What You Need To Know About Personal Loans

Sometimes we have there are opportunities that come our way but requires us to have that cash to take advantage of that opportunity. An example would be a business partnership being offered to you which you believe will work but currently don’t have the savings needed. Getting a personal loan is good as long as you know how to manage it well.

Personal Loans

Personal loans are unsecured loans where the proceeds of the loan are not locked in for a specific use. Because these types of loan are unsecured, the interest rates for these loans are often higher than other types of loan. Personal loans can be used in a variety of goals. The most common ones are medical expenses, household and auto repair, purchase of high value goods, and debt consolidation. The borrower in this case receives a certain amount of money which is also known as the principal.

The borrower then pays the lender an amortization during the term of the loan which is inclusive of the interest rate. The interest rate is the payment being made or the cost of borrowing the money from the lender.

Interest and Payment Terms

Personal loans are types of loans that have a fixed interest rates. The predetermined rate is then applied to the loan and the amortization payments that need to be paid by the borrower incorporates these predetermined interest rate. Interest rates that are being offered by bank are generally based on your credit rating score. The better score you have on your credit rating grants you a lower interest rates and vice versa. The lower interest rates that are granted the better as you have a lower cost for borrowing the money.

There are personal loans that offer a variable interest rate but this means that your amortization payments can fluctuate based on the interest rate applicable to that period. This makes the amortization payment that you need to budget for the period quite unpredictable.

Also, personal loans have fixed payment terms or loan periods. Loan periods are granted between 12 to 36 months as a standard practice. Once this has been set, it cannot be changed to a different loan period as it will affect the interest rate and the amortization payment required to be paid monthly.

Why You Need to Get a Business Loan

When you plan on putting up a business, one major factor that can contribute to the success of your business is the fuel that will keep it moving and pushing the business despite of the challenges. The fuel that will help your business is funding. Funding is what will help you execute the plans you may have and achieve the objectives that you aim to meet at a certain timeline.

There are two ways of raising funds for your business. The first one is to coordinate and find investors who are willing to invest cash for a portion of your earnings and your business in return. This is one of the fastest and effective way of raising your funds for your business. The only concern that might be on your way is that your investors will eventually be your bosses. You will need to report to them the status of your projects, milestones, and earnings.

The second way of raising funds is to apply for a business loan. This will provide you propriety over your business but an obligation to repay the loan is at hand. But most often than not, getting a business loan is a good option and here are a few reasons why.

  1. Cost of debt over equity investment is usually lower.

When you apply for a business loan, the cost of debt is carried out at an interest rate of 15% to 18%. The equity investment on the other hand is often made at 25% per year. The profits being shared to your investors is often higher than the cost of debt being paid hence allowing more savings.

  1. Lender relationships is much easier to manage than investor relationships.

When you apply for a business loan, you only have to worry about paying your amortizations in a timely and consistent manner. As long as you are consistently accomplishing your obligations with the lender, it is unlikely that the lender will meddle with other affairs of your business. Unlike having an equity investment, your investors will expect you to bring the business to places hence they would ask for updates on projects, revenue, and other matters relatable to business operations.

Why You Need to Avoid Personal Loans

A personal loan can be both good and bad for the borrower, depending on how it is granted and how it is managed. Personal loans are effective and helpful in certain ways but there are a few reasons where getting a personal loan is something you should avoid. Here are 3 reasons you may want to look into and reconsider applying for a personal loan.

  1. Having a bad credit score can affect your interest rate.

When you apply for a personal loan, the bank or lender will check your credit score to identify your capacity to pay. Since a personal loan is a form of unsecured loans, the process by which the lender determines your interest rate involves checking your credit score. Now if your credit score is not performing that well then the lender may need to apply a higher interest rate to recover the principal amount that was granted for loan the soonest time possible.

  1. Paying more interest rate compared to other credit lines.

Before you take on a personal loan, you have to identify the purpose of your loan as you may be able to find other types of loan that can offer a much smaller interest rate than what a personal loan can offer. As mentioned earlier, personal loans are unsecured types of loan pushing the lender to apply higher interest rates. Try finding other modes of credit that are secured so that it can offer lower interest rates. An example would be getting an Auto Loan instead of a personal loan for buying a car.

  1. Debt consolidation may not be a good reason to apply for a personal loan.

When using personal loans for credit card debt consolidation, it may not be a good idea. There are cases once the outstanding credit of multiple credit cards have been paid, the credit cards are swiped and charged again. While new credit charges are made, the borrower still has amortizations that are outstanding in addition to the new credit card debt being accumulated.

What You Need to Know About Mortgages

A mortgage is a tool by which a buyer can purchase a property at an affordable method. The buyer is the borrower who uses the lenders money to pay for the price of the property. The lender is then paid back by the buyer through amortization payments. Amortization payments include the principal amount that was borrowed plus interest as payment for borrowing the money. Amortization payments may also include other financial charges that form part of the loan such as processing fees and administrative fees. Mortgages are effective ways to ensure that property purchases are more affordable.

Mortgage Application

Lenders will do a background check and see how likely you can pay back the amount borrowed. Lenders will check your employment status, income, and even your credit scoring. Aside from these, the lenders will also evaluate your past or existing loans and other debts like outstanding balances on your credit card. These are some of the things that they will pay special attention to as they will try to evaluate how qualified you are to avail of a mortgage.

If you have an existing debt, it is much better to pay it off first before getting a mortgage application. This will only place more doubt by the lender for your capacity to pay the mortgage amortizations.

Employment and income stability is very important to the lender. This is one of the things that will help you qualify for a mortgage. If the lender identifies your source of income to be unstable, like being on commission basis, or hopping from one employer to another several times within a year, most probably your lender will hold back in granting you a loan.

Foreclosure

Not all mortgages end up as completely paid. There are borrowers, who at some point, lose their way through mortgage payments and end up to foreclosure of the property. When a borrower opts for a mortgage, the lender puts a lien over the property being purchased and allows the lender to sell the property in case of payment defaults made by the borrower. Foreclosure is a standard process being followed in mortgages and it is used to protect the lender from default.

What You Need to Know About Credit Cards

A bank may fund someone else’s purchase through a credit card. Credit cards are plastic cards that has a magnetic strip or chip that contains the credit card holder’s information. This information is being used by the credit card issuer that grants the holder a maximum credit which he can use to purchase and pay for products or services.

Credit cards are effective tools that have been around for decades. It is being used by individual people and by corporations to purchase the goods and services they need.

Credit Cards and Their History

The first formal credit card was introduced by Bank of America as Bank Americard in 1958. Bank Americard was introduced in Fresno, California where 45% of its population used the bank. Bank of America sent out the cards to thousands of its clients which allowed the bank to convince merchants to take part into the program as accepting the cards as payments. With its success, the bank licensed the use of the credit card to other banks where licensees united to form a common brand in 1976 known as Visa.

In 1966, a group of banks who challenged to compete with Bank Americard established Master Charge which eventually grew to be a brand of its own, now known as Mastercard.

Credit Cards and Their Variety

Visa and Mastercard, the two largest credit card companies have licenses all over the world for the use of their network with other banks. Each bank has then came up with a way to market their cards through promotional offers and features that come with each card. As there are a lot of different types of cards to choose from, it is very important that reviewing what the card and the bank can offer.

Most credit cards are unsecured. This means that credit line is often based on your credit history, credit score, and capacity to pay. Other credit cards can be in the form of secured credit where the credit line is backed up by funds that you put in a savings or checking account that the creditor may claim upon failure to pay the outstanding balance due.