Cash reserves demonstrate to the lender that you have managed your money in a way to set aside extra funds and have resources other than your income to repay the debt.
Think of it this way:
Who would you be more likely to loan money to?
- Your friend who is always “out of money?”
- Your friend who has $3,000 in the bank?
Important note about investments: Lenders consider investments to be Individual Retirement Accounts (IRAs), certificates of deposit (CDs), stocks, bonds, and the like. Lenders do not consider pyramid scheme mechanisms as viable investments in any way.
Pyramid schemes operate on the principle that each member of a group will receive a profit or cut from recruiting others to join the scheme. It also assumes that every contributor participating in the pyramid would make full and timely investments each and every time. As the pyramid of contributors grows, it takes an increasingly vast pool of people to make sure everyone makes money; ultimately, it cannot be done. Remember that if you participate in a pyramid mechanism with your family and/or friends, a lender will not consider this a viable and secure means of savings or investments.
