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August 21st, 2020
March 22nd, 2021
Guest Post by Lexington Law It can be tricky to get the timing right when you want to take out a loan. For instance, you want to wait for relatively low interest rates to keep your payments as low as possible. Rates may seem low now, but what if they sink even lower in the months ahead? You might feel like you missed a great opportunity. Conversely, what if rates rise in the next few months, and you end up paying more money? Interest rates have been climbing, but the Federal Reserve seems poised to keep them level for the remainder of the year. However, an economic downturn may occur soon, and that could have implications that go beyond interest rates. Namely, a downturn could affect your job, income, and ability to pay back a loan.Here is the bottom line: Take out a loan only if you can comfortably afford the payments and still have a significant amount of money in savings. Aim to have at least six months to a year’s worth of living expenses. If a downturn occurs, you may need to draw upon that money in savings. If you put down a large amount as a loan down payment, you risk losing that money plus your new car or house if you can no longer make loan payments. Interest rates and loans One thing to know is that the Federal Reserve does not set interest rates on your loans. That said, Fed policy has an indirect effect on many loans. Take car loans, which tend to be for a medium length of time such as 60 months (five years). If the Fed nudges interest rates up, the rates for auto loans are likely to increase as well and by about the same percentage. The story is similar for home equity line of credit rates, credit card rates, and rates for any line of credit. Their rates tend to go up along with an increase in the Fed's target rate.The takeaway? Based on interest rates alone, now could seem like a good time to take out a car loan or HELOC before the Fed potentially increases rates next year. As for mortgage rates, there doesn’t seem to be as much of a relationship, if any, between Fed interest rate increases and decreases. That said, there are a number of intriguing ripple effects relating to whether you should take out a mortgage loan. Say that you’re a potential homebuyer who is paying off relatively high-interest car and credit card loans after a Fed rate increase. Because of that, you have less money to purchase a home. The supply of buyers may dry up somewhat, which means that many sellers may be inclined to drop their asking price. A home may be affordable after all. If you can afford a mortgage payment, it may be a good time to take out a mortgage loan. Do proceed with caution, though. Find out about the real estate market in your area, and have enough savings to be able to weather a potential economic downturn. How a potential downturn could affect you Economists have been predicting an economic downturn for a while now. It’s quite possible that one will occur in the next 18 months, so it’s instructive to look at how the recent Great Recession affected people who had taken out loans. Recovery began in June 2009, but many people lost their jobs or had to take pay cuts. Many lost their homes and cars when they could no longer afford to pay on them. According to the Center on Budget and Policy Priorities, 8.7 million jobs disappeared between December 2007 and early 2010. The next economic downturn may not be as bad as the Great Recession, but there’s always the chance it will have some sort of impact on you. If (or more likely, when) an economic downturn hits in the next few years, to what degree will you be affected? Such things can be difficult, if not impossible, to predict now. It’s hard to know if you might lose your job or have to take a pay cut. However, you can take approximate stock of these factors: Your savings Your current income How much money you have in retirement accounts How close you are to retirement Your medical costs and how much they might rise in the next few years Your current level of debt Future debts you plan to take on, their amounts and loan term lengths Your current ability to pay debts Your spending habits Whether you live below, at, or beyond your means When you take these factors into consideration, it can help illustrate how well you are positioned to weather a recession and to keep paying any loans you take out now. For instance, suppose you have a costly medical issue. Your employer offers health insurance, and you’re able to keep these medical costs under control. If you lost your health insurance, these costs could potentially increase to a level beyond what you can comfortably afford. So, is now a good time to take out a loan? All things considered, it does seem better to take out a loan now rather than later if you have a firm plan to get a loan no matter what. After all, interest rates may be rising at some point in 2020, and the economy is poised to go through tough times. It would be good to take out the smallest loan amount possible so you have less to pay back later. However, you should also keep a healthy cushion of savings in case you need it down the road. There’s a balance between spending most of your savings on a down payment and putting down very little and paying a higher amount each month. To help you predict your future costs better, opt for fixed-rate loans. That way, if interest rates go up later, your payments won’t increase. The bottom line bears repeating: Take out a loan only if you can comfortably afford the payments and still have a significant amount of money in savings. The economy seems headed for choppy seas, and now is a good time to be whittling away at your debt instead of not taking more on if you can help it. Of course, everyone’s situation is unique. Maybe you’re paying too much in rent right now, and you find a great, reasonably priced house that means significantly lower monthly payments. Likewise, if your car is in bad shape and you constantly have to pay for repairs, it may be a smart financial move to get a different car, even if that means taking out an auto loan. Everyone’s situation is different and you know your finances better than anyone else. The decision to take out a loan also depends on what you uncover about potential lenders and on factors such as interest rates. To find out about lenders, interest rates and more, check out BestCompany reviews on business loans, car loans, and personal loans. If you need help with debt relief, these companies may be able to offer the assistance you want.
Guest Post by CreditRepair.comOwning a home is a central part of the American — and so are mortgages. According to Zillow, the average home in the United States is listed at $250,000. There aren't many house shoppers who have that kind of cash to purchase a home outright. Home loans help millions of people realize their dreams of homeownership. While mortgages have been around for decades, the way borrowers apply for these loans have changed in recent years.Banks have long been the go-to choice for obtaining mortgages. However, the loan industry has changed dramatically since the late-1990s dot-com boom. Online lenders have emerged as an alternative for securing home loans. Applying for mortgages online has grown in popularity, especially among millennials.There's no arguing that online mortgage companies make the loan process much easier. Nevertheless, the question remains whether applying online is the best option for every applicant. The fact is that online mortgages have advantages and disadvantages. Is it right for you? The answer often depends on your personal preference and financial profile. Pros of applying for an online mortgage Our consumer-based society prefers getting goods and services as quickly as possible. Web-based mortgage firms satisfy this demand within the marketplace. They offer the speed and convenience that's often lacking among traditional lending institutions. Here’s a deeper look into the advantages of applying for a mortgage online: Lower rates and fees: Interested in saving hundreds or thousands of dollars over the course of your loan? If so, consider internet-based lenders. These providers have lower overhead than physical banking institutions. Because of this, they have lower interest rates, fees, and closing costs. This allows customers to keep more of their hard-earned money. Fast application process: Applying for mortgages with a brick-and-mortar banking institution can take several days or weeks. This is not the case with online lenders, such as Quicken Loans, which uses digital tools to expedite the application process. For example, you can photograph and submit your W-2s, application, driver's license and other documentation via your smartphone. In the case of Quicken Loan's Rocket Mortgage, the loan application may be completed in as little as eight minutes. If you prefer an internet-based approach that streamlines the application process, then online lenders are a solid choice. More options: Conventional lenders might not offer government-backed loans, and conventional loans often require a higher credit score and more money down. Online mortgage lenders may offer more types of loans, and you don't need the best credit score to get approved. However, applicants with lower credit scores often pay higher interest rates and penalties. Cons of online mortgage applications Online mortgage lending comes with its share of shortcomings and risks. The more you know upfront, the better chance you have of determining whether going digital with a mortgage loan is best for you. As a potential borrower, there are things you must be aware of before starting the application process: Limited customer service: Banks, credit unions, and other traditional lenders allow borrowers to meet with loan officers face to face or talk with them on the phone. Although online lenders have a few loan officers on staff, they might not be as accessible. Lack of specialists: Online lenders are national companies and might not have specialists on staff who have in-depth knowledge of local housing markets. The problem with this is that you may miss out on several homebuyer incentives that are available in your local community. For instance, there are programs that can help homebuyers lower their closing costs and interest rates. Mortgage scams: The universal warning for consumers is "if it's too good to be true, it probably is." These are wise words to remember when considering applying for a mortgage online. Since the growth of online lending, predatory lenders have been on the rise as well. These companies may "offer" loans that seem too good to be true, such as touting unbelievably low interest rates. But really, they’re trying to collect your “prepayment” or pushing you to get a new mortgage or refinance so they can collect fees. Do your due diligence and research lenders. Conduct an internet search and/or check to see if the lender is listed with the Better Business Bureau. Taking these kinds of steps can prevent you from being a victim of predatory lenders and even identity theft. When applying for a mortgage online isn’t a good option There are borrowers who aren't well-suited for online mortgage lending. It's usually better that they work with mortgage brokers, banks or homebuilder lenders. These applicants include the following: Self-employed applicants who may have a more complex financial situation and won’t benefit from a streamlined service Customers who have multiple accounts with one bank and seek an adjustable-rate mortgage A borrower who desires an easy loan even if it costs more When applying for a mortgage online is a good option Online mortgages are an optimal choice for specific borrowers. If you fall into any of the categories below, you may find that applying online for a home loan is more suitable than working with a traditional lender. An online lender is recommended for borrowers who meet any of the following criteria: Repeat home shopper Rate-and-term refinance customer Easy access to financial documents Long-term employment with one company Excellent credit Financially savvy Online mortgage lenders have an upside and a downside. Take inventory of your financial needs and comfort level before submitting a loan application. One thing that is for sure is your credit score plays a vital role in your ability to secure a loan with favorable terms.
Spring is on the way, and that means it's time to start airing out the house and dusting every surface in sight. While you're getting your home in proper order, why not take advantage of this cleanliness-oriented mindset to remove blemishes from your credit rating? A clean credit report is just as important as a clean house, after all. If you're ready to roll up your sleeves and go to work cleaning up your credit, these six strategies will make it shine and give your credit report that fresh, springtime feel. Break the Problem Into Manageable Pieces One of the biggest mistakes that people make with their debt is allowing the full extent of the problem to weigh on them until they are paralyzed in denial. Stay positive and believe that you can get your debt under control. Why? Because you actually can. Rather than thinking of debt as one big impossible problem, break it down into bite-size pieces. Visit a non-profit debt counselor who can help you make sense of your debt and how to deal with it. Pick One Debt and Attack It Head On If you are carrying balances on several cards or lines of credit, choose the one with the highest interest rate and pay down as much of it as you can afford. Why? Because paying off one debt could help your credit score. More importantly, it will get you out of the trap of paying mostly interest, reduce your overall debt and give you a sense of accomplishment. It will also get you into the good habit of making real payments as opposed to just moving debt around. After paying off the first debt, you can apply your new good habits to eliminating the next one, and so on. Make a list of your debts in order of interest rate from highest to lowest, and pay them off in that order. Raise Your Credit Limit Did you know that using a small portion of your credit limits can help your credit scores? As a general rule of thumb, keeping your balances below 30 percent of your credit cards' limits could be a good idea. Paying down balances, limiting how often you use credit cards, and making early payments on your card accounts can help. Another quick way to boost your credit score is to raise your borrowing limit. If possible, raise the limits on your credit cards and other lines of credit - but only if you can avoid using the extra credit, which will only add to your debt and render this strategy useless. Don't Cancel Credit Cards You may be tempted to cancel cards that are paid off or aren't being used. Sadly, this is not a good practice, because it increases your utilization rate -- the ratio between your debt and your available credit -- and could lower your score. You should always aim for as large a gap as possible between your balance and maximum credit limit. When you cancel cards, you are lowering your overall credit limit, which only decreases this gap. For example, if your total limit is $10,000 and you owe $3,000, you have a utilization rate of 30 percent. If you cancel a card with a limit of $2,000, your credit limit shrinks to $8,000. If your balance stays at $3,000, you are now using 37.5 percent of your available credit. Unless you're canceling the card because it has an annual fee or you tend to overspend with it, a better strategy may be to leave it in a drawer at home or cut it up but leave your account open. Communicate with Your Creditors When dealing with creditors, nothing is worse than dropping off the map. Remember that financial ups and downs are normal and common. Try not to think of credit repair as a personal failure, but simply as a task to be completed. Communicate with creditors and let them know you are sincerely trying to meet your financial obligations. Sometimes it makes no difference, but in other cases, it can get you an extension on a deadline, a lower interest rate, or some other kind of break that helps keep late payments and other negative marks from hurting your credit score. Just think - a single conversation could save you hundreds of dollars down the line. Isn't that worth it? Pay on Time Being late on your payments is a surefire way to lower your credit score - sometimes by as much as 100 points, according to FICO. Get organized with a calendar or reminder system. The single best thing you can do to clean up your credit is to establish a spotless history of on-time payments. This spring, clear out more than the closets - clean up your credit score! Remember that credit repair is a marathon, not a sprint. Credit repair is an opportunity for you to develop a credit report that can serve you well in the years to come. Develop a solid strategy and always be diligent in repairing your credit, and you'll quickly see the benefits of financial responsibility.
Guest Post by CreditRepair.com The financial realities of living in modern America just don’t quite add up for an ever-increasing percentage of the population. Among America’s working poor—folks in financial need who are just simply unable to access traditional avenues like bank loans or credit cards—the often cruel world of the payday loan industry is a grim reality. Even worse, for those who have to rely on short-term, high-interest loans to make ends meet, the implications are particularly bad for their credit scores and, ultimately, their ability to interact with banks and legitimate credit cards. Recent research from the Pew Charitable Trust suggests that the scope of payday loans is even more severe than imagined, with some 12 million loans taken out each year, amounting to more than $7 billion in fees. On average, a typical payday loan user ends up being in debt approximately five months out of the year, with fees that boil down to approximately $575 to take out and repay an average of $375, over and over again. Studies suggest that typical payday loan customers earn an average of $30,000 or less a year, and of those, some 58 percent are having difficulties meeting their monthly expenses. Quick Money Is Often a Necessity We all face unexpected money issues from time to time: medical costs, a broken-down car, appliances that suddenly go out of service or travel costs. But for those folks who live paycheck to paycheck, the appeal and relative simplicity of a payday loan keeps them caught in the loop. It’s a matter of basic finances in action: If the money you have coming in is smaller than the money you owe, the cycle never ends, and you’ll always be left scrambling to try to keep up with the costs. The particularly cruel part of the payday loan business, besides its reliance on customers who have run out of other options, is the high interest rates charged for those loans, small as the loan amounts may be, all things considered. The Obama Administration passed rules creating the Consumer Financial Protection Bureau, which sought to help limit the often outrageous interest fees charged by payday lenders; but as the avenue of last resort for so many consumers, even the more limited fees can create insurmountable financial issues. Long-term Impacts on Credit For those trying to break free of the borrow-repay-borrow cycle, the biggest issue is credit, and a positive credit score. Those with poor credit already are more likely to end up using payday loans rather than traditional banking resources. And by using payday loans and scrambling to pay all that extra money in interest, fees and service charges, those consumers are unable to address their underlying financial issues. Good credit depends on factors including your ability to pay back loans on time, but is also contingent on demonstrating a responsible balance of credit, low credit utilization rates and even maintaining credit card accounts for an extended period. Caught in the cycle of borrowing more than they earn to stay in the black, payday loan users find it difficult to make the steps necessary to rebuild their credit and getting their heads above water. Help is available, however, and a credit repair company can offer some management tools and advice, as well as assistance in clearing up items that might be dragging down your credit score.