Be Wary of Short-Term Loans

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[The following is a guest post about the dangers of short-term loans.]

If you are facing a financial crisis, a payday loan may seem like the perfect solution to your problem. They usually offer to provide you with instant cash that may be in your bank account in just a matter of hours. They also promote the fact that they will lend to anyone with a steady job, even if you have no credit, or poor credit.

While this may seem like the answer to your financial problems, there are some things you should know about payday loans before making your final decision. Otherwise, what may seem like the perfect solution, may only add to your financial problems.

Payday Loans

How Short-term/Payday Loans Work

A payday loan company is likely to offer you a loan of up to $2,000 that you can spend on anything you want to. Through this loan contract, you agree to make regular payments to the lender until your loan is paid in full. They will attach various fees to your loan that you must also pay back in full. The application process is very easy and these companies do not do any type of credit check to see if you qualify for approval. As long as you have a steady income, you will probably be approved.

You may ask yourself why payday loan companies offer loans to people with little or poor credit when other lenders will not. This is because they set up an agreement with you where they are practically guaranteed to get their money back. This is because you agree to allow the payday loan company to withdraw the fund directly from your regular pay check or your bank account. These funds will then be directly forwarded to the payday loan company.

Repayments

It is very important that you realize the when you agree to a payday loan, you are authorizing the company to take funds directly from your pay check or bank account to cover your debt. Once you make the agreement, these payments will be automatic and there will be nothing you can do to stop the payments. This means that you will have fewer funds available to you every week until the loan is paid off.

If you are having the money directly deducted from your bank account and you do not have sufficient funds available, you are likely to receive an additional fee from your bank.

Added Fees

While the government has set some strict guidelines in place for payday loans, you will still repay a substantial amount more than you initially borrowed. Right from the start you will be charged a 20% establishment fee just for taking the loan out.  If you are taking out a $2,000 loan, the establishment fee would be $400. You will also pay a 4% monthly account fee on the balance you still owe. This will add up to a lot of extra charges.

For example, if you obtain a loan for $2,000 and plan to repay the loan over 16 biweekly installments, you will owe $190 every two weeks. This will equate to a total repayment of $3.040.00, which means you will be paying more than $1,000 more on a $2,000 loan. This does not even include late fees if you are ever late with one or more payment.

Alternatives To Expensive Short-term Loans

There are several alternatives to payday loans that you may want to consider. You definitely want to contact your lenders first and see if you can make alternative payment arrangements with them, so you do not have to take out a loan. You may also be able to borrow a small amount from a friend or family member and pay it back over a set period of time.

There are also some other loan alternatives, such as a standard bank loan or you may be able to obtain a low-interest credit card that you can use for some of your expenses. If you are low-income you may be eligible for specialty or Centrelink loans from bank and charity partnerships, such as the StepUp Loan and the No Interest Loans Scheme. If you receive payments from Centrelink, you may be eligible for an advance payment to help offset some of your current bills.

While taking out a payday loan may seem like a good idea initially, keep in mind how much you will need to repay in added fees. If you are not careful, this type of loan can actually add more financial stress on you than you currently have. This is because you will have to go with several weeks or months of decreased pay checks to cover all of your other expenses.

If you do obtain a payday loan make sure you read the contract through completely and that you are certain you will have the ability to repay the loan.

Why a 15 Year Mortgage Isn’t Always the Best Choice

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With mortgage rates being at all-time lows many homeowners are looking to take the rate bonanza a step further by going for a 15 year mortgage. Not only will you pay off the mortgage in half the time, but you’ll get an even lower rate for doing it.

Sounds like a good deal right? Not necessarily, and certainly not for everyone.

15 Yr vs 30 Yr Mortgage

Payment Shock With A 15 Yr Mortgage

Right now, you can get a 30 year fixed rate loan for around 3.25%. You can also get a 15 year fixed rate for just 2.75%. As far as rates are concerned, comparing the two is the perverbal “no brainer”, right?

No so fast.

In a pure mathematical sense, rates matter a lot. But real life and math equations are two very different things. In the real world, rates matter mainly as a tool in reducing a monthly payment. But in this comparison—the lower rate of the 15 year mortgage will not reduce the payment.

No matter what the rates are on either loan type, the payment on the 15 year loan will always be higher than it is on the 30 year loan.

If your mortgage balance is $200,000, and you refinance to a 15 year loan at 2.75%, the monthly payment will be $1,357 per month. If you refinance the same loan amount for 30 years at 3.25%, the monthly will be only $870. That’s a difference of $487 per month! How does an annual rate savings of .50% look against a monthly payment that’s nearly $500 higher?

Put another way, the payment on the 15 year loan is more than 50% higher than it is for the 30 year. You’d have to think long and hard about whether or not that’s an advantage. For most people, it will be more of a nightmare.

No Immediate Benefit From A 15 Year Mortgage

This is another point that I don’t think most borrowers fully appreciate. While it’s true that you’ll pay off a 15 year mortgage in half the time that you will a 30, there will be no immediate benefit for doing so.

You will have to make the higher monthly payment for 15 years—that’s 180 monthly payments—before you’ll see the fruits of your labor.

When you sign up for a 15 year mortgage, you lock in the higher payments for the entire length of the loan. The payment will remain fixed for the entire term. Yes, you will be paying your mortgage off much sooner, but the day-to-day cost will be substantial.

With 15 year mortgages, virtually all of the benefit of the loan comes at the very end, when the house is owned free and clear.

There’s No Turning Back

Along the same line, once you take on a 15 year loan, you’re locked into for the duration. Yes, it will pay your mortgage off sooner, but if you lose your job or face some other financial disaster while the loan is still outstanding, the higher payment will sting.

You won’t be able to call up your lender and say “we made a mistake, can we go back to the 30 year loan?” Yes, you can refinance, but if you have no job or your credit has deteriorated since closing on the loan, you may not qualify for a new one.

15 years is a very long time when you’re making a high payment.

The Disappearing Income Tax Deduction

One of the biggest benefits of having a mortgage is that it’s one of the last solid tax deductions available to the average taxpayer. Medical deductions are reduced by 7.5% of your adjusted gross income, and credit card- and auto loan-interest aren’t deductible at all. But mortgage interest remains fully deductible. That can be a substantial tax savings, especially for high income taxpayers.

But since a 15 year mortgage pays off quicker than 30 year loan, they also make the tax break go away sooner. It’s not just the loan balance that goes away—the tax deduction goes with it.

Neglecting Other Financial Needs

When it comes to 15 years mortgages, there’s a definite opportunity cost. In the example above of the payment difference on a $200,000 mortgage, the payment on the 15 year loan was higher by $487 per month. That’s almost $6,000 per year!

That begs the question: what else could you be doing with $6,000 each year?

How about paying off a car loan, paying off credit cards, funding a Traditional IRA or Roth IRA, building up emergency savings, funding college plans for your children, or retiring student loan debt?

All of these are at least as worthy as paying off your mortgage early, and most of them will be more immediate in their impact. $6,000 per year could be putting out a lot of financial fires and/or funding a lot of accounts. By loading all of it onto a single venture—paying off your mortgage in half the time, you deny yourself access to the money to do other things.

That’s opportunity cost, and it’s a factor with a 15 year mortgage.

photo credit: Freedigitalphotos.net

Why Debt Consolidation May Help You

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The following is a guest post about debt consolidation and home loans.

Many people try to tackle their debt once the idea of purchasing a home enters their mind. They then realize how a few bad financial decisions in the past, can have such a huge impact on their ability to get a mortgage.

A good home loan comparison along with a sensible debt repayment plan may free you from your current financial problems. Nothing is more stressful than being in debt and knowing that you have the pressure of paying for something which puts you at risk because of your lack of creditworthiness!

Before you even consider making another big purchase, you need to take care of your debt problems.

The question is where do you begin? It all starts by finding out and asking yourself: how much can I borrow? You must follow your debt reduction plan without exceptions.

Use Debt Consolidation With Caution

The additional benefit that you get by consolidating debt and being firm with your financial decisions is that you can live with less stress. The most important criteria of any debt consolidation plan is that the refinanced loan repayments will be lower than the existing loan.

Remember that this rule applies to all levels of debt. You have to make sure that the terms of your consolidation put you in a better place than you are now. Sometimes the fees that you pay are more than the money you stand to save by consolidating your debt.

Sometimes it may be better to simply go to your creditors and negotiate better terms. It can save you time and money, and also give you more control over your financial situation.

Debt Consolidation – Only After Your Spending Is Under Control

When you decide to get out of debt by using a consolidation loan, you have to first discipline yourself to control your spending.

It doesn’t make sense to free up all of this credit, if you are just going to go on future spending sprees. First, get your spending under control, and then try to attack your current debt. If not, you will end up with twice as much debt, and less resources with which to gain financial freedom.

You need to take care of your assets. In short, experts recommend people begin by consolidating small loans including car and or credit card loans.

photo by renjith krishnan

Why A Consolidation Loan May Be Worth Considering

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I know that many of you may think I’ve gone crazy with the title of this article – especially since I am trying to pay off debt myself – but I can assure you that I have not.

With interests rates being as low as they are right now, this may be a perfect opportunity to take out a loan in order to refinance debt or start up a business.

Don’t get me wrong, I still despise being in debt bondage, and I would still advise all of my clients, family, and friends to avoid debt whenever possible; but I also understand that taking out a loan isn’t always the worst option.

Here are a couple of situations for which getting consolidation loans might be the answer.

High Interest Credit Card Debt

Some people get into credit card debt because they decided to live above their means. For others, it may have been due to a few acts of desperation. Some may have even tried to take advantage of credit card benefits, and for some reason, were not able to pay off their debt.

No matter what the reason, if you are stuck with high-interest credit cards, it’s time to take action. First, call your bank(s) and try to negotiate a lower rate. If that doesn’t work, see if you have a card with a zero balance and a balance transfer offer. If your savings are higher than the transfer fee, do it!

If none of these options work, it may be best to take out a loan – be sure to take advantage of a personal loans comparison first from sites like http://www.comparethemarket.com/loans/ – and consolidate your credit card debt.

Student Loans

There are a growing number of people who are financing their higher education with the help of student loans. Unfortunately, many of those former students are then put into a difficult financial situation because of their high monthly student loan repayments.

Depending on whether you took out subsidized versus unsubsidized Stafford Loans (or some other instrument), you may end up owing a lot more than you realize once you’re out of the grace period.

Sometimes, the only option in these cases is to secure another loan, which will help you to lower your interest rate and/or extend the amount of time that you are given to pay back the loan – lowering your payments in the process.

Of course, your goal should always be to pay back any debt as quickly as possible, so don’t use your lower payments and a license to go wild with your spending!

Consolidation Loans For Your Car Note

Most people only think about refinancing their mortgage when overall interest rates in the economy drop. However, you can still save yourself thousands of dollars if you can get a new loan for your vehicle.

Don’t forget to compare any fees that you might have to pay with the amount of money you stand to save by refinancing.

The same exact things can be said about refinancing your mortgage – besides, people write about that so often that it gets boring! 😉

photo by Omar Omar

Reader Questions

  1. Have you ever had to take out consolidation loans for one or more of the reasons listed above?
  2. Do you think it’s a bad idea to try to fix a debt problem with more debt?

5 Points You Should Consider When Looking For A Reputable Payday Loan Company

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[The following is a guest post on behalf of Check ‘n Go]

The payday loan industry has been a very fast growing, yet controversial, industry over the past few years. With state level legislation frequently changing, it can be difficult to be sure you’re choosing a reputable payday loan company. If you’re a consumer of this fickle industry, it’s important to do business with a reputable lender. These 5 points are surefire ways to know you’re dealing with a credible payday loan company, especially when buying online.

5 Signs Of A Reputable Payday Loan Company

[Khaleef’s note: These items are not a guarantee that you will find a reputable payday loan company, but they can help you weed out a lot of bad ones!]

Look For Logos:

When visiting a payday lenders site, look for credible logos. One such logo is the Community Financial Services of Association of America. This is your best source for responsible lending practices, as well as pertinent information about the payday loan industry as a whole. If a site displays this logo, you can be assured they’re a reputable brand.

Also, look for a secure transaction logo, such as VeriSign, or other reputable authentication service logos. This will ensure that your account information will not be compromised when purchasing a loan online.

A Reputable Payday Loan Company Will Have Knowledge of State Laws:

A legitimate payday loan lender will have knowledge of payday loan laws as they vary by state. Legislation pertaining to payday loans is always changing as it is a hotly debated topic. A reputable lender will keep up with this information by updating and informing the customer as necessary.

Frequently Asked Questions And Information:

A reputable payday loan lender will be very knowledgeable about payday loans and other related services; they will have all the important information, should you have any questions about their services, or debt and bankruptcy matters!

A Physical Location:

Most of the top trusted payday loan lenders have locations online and off. Retail locations were the initial source of payday loan lending, but because many have become internet savvy, there is an online option for this market.  While online payday loans may be appropriate for some, not everyone trusts or prefers them. Having a physical location builds trust and offers relief to customers who are skeptical of online transactions.

Offers Additional Services:

An experienced payday loan company knows that their customers have needs that extend beyond a payday loan.  That’s why you’ll find that the most reputable payday loan companies will offer additional services, such as cash checking, title loans, installment loans, and even money transfer services. The less experienced payday lenders will focus exclusively on the payday loan, and aren’t as aware of their consumer base and needs.

Because payday loans are sometimes a quick answer to difficult financial answers, there have been many payday loan lenders, especially online, that have evolved to take advantage of peoples misfortunes. These cases often end up turning into fraud, or other non-friendly consumer experiences. To eliminate this, consider a reputable payday lender that you can trust.

This blog post is provided by Check ‘n Go, a trusted online payday loans and cash solution installment loans company. Check ‘n Go is the fourth largest consumer financial service institution offering check cashing and online payday loans in the United States. A founding member of the Consumer Financial Services Association (CFSA), Check ‘n Go has always been committed to responsible lending and continually works with legislators to improve the credibility of the cash advance industry.

photo by vichie81