance. This way, lenders receive a repayment guarantee in case you won’t be able to make your loan payments on time. This also means that you put your asset at risk and can lose it if your financial situation changes, and you won’t be able to fulfill your debt payment obligation on schedule.
As of October 2023, a secured loan interest rate can be anywhere between 3% and 36%. Thus, borrowers with good credit can benefit by paying less in interest compared to unsecured options. Secured loans also provide more opportunities to borrowers with bad credit. This is because conventional lenders are more willing to work with them if they have a repayment guarantee.
Lines of Credit
A credit line is a smart solution for people who need money just in case or don’t know for sure how much they may need for a certain life project. This option provides you with a revolving balance that you can use to pay for various products and services. This way, you pay interest only for the amount that you actually use and always have access to extra cash for emergencies.
Lines of credit vary significantly in terms of their costs. Although they are commonly more expensive than regular personal loans, credit card companies may offer some perks. For example, there are various credit lines with interest-free promotional periods. This means that you won’t overpay if you manage to pay off your outstanding loan balance before this period ends.
Home Equity Loans
Home equity loans can be a great option for Hispanic homeowners who need extra money for large purchases or big life projects. They are a form of secured loan that allows you to borrow money against the equity you own in your house. The amount you can borrow is usually up to 85% of your home’s value minus the amount you still owe on your mortgage.
As home equity loans put your property at risk, they should be considered cautiously. You should only take out a home equity loan if you’re sure you have enough money to cover payments without delays on a monthly basis. Otherwise, a lender can repossess your house.
Credit Builder Loans
If you’re just starting to build credit or need to improve your existing score, a credit builder loan can help you out. This loan differs much from regular financing products. Instead of getting a lump sum amount on hand or being offered a certain credit limit, you need to make your monthly payments upfront without getting the money. Each of your on-time payments will be reported to major credit bureaus and boost your credit.
When the repayment period ends, you’ll get the money on hand and can use it for whatever you want. Although this loan is not about receiving needed financial support right away, it can help you improve your credit history along with the chances of getting future loans at better terms.
Payday loans are short-term financial solutions people usually use to cover financial emergencies. These loans are typically limited to $1,000 and must be repaid after a borrower receives their next paycheck. Payday loans are known for their lenient eligibility requirements and fast funding times. This makes them very popular with bad credit borrowers and people who need money quickly.
But be cautious. Payday loans usually come with extremely high interest rates. An APR on one can even exceed 400% in some states. This is the reason why some states prohibit payday lending to protect residents from predatory practices. Only use loans till paycheck as a last resort for your urgent short-term needs.
Mortgages for Latinos
The number of Latino homeowner households has grown significantly since 2014. Although there are many challenges that Hispanic people face on their way to purchasing a house, the Hispanic homeownership rate reached 48.6% in 2022. The NAHREP states that there are 9.2 million Latino homeowner households.
Mortgages are loans that help people make their American dreams come true. Besides regular programs offered by mortgage lenders, there are also options created to support underserved communities. Here are a few of them.
Latino Focus is a program held by New American Funding. It was created to support Hispanic people and guide them through the homeownership journey. By 2024, NAF is committed to providing $25 billion in home loans to the Hispanic community under Latini Focus.
The Community Affordable Loan Solution
The Community Affordable Loan Solution is a program offered by Bank of America. This option has no down payment and is created to help minorities, such as Black/African American and Hispanic-Latino communities, get affordable financial solutions for purchasing a house. The best part of it is that it requires no mortgage insurance and comes with no minimum credit score requirements. This way, people with less-than-perfect credit can also make the homeownership dream come true.
The Pathway to Homeownership
This is another initiative of New American Funding designed for first-time homebuyers. It allows eligible applicants to get $8,000 in assistance. These funds can be used to cover your down payment, closing costs, or other upfront costs, depending on the program you qualify for. The main feature of this program is that it’s not a loan that must be repaid. It can also be combined with other DPA programs.
Hispanic-Owned Businesses Financing
Business loans are probably the first thing that comes to mind when you want to start your own business and need some extra cash to get started. However, these loans may be difficult to get. Luckily, they are not the only way to get entrepreneurship financing. Except for regular business loans, Hispanic business owners can also consider the following options:
Latino Economic Development Corporation (LEDC)
If your startup has been in business for less than one year, LEDC can provide you with loans to support your undertakings. The money you get can be used for various business purposes, such as buying equipment, inventory, or vehicles, making renovations, or creating working capital. Additionally, LEDC offers multiple financial tools, paycheck protection programs, credit builder options, and financial advisory services.
Community Development Financial Institution Fund (CDFI)
The CDFI is a division of the US Treasury that works to guarantee that loans and other forms of financial assistance will reach minority-owned companies. This fund provides financial services, investments, loans, and tech support to Hispanic-owned businesses. The CDFI encourages banks to make new investments in underprivileged areas with the goal of promoting sustainable growth and economic development.
Small Business Administration (SBA)
There are multiple services and programs offered by the Small Business Administration (SBA) that are aimed at helping Hispanic- and other minority-owned businesses receive financial support. Some of the most popular SBA-backed initiatives are microloans and Community Advantage loans. These options can be obtained through the SBA Lender Match. Hispanic business owners can also consider the 8(a) Business Development program. This program provides underserved communities with set-aside and sole-source federal contracting opportunities.
Business Consortium Fund (BCF)
BFC is an organization that offers a variety of loan programs and advisory services to small business owners. All these services are provided in partnership with multiple connected regional councils. BCF has introduced more than $5.8 million in additional financing possibilities as of 2022. Through these partnerships, BCF is better able to assist small businesses and help them grow and succeed.
National Association Latino Community Asset Builders (NALCAB)
In low- to moderate-income economies, the NALCAB connects small business lenders with Latino entrepreneurs to promote economic mobility. This group helps Latino entrepreneurs by providing grants and technical support. It offers guidance and knowledge on developing egalitarian neighborhoods and small enterprises.
Why Can a Lender Deny Me a Loan?
First of all, keep in mind that no lender can’t reject your loan request based on your race, religion, sex, orientation, skin color, and other personal features. However, there may be reasons for denial that don’t depend on the mentioned factors.
Each lender wants to get its money back. Therefore, it will pay attention to your income and debt-to-income ratio to make sure you can afford this potential debt. Having insufficient income or a high debt-to-income ratio for the amount you request is one of the most common reasons for denial.
Another popular reason is a borrower’s credit score. When it comes to traditional loan options or business financing, lenders always access your credit background and history of payments to make sure you’re a reliable customer. If your credit report contains too many negative records, a lender can either deny your loan request or offer you a higher interest rate.
Additionally, lenders require borrowers to meet certain age requirements. In most states, you won’t be able to get a loan if you’re under the age of 18.