If you are waiting for money from an estate, you know the wait can be long. Depending on the complexity of the estate and your location, it can take months or even years to get the money. However, you may have bills you need to pay, including bills for the estate, before the end of the probate period. In that instance, you may look into getting an estate loan. However, there can be some drawbacks of borrowing against the estate. Read on to find out some of the benefits of estate loans.
What is an estate loan?
Estate loans are loans that occur during the probate process. You have to pay interest payments until the estate is probated. You are responsible for the principal of the loan, whether or not you get your expected inheritance. You pay the full amount of the loan when the estate is probated. However, since the inheritance does not belong to you, the lender may not consider it sufficient collateral. So, you have to be able to demonstrate creditworthiness, provide collateral, and show that you have an ability to pay.
Why get an estate loan?
An estate loan is a good idea when you need short-term funding during probate. It can also be useful for an executor or heir who needs an influx of money in order to settle the estate. However, it is not as good of an idea if you are uncertain how much money you will receive. In that case, you may be better off with a probate advance. With a probate advance, if your inheritance ends up smaller than you anticipated, you are not responsible for the balance of the loan.
Can the estate lend me money?
Sometimes heirs think that they can borrow money from the estate. However, the executor has a fiduciary responsibility to protect the money that is in the estate. That can complicate the process of lending money to any of the heirs or potential heirs. While many people probably do it informally, it is a bad practice that can lead the executor to be vulnerable if the borrower fails to repay the estate.
Does an estate loan count on my credit?
Generally, an estate loan will count against your credit. You need to be creditworthy to get the loan. The inquiry will show up in your credit report. However, you will also get the benefit of paying off a substantial debt once the estate settles, which can make it positive for your credit. As long as you do not default, the long-term benefit of an estate loan should be to boost your credit score, even if it takes a short-term hit.