Tag: consumer loan

Various Ways to Use an Unsecured Home Improvement Loan

Posted on | by Kevin Strauss

An unsecured home improvement loan gives you money to fix up different areas of your home. You may have already borrowed money to buy your home so why not borrow some more money to make sure you get it in perfect shape for you? Using these types of loans can be a convenient way to pay for repairs and renovations. An unsecured home improvement loan is just a personal loan option that has a fixed purpose for home repair.

How to Find an Unsecured Home Improvement Loan

With an unsecured home improvement loan, you qualify for a certain borrowing amount, interest rate, and repayment terms based on your credit profile. These are available from many banks, as well as online lenders. Different lenders will have different options and no two lenders are alike. Different lenders will also allow you to borrow varying amounts. You may need to borrow more for bigger home projects, such as building a pool.

You can find this type of loan online, here, on Loanry. We help you connect with credible lenders you should definitely consider when loan shopping.

Applying for an Unsecured Home Improvement Loan

When applying for an unsecured home improvement loan, there are some tips you can follow.

Apply before You Need to Start Any Improvements

It’s a good idea to start planning ahead and apply for a home before you plan to start improvements. Timing and paperwork may take longer than you think so start the process at least 30 days in advance.

Determine How Much You Need

Consider the project amount and be sure to leave some room for error. Keep your budget, the total loan-to-value ratio, and how long you want to pay in mind. Don’t take out a loan that is going to strain your finances to make just cosmetic improvements. Don’t go into foreclosure just so you can have a nicer kitchen.

Determine the Preferred Loan Term

Consider your budget and how quickly you can pay off the loan.

Get Prequalified

When you get prequalified, you can find out what your interest rates will be so you can compare what different lenders can offer you. You can get prequalified with multiple lenders but you want to make sure they are using only a soft inquiry. Multiple hard inquiries can ding your credit score.

Consider Your Eligibility

While you are getting prequalified, you may want to consider your eligibility. Consider how qualified you are for the loan. Not only should you consider your credit history but also the loan-to-value ratio and the debt-to-income ratio as important factors in qualifying for the best rate and approval.

Ways to Use an Unsecured Home Improvement Loan

You can use an unsecured home improvement loan for a number of things, including painting the home, kitchen remodels, replacing the roof, and more. If you choose the right project then you can have an investment that will pay off in decades of personal enjoyment, as well as improved resale value.

Kitchen Remodels

Many people consider the kitchen to be the heart of the home and any improvements in this room can pay off. You may expect to recoup 60% to 120% of your investment on a remodel, as long as you aren’t going overboard. You don’t want to make the kitchen much fancier than the rest of your house or the rest of the kitchens in the homes in the neighborhood. One of the best things you can do for a kitchen remodel is to replace old appliances with energy-efficient models. Not only are these appliances better for the environment but they can also help you save money since they use less energy.

kitchen

Bathroom Additions

If your home has one bathroom then you can make good use of your investment when you add another one. If you are looking for space in your home for an extra bathroom, look at underutilized spaces. Consider other spaces, such as areas under the stairs and closets. If you want a half bath, you need about 18 square feet but if you want a full bath, you need between 30 to 35 square feet. The cost of adding a bathroom will depend on the type of accessories and additions you want.

Reinventing a Room

Adding square footage to the home with a new room can be a very expensive project. Although you can recoup some of the investment, the cost can quickly get out of control. Instead, you can reinvent existing spaces to save money. For example, convert the attic into a bedroom or finish a basement. Homeowners may be able to add small apartments in or over the garage, which can be rented out as a room. Before you start, think about how you and potential buyers can use the space. Versatile rooms will have great appeal for potential buyers. Basements work well as game rooms or second living rooms. Some people even turn this space into a small apartment for a tenant or aging relative. Attics can work well for game rooms.

Energy-Efficient Windows

Buyers will shop for energy efficiency in mind so anything you can do to make your home more energy efficient is best. Old drafty single-pane windows are a major turn off. You can expect to recoup a lot of the cost when you invest in energy-efficient windows. There can even be different available rebates and offers in your area.

Deck Addition

Adding a deck can help increase the value of the home. Outdoor living spaces are becoming more desirable, especially as people are favoring staycations. If you make your backyard and deck more appealing, your house can be more appealing to any prospective buyer and you can also enjoy it. The cost of adding a deck can vary widely. And it will depend on the size and the bells and whistles you want added.

Home deck

Energy-Efficient Insulation

If your home lacks any basic insulation and has old doors that let the cold and hot air escape the home then this can be a problem. Homes that don’t have the best energy efficiency in mind cost more to maintain and live in. Updating the home to save energy may not cost a lot of money and can make a big difference.

Basic Updates

Basic updates add some of the most value to your home. Fix the roof if it’s leaking, keep the paint fresh, and replace wood that rots. Get rid of any mold that you find. These types of chores can keep your home from deteriorating over time.

Upscale Garage Door Replacement

This may not be an exciting upgrade but when you replace your current garage door with an upgraded model, it can yield you about 98% in recouped costs. Some of the best garage doors are made from durable materials, such as wood composites, steel, aluminum, and high-performance additions, such as energy-saving insulation and glazing. Wood may be a classic choice but it’s not very weather resistant.

Updated Stone Veneer

Replacing the vinyl siding on your home with stone veneer in areas like the entryway can be a big curb appeal boost for the home.

Home improvement projects can extend the life of your home so you are less likely to pay for privacy repairs down the road. For example, when you replace the gutter and the roof, you could prevent future water damage and extend the life of the home’s exterior components.

You may think you can save money on your projects by doing some of the work on your own but it may not always be the best, especially if you don’t have a lot of experience in home improvement. You could try DIY if the project is small enough for you to learn quickly and you are okay with the project just being good enough. There is a chance that the project won’t turn out as well as the pro’s work if you do it by yourself.

The floor tiles can be uneven or a painted room may have some visible brushstrokes. It’s much better to hire a home improvement contractor if a mistake could have disastrous or serious consequences. Faulty electrical writing could cause a fire so anything with electrical needs shouldn’t be done by yourself. If the home improvement requires permits then you also want to work with a contractor.

How to Determine if a Home Improvement Project is Worth the Cost

One of the best ways to determine the value of a project is to look at the project’s cost versus its value assessment. Before you begin the home renovation project, consider some of these questions:

  • Have you budgeted for this projected?
  • Is the remodel a long-term lifestyle change or a temporary fix?
  • How long do you plan on living in the home?
  • Can you afford the renovation?
  • How long will the renovations last?
  • Will improvements add value?

It’s important not to guesstimate your renovation budget. There will be unforeseen costs along the way. Plan ahead by getting a clear view of how much you can spend. Talk to different contractors, compare the rates, and get priorities in check. The size of your project will largely be dependent on the budget. But it’s important to remember that sometimes a quick fix can cost more money over time than a larger renovation that could solve a big headache. For example, if there is mold growing on the first floor tile because of a leak, replacing the grout could solve the problem in the short term. However, in order to keep the mold away for good, you may want to completely redo the tile and upgrade its quality. It may even be worth it to replace the pipes and drain as well.

Another thing to consider is if you are staying in your home long term or prepping it for sale. If you want to put your home on the market in the near future then make sure any renovations appeal to buyers. A big misconception is that major home improvements will equal more money in the final sale. But that’s not necessarily the case.

You want to consider the value of renovations in your area and not just the national average. Energy efficiency projects may have more value in colder climates. A swimming pool may do nothing to help buyers. However, in warmer regions, the pool can actually attract buyers to the home. Areas of your home, such as an office, may fit your lifestyle but pouring money into the home office may not help you if you have buyers who want to use the office as a playroom instead.

Things to Look for When Choosing an Unsecured Home Improvement Loan

You always need to shop around when looking for a consumer loan. The right home improvement loan is only going to be as good as the lender offering it. In order to figure out if you have the right lender, there are some things to keep in mind.

Loan Type

While you may be looking for an unsecured home improvement loan, loans can also come secured. Unsecured loans require a check of your credit history and secured loans will require you to put up some sort of collateral.

Eligibility Requirements

This is one of the first things you want to check once you figure out what loan type you want. Some lenders charge application fees so don’t waste time and money applying for a loan you won’t qualify for. Research ahead of time to learn about the minimum qualifications and only apply for lenders that will likely grant you the loan. Home improvement loans for bad credit are available if you do enough research to find lower eligibility requirements.

APR

When you are looking at different lenders, check the APR. This is the interest rate plus the origination fee for borrowing. To find the best APR, you need to make sure your credit score is at its best. While there are home repair loans for bad credit, these don’t have the best APR. You may see a lender that offers a low promotional interest rate. Keep in mind the promotion period will eventually end and then, depending on your credit score, this low APR could climb into double digits.

Repayment Terms

Personal loans will typically be given for one, three, and five-year repayment terms. Some lenders may offer longer terms. The longer your term, the more interest you will pay. Use a loan calculator to see how a longer repayment term will affect your interest payments.

Fees

These can include late fees, processing fees, and closing costs. Lenders can roll the closing costs into the loan balance instead of requiring payment at closing but it helps to know all the fees you could be facing.

Other Benefits

Lenders can offer plenty of different benefits so you may want to prioritize lenders that allow you to use a cosigner or a lender that gives better repayment protections. Whatever perk is important to you, be sure not to sign on the dotted line if you don’t get it in writing.

Final Thoughts

Getting an unsecured home improvement loan can be a great way to finance some improvements in your home. Applying for an unsecured home improvement loan works the same as many other loan types. There are a number of home improvements that you can do with the money from the loan. Some improvements may make more sense than others based on the projected ROI. You can make sure to use the money quickly by doing some research in your area. And determine which home improvements are the best for increasing the value of your home.

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Should You Finance TV and Audio Equipment? Turn off!

Posted on | by Brandy Woodfolk | Leave a Comment on Should You Finance TV and Audio Equipment? Turn off!

The answer to this question is really a personal one. There is no one size fits all. You might have people tell you that it is a bad idea to finance TV and audio equipment, but that is not always the case. Handled responsibly, any kind of debt can provide benefits that help you down the road, like building your credit. At the same time, going into debt for the simple sake of going into debt is not usually a good idea. But there are still many good reasons to use a loan. Should you finance TV and audio equipment? I hope that by the end of this article, you will have enough clarity to answer that question for yourself.

How Do You Know If It Is Smart to Finance TV and Audio Equipment?

Whether it is smart to finance TV and audio equipment really depends on you and your financial situation. If you can afford to pay for it outright, that would be a better option. If cannot pay it outright but can easily afford the payments, you should be okay. On the other hand, if you are currently fighting every month to pay your rent and keep your lights on, I am going to say that it probably is not a smart idea.

Take a look at your financial situation on a very honest level. Is your current income taking care of all you need? Do you have more important financial goals, like a new car or a vacation? Does the idea of financing this equipment make you nervous?

Let’s simplify this answer a bit. If financing TV and audio equipment will interfere with feeding your family, paying your utilities, keeping a roof over your head, or any other drastic thing, stop where you are. Do not pass go. No amount of technology is worth your or your family’s well being.

If you can make payments easily, it really comes down to if you want to make the payments. You have the power to choose one way or the other. I have to admit, there are good reasons for getting a loan, but you need to look at the circumstances you are in. Hold on, though. Do not jump up and run to the store just yet, or give up on your equipment. Let’s make it through the whole article first.

Interior of living room with TV.

Saving vs Financing

We have been conditioned to expect instant gratification. We want what we want and we want it now. Is it any wonder that there is such a huge amount of consumer debt while the majority of adults have no money saved? We have been taught to worry about the here and now, not the future. Sadly, this is leading to a lot of financial hardship. If we can relearn, as a whole, to save money, to only spend when we have saved enough, we can begin to change our little parts of the world- and our families’ futures.

The question now is whether you can be patient or not? If you can be patient and save money instead of choosing to finance TV and audio equipment, it will be extremely rewarding. After working and putting money away for something you desire, and then finally bringing it home 100% yours is an awesome feeling. Knowing that you really, truly own it feels so much better than knowing that you have to start making payments in a week.

How to Know You Really Want Something

I have also found that when people work and save for an item, they sometimes discover that they really do not want that item. The original desire for the item was really just an impulse or a reaction to something. After they have had time to think about it, the excitement wears off. Suddenly, it is no longer a priority because it really was not important to them in the first place.

What to Expect if You Choose to Finance

There are other downsides to financing besides the lack of internal reward for working hard and buying what you want. If you choose to finance TV and audio equipment, you will be paying interest. Even though there are very good reasons to get a loan, you will still be in debt. Not to sound overly dramatic, but debt in any form is a burden you must bear. Until the debt is paid off, you are basically enslaved to it.

Retro TV character with coins isolated on white background.

Think about it like this: When you save the money to purchase your TV or audio equipment, you do all the work upfront. Before you bring it home, you work hard, save, and look forward to the day you get to make your purchase. It is an exciting time. When you finally make the purchase and bring home your equipment, you know that there is no work left to do for it. You have paid all that you need to pay, so now you can actually enjoy your next off day.

Now, imagine you finance TV and audio equipment. You go into the store and pick out what you want. You get it home and set it up. Maybe you enjoy it for a couple of days, but before long, reality sets in. Before you went into the store, you had some freedom. Now, not so much. For the next six months, 12 months, or however long your finance term is, you will be making payments. Your mind begins to associate your equipment with stress and poof! The enjoyment is gone.

Is it That Serious?

I want you to ask yourself one simple question: Is it that serious? I know that some avid sports fans are going to want to yell at me for this question, and maybe a few others, but that is okay. It is an important question that can put all of this into perspective. Is your need or desire for TV or audio equipment serious enough to be in debt for it? Is it serious enough to put other needs and wants to the side while you make monthly payments?

For some people, the answer will be, “Yes,” and that is completely okay. I merely want you to consider the gravity of the decision to finance TV and audio equipment. If you are willing to pay that price, that is your choice. Just keep in mind that there are downsides of loans. Others may have decided that it is not that serious, but they still want to watch their stuff or listen to their music. The good news is that there are some alternatives to having to finance TV and audio equipment:

Mobile Device

If you have a smartphone, tablet, or laptop, you have the ability to watch almost anything that you watch on your television. In addition to many TV shows being on Netflix and Hulu, many channels also have a website and an app. This includes kid’s channels, as well.

Cheaper Options

I realize that some cheaper or used items may not be the best, but you can find TVs and audio equipment in a lot of places. Thrift stores constantly have TVs. Pawnshops often have loads of electronics and music equipment for a fraction of the original cost.

My father has been a musician my entire life. I cannot tell you how many times he came home excited to tell us about the guitars he would find at pawn shops. I had not learned the differences in brands at that time, but his excitement told me that it was a great deal. To this day, he still finds treasures at pawn shops and tells us all about them.

Other than thrift stores and pawn shops, consider looking online. Facebook has the Marketplace now where you can find items from local sellers. Craigslist is another option. You might also just try Googling the product. Often, if you scroll past the first few search results, you can find a website that offers some really good discounts.

Where to Finance TV and Audio

If you choose to get a personal loan instead of retailer financing, you have many loan places to choose from. There is always your bank if you have one, or local community credit union. While these can be great options, it sometimes takes a few days to get approved.

Online lenders are often the easiest to apply through since you can apply for multiple ones at one time, apply at any time of the day, and typically get results in minutes or hours. Even better, there are lenders online for all credit types. So instead of calling or driving around town for someone to accept your credit score, you can easily do so online. For those who feel that they cannot wait for another second for their new TV or audio equipment, there are fast loans available, too. Taking out a loan for a larger purchase can be a good idea if you weigh all the options.

Here on Loanry, you can find reputable lenders and consider applying for a loan with them. You can even put in your information in the form below, and get offers from lenders who would potentially lend you money within seconds.

What About Using a Credit Card?

A credit card or a loan? If you have a credit card with the available credit, you might be tempted to charge your equipment and be done with it. This may not be your best move, though. Any time you cannot repay the charge amount within a month or two, you should opt for a personal loan instead. Otherwise, you will likely pay more in interest than you did for your equipment, and it typically compounds monthly. It is not a pretty look.

How to Save for TV or Audio Equipment Without Waiting for Years


Yes, it takes time to save up some money, but there are ways to speed it up. First, you need to pick out the equipment you want and determine the price. Let’s imagine you find a huge smart TV that you want in your living room, and the price is $1,000. Take a look at your budget and decide how much you can realistically but to the side every week without going without necessities. For our example, we will say $20 a week. If you only save that amount, you will have the full cost of the TV in 12.5 months.

Since you decide you do not want to wait a year for the TV, you need to set a realistic goal of when to purchase it. Now, I am all for dreaming and pushing my boundaries, but if you are not willing to hustle enough for $1,000 in one month, do not set one month as your goal. Ask yourself just how hard you are willing to work for your TV, and set your time goal around that.

If you decide you want to do it in three months, you will need to save about $334 per month. You have already determined that you can save $20 per week from income, so that is $80 to $100 per month, depending on how many weeks are in the month. If you put $80 up from income, that leaves you with $254 more to save each month- and that is totally doable. Here are some ideas to get you going:

Yard Sales

I suggest yard sales all of the time because I know how lucrative they can be. Dig out some things you really no longer want or use- when is the last time you actually went bike riding?- and sell it all. I have known people to make as little as $50 and as high as more than $500. You might get a nice surprise and end up with all of the money you need in one weekend just from yard sales.

Odd Jobs

If you ask around, there are probably at least two people close by that need some help with things like cleaning out garages and sheds, yard work, babysitting, pet sitting, house cleaning, house painting, window washing, or even cleaning gutters. Ask around. A few odd jobs can help pad your savings pretty quickly.

Double Check Your Budget

Is there anything you can cut back on while you save for your TV or audio equipment? If so, rework your budget until you make your purchase.

Personal Consumer Loan vs Retailer Financing

You might find that the retailer will allow you to finance your TV and audio equipment through them. Is this a better idea than a regular consumer loan? Well, that depends on the differences in the interest rates and the terms.

I will say that on a regular day, going through a lending service on your own will probably be the best idea. Sometimes, though, the retailer is able to offer some excellent financing options that include 0% interest for a set period of time. Obviously, if you can choose a loan with no interest over one with interest, go for the one without.

Be sure, though, to ask questions and read your contracts. When I worked at a mattress retailer, we had financing options from two lenders. One was great for those with good credit because they were the ones who would receive the 0% interest. The secondary lender was intended for those with bad credit. On the one hand, it was great that more people were able to get a quality mattress. On the other, no one was reading or paying attention to the terms.

Getting a Loan With Bad Credit

One day, a previous customer of a coworker had come in looking like her head was about to explode. As I approached her, she started yelling about her payments. After a moment, I was able to calm her down enough to find that my coworker had not broken down how that secondary lender worked. They offered 6 months same as cash, and most customers were okay with that. Why? Because they thought that interest would simply start after those six months.

The truth was that if you did not pay the full amount in that six months, the interest would be calculated against the entire amount borrowed and compounded monthly. It did not matter if they had paid the loan down, they were still being charged full interest. If you accept any type of financing, read the fine print and ask as many questions as you need to understand the process.

Stay Away from Rent to Own Shops


There is a great temptation calling to consumers with bad credit or no money: rent to own shops. My city is not very big. But there are still five of these stores almost in throwing distance of one another. They throw out advertisements telling you how little you can pay each week to own the things you want. Sometimes, they will hit you with a double-whammy by giving you “the first week free” or “$10 pays your first week”. Or, my favorite, “6 months same as cash”. It sounds too good to be true- because it is.

There is nothing cheap about these places and their items. Most of them are increased to three times their actual price. The same as cash price is basically impossible to pay, unless you are drowning in money. If that is the case, you would not have to shop in a rent-to-own store.

I really could go on about these places all night, but I will stop there. There are consumer loans out there that offer good terms. These are not those loans. Bottom line: stay away from them if you value your money at all.

Conclusion

I hope that this information has helped you come to a decision about financing your equipment. If you really think through your situation and weigh out the pros and cons of borrowing, you should be able to make the right decision for you. If you choose to finance TV and audio equipment, be sure to make all of your payments on time so that you do not mess up your credit. Also, look for a reputable lender and remember to read all of the details before signing any paperwork so there are no surprises.

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Are Personal Loans Considered Taxable Income?

Posted on | by Julia Peoples | Leave a Comment on Are Personal Loans Considered Taxable Income?
Young man using calculator for calculating family budget cost bills on desk in home office.

There comes a time in all of our lives when we need extra money fast. While it may be easy to get a consumer loan, you probably have some questions. Since you get money when a lender approves you for a loan, you may wonder are personal loans considered taxable. The short answer is no, a personal loan is not taxable income and you do not have to pay income taxes on that loan. Continue reading to find out more.

Do I Have to Pay Income Taxes on a Personal Loan?

For the most part, you do not have to pay income taxes on personal loans. The typical way a personal loan works is you borrow the money. Then you repay the money on time with interest. This scenario does not consider a personal loan to be taxable. There is one exception when a personal loan is taxable.  If you the personal loan is a cancellation of debt, or the lender forgives the loan, this means you do not pay back the money. In this instance, the personal loan you received is considered income and you have to pay income taxes on the amount you borrowed. If you were wondering are personal loans considered taxable, this is one of those situations when they are.

What Are Income Taxes?

Income taxes are taken out of every one of your paychecks. Your employer takes the money out of your check before you ever see your money. This makes it easy for you so that you do not spend the money before you pay your taxes. If you are self-employed, you are responsible for paying your own taxes. Income taxes varied depending on how much income you make and typically the percent of taxes you have to pay increases with how much income you have.

5 Highest Personal Income Tax States for 2021
  1. 1. California - 13.3%
  2. 2. Hawaii - 11%
  3. 3. New Jersey - 10.75%
  4. 4. Oregon - 9.9%
  5. 5. Minnesota - 9.85%
Source: turbotax.intuit.com

What Are Personal Loans?

A personal loan has many names, such as fast loans and unsecured loans. You can even obtain unsecured personal loans online. No matter what you call it, the basic premise of a personal loan is a lender lets you borrow money. The lender can be a bank, credit union, or even a family member. They allow you to borrow a certain amount of money with your promise to pay them back with a regular monthly payment. The lender charges interest on the money you borrow as a fee for letting you borrow the money.

Typically the repayment period is anywhere from three to five years. For a typical personal loan, the monthly payment remains the same each month. Since you are receiving money, some often wonder are personal loans considered taxable income? Since you are repaying the full amount of the loan (and then some), personal loans are not considered taxable income and you do not have to pay any type of taxes on the money you receive.

What Is Considered Income?

Taxable income is any money that you receive from earned or unearned income. Earned income is money that you receive for work or other services provided. This includes wages, fees, and tips.

Unearned income is a little trickier and not all unearned income is taxable. Types of unearned income that could be taxable are lottery winnings, bonuses, profits earned by selling assets, and stock dividends, just to name a few.

Keep in mind that taxes are paid on your gross income. Gross income is the amount of money you earn before any money is taken out. Net income is the amount of money that goes into your bank account after all deductions and withholdings. You may still be wondering if personal loans considered taxable income, and they are not.

What Happens if I Do Not Pay My Income Taxes?

You should be clear on one thing, the Internal Revenue Service (IRS) will get their money. You should make every effort to pay your taxes. That said, IRS really wants to work with you to ensure you pay your taxes. It feels like they are working against you, but they really are not. It is key to understand what is considered income and the amount on which you owe taxes. You should know if personal loans considered taxable income.

The most important thing is to file on time. IRS hits you with heavy penalties for not filing on time. If you owe money, you should pay it. If you cannot pay it all at one time, set up a payment schedule with IRS. They are willing to work with you, especially if you show intent to pay. If you do not pay, you are hit with penalties and interest charges. The interest accrues every day until you pay them back.

Can I Use a Personal Loan to Pay My Taxes?

You can use a personal loan for just about anything you want. So, yes, you can obtain a personal loan to pay your taxes. However, just because you can does not always mean you should. You still need to make sure it is the smartest decision for you. Since as long as you pay them back IRS does not think personal loans considered taxable, so you will not have to pay additional taxes. You should determine how much you will pay to the IRS in fees and interest.

You should also consider how much you can pay them per month and for how long before your debt to them is paid. Once you know those numbers, you can determine how much you would pay in interest for a personal loan. Once you know that, you can determine your monthly payment. You can compare the numbers for both and determine which one is more favorable for you. You may decide that a personal loan is a way to go. This is only true if you can afford to make the monthly payments.

Does My Credit Score Impact My Taxable Income?

No, it does not. Your credit score does not impact the amount of income taxes you pay. It is based solely on the amount of money you earn. IRS does not think personal loans considered taxable income. The IRS does not particularly care about your credit score. They are only concerned about getting their money from you. The good thing about this is the IRS does not check your credit score when they set up a payment plan with you. Your credit score does not impact the fees or interest that the IRS charges. Another point of note is that the IRS does not report anything to credit bureaus, so setting up a payment plan does not lower your credit score.

Why Does My Debt to Income Ratio Matter?

Your debt to income ratio makes a difference when it comes to matters of obtaining credit, or loans. It does not particularly impact income taxes, or how much you have to pay in income taxes. It does come into play if you are considering obtaining a loan to pay any taxes that you owe.

Let me give you just a little bit of information about debt to income ratio, so you understand how it is determined. Your debt to income ratio looks at how much money you owe per month versus how much you earn. It is the amount of your gross income per month that is for rent/mortgage, credit cards, and other debt. Your gross income is what you earn before taxes. Most lenders want your debt-to-income ratio to be less than 43 percent of your income.

Are Taxes Different for a Small Business?

Taxes for a small business are different from income taxes for an individual. Depending on how your business is organized determines what types of taxes you are paying. When there is more than one person in the business, it needs to be recognized as a partnership. However, to make this simple, I am going to focus on taxes for someone that is in business by himself.

In this case, you are considered a sole proprietor. The rate you pay is the same as the personal income tax rate. As with an individual, IRS does not think personal loans considered taxable income. You do, however, have the ability to make different deductions when you are a sole proprietor than when you are an individual. There are some additional forms that you must fill out when considered a sole proprietor. The Schedule C is one of those forms.

What Is The Schedule C?

While the Schedule C may seem daunting to you, it is one of the most useful tools in your arsenal as a sole proprietor. It is the front and back of one page. This is the worksheet that allows you to itemize all of your expenses and deductions associated with your business. It is basically your total income minus your expenses and that equals your profit. You should keep your receipts and track any mileage that you plan to claim at the end of the year. At the most basic level, everything you buy for your business and every training you attend may qualify as a deduction.

Can I Avoid a Personal Loan?

Even though the IRS does not think personal loans considered taxable income, they still may not be right for you. Some of you may be thinking, I really do not want to take on any more debt. Or you may not be able to afford any more payments. In those cases, avoiding a personal loan might be best for you.

Let us talk about some other options for just a few moments. You could try to save the money you need in an effort to avoid a personal loan. If you cannot pay your taxes, you can set up a payment plan with IRS so that you are paying them a regular monthly amount. This does not require you to take on any more debt. It does not require a credit check and has no impact on your credit rating. You could also borrow money from family or friends. This also will not impact your credit score and they may not charge you any interest, so you can save some money.

Do I Really Need A Budget?

Another big thing you can do to avoid a personal loan is create a budget. I already know what you are thinking. No one likes that word. People think of a budget as a bad thing. I encourage you to look at it as a positive thing. It puts you in charge. You get to decide what is most important to you and work towards those goals. It is a way to take a hard look at where your money is going and make positive changes. This is your chance to see that you are still paying for a gym membership that you never use. You can take action to cancel that membership.

You must create a list of all of your expenses. Be sure not to leave any one of them out. This way you can see how much money you are spending each month and how it compares to how much money you earn each month. You might be surprised by what you see. When you do the math, you can determine how much money you have left over each month.

Conclusion

People always get scared when it comes to taxes. They really are not that scary. There are some key points to help make filing taxes as easy as they can be for you. Make sure you file on time and get assistance when you need it. I have already told you that the IRS does not think that personal loans considered taxable income, so you do not have to pay income taxes on them. There are many other details when it comes to taxes that may be helpful to you for saving yourself from paying a higher amount of taxes.

In addition, when you have to pay a large amount of taxes, you may want to consider a payment plan with the IRS. You could also consider taking out a personal loan to pay off the taxes. This way you do not have to deal with the IRS. Each situation is different. You should make sure that no matter which path you go down, it makes the most sense for you.

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Can I Use a Personal Loan to Pay for Major Appliances?

Posted on | by Brandy Woodfolk | Leave a Comment on Can I Use a Personal Loan to Pay for Major Appliances?

Since personal loans can be used for pretty much anything, it is not odd to consider on for major appliances. The problem is that most people jump into a personal loan for major appliances without thinking it through or really needing one. Quite often, this is either because they are desperate or, like I mentioned earlier, are convinced that the appliance is a necessity right at that moment.But of course, there are times when there are good reasons for using personal loans.

As you can see from my story, necessity is relative to the individual’s or family’s opinion. If you deem an appliance as immediately necessary, no one should try to convince you otherwise as priorities are different in every home. If you choose to get a personal loan for major appliances, you will be in good company as many others do the same. Make sure you assess the situation and find your reasons for getting a personal loan.

Personal Loan for Major Appliances

Getting a personal loan for major appliances is a completely personal choice– along with your spouse or significant other, of course. The key is really to just think it through. Jumping into any kind of debt without careful consideration is not a good idea. Also, some things are not worth financing. When making the decision, you should really consider your current budget. Can you afford an extra payment every month? Many people’s budgets are stretched to the max already. Adding in another payment would cause some severe problems. This does not necessarily mean you should give up. There are advantages to getting a personal loan. That loan just might help you in more ways than one if you make wise moves.

If your budget is stretched due to other debts that you are currently repaying, you might consider getting a loan that would consolidate those debts and pay for your appliances. This type of move could let you breathe while making lower payments with lower interest.
As I said, you need to be wise with this, so before you make this move, be sure that the interest rates of the personal loan and the payments for the loan are lower than what you are paying now. Otherwise, you will continue your debt cycle.

Pros and Cons of a Personal Loan for Major Appliances

As with all things in life, there are pros and cons to getting a personal loan for major appliances. On the positive side, you can replace your major appliance very quickly. Instead of paying it all up front, you get to spread the cost of the appliance over a number of months or years, depending on the specified repayment terms. The interest rates of a personal loan for major appliances are generally much lower than credit cards and other options, so you save some cash. On top of all of those benefits, if you make your payments as you should, you will improve your credit.

The downside to a personal loan for major appliances is simply having a debt you have to repay. Debt interferes with budgets and usually puts financial goals on hold. And, even with low-interest rates, you are still paying interest, and possibly fees. Also, if you do not pay your payments as you should, you will mess your credit up. Something nobody needs. Repaying debt can be a real struggle.

Alternatives to a Personal Loan for Major Appliances

Before running to your local lender, take a step back and consider these alternatives to getting a personal loan for major appliances:

Family and Friends

I know not everyone has family or friends that can or will help them out, but it never hurts to ask. Maybe they cannot front you the cash, but they just might be getting rid of what you need. They also might know someone who is selling what you need for cheap. No, they will not be brand new, but if they work, you can utilize them until you can save the money.

Credit Cards

Credit card iconCredit cards can be used for major appliances, if you have enough available credit, but it might not be the best choice. Some credit cards charge higher interest rates than lenders do, and the interest compounds every month. On the other hand, if you are in an introductory 0% interest phase, the credit card would be your best bet provided you pay off the appliances before the introductory phase is over.

Work for It

Of course, you can always work to pay for your major appliances. Pick up some extra shifts or a second job. Here is another secret for you: if you can find a job waiting tables somewhere, you can make it pretty quick. If you go to a restaurant that keeps a really steady stream of customers and take good care of your tables, you can make hundreds over one weekend. It is not a job you want to do forever because it is a stressful job and can break your body down if you are not careful.

However, picking up a couple of shifts on the weekends for a while can help you reach a lot of your financial goals quickly. When I went through my appliance meltdown a few months ago, I was tempted to go back to serving myself. I knew from experience that I could have the cash in my hand to pay for all four appliances in three weeks or less. As my health is one of my top priorities, though, I opted to focus my attention in other areas.

Thrift Stores/Second Hand Stores

Store iconIf you did not know, here’s a secret for you: thrift stores and second-hand stores are awesome. You can find all kinds of affordable goodies in them. Of course, you want to clean them up when you get home, but if they work, cleaning is a small price to pay for an affordable appliance. With the money you save, you can pay a teenager or college student $20 to clean it for you if you want.

Do not just look at thrift stores, though. Ask around for little family-owned businesses in your area. We have one close by that fixes up old appliances and resells them for affordable prices. Sometimes, if they have the space for it, they will take your old one to fix and resell while giving you a discount on your new ones. Check around for similar stores in your neighborhood.

Where to Get a Personal Loan for Major Appliances

You have a lot of loan places you can utilize to find a personal loan for major appliances, other than traveling all over your city. The following are some of the categories:

Modern consumer electronics on white background.

☛Online Loan Places

Applying for fast loans online is extremely simple and convenient- and totally free since you do not have to spend gas money. You can find online loan places to help you with your situation. There are lenders online for all credit types and all borrower situations, though some may require some collateral from you if your credit history is unsatisfactory.

One of my favorite parts of doing anything online is that I can do it at anytime: while I am sitting at my kids’ dentist appointments, while I am finally getting to catch up on the latest episodes of  The Blacklist and Hawaii Five-O, or when I have been working all day and finally have a moment at 3 a.m. The accessibility and convenience are two great reasons you should consider applying online. You can do so right here on Loanry.

☛Retailer Financing and Store Credit Cards

Another great place to find a consumer loan is through the retailer themselves. Major retailers are often connected with lenders that can help get you the items you need. Like credit cards, you have to pay attention to the terms and interest rates here. At times, retailer financing can be your best bet because they run specials that offer 0% interest for certain time periods, even up to five years.

Here is the secret though: those lenders offer that promotion to get you to borrow, and you will get that time period without interest. However, they feel comfortable offering such a long period interest-free because most consumers do not pay the financing off in that time period. If you take advantage of an offer like this, pay more than the required payment each month so that you can pay it off during the promotional period.

Additionally, many large retailers have store credit cards. When you find the appliance you want, look around for a retailer that has financing available. Compare the interest and terms to that of your credit card and a personal loan for major appliances to choose the best avenue of financing.

☛Banks and Community Credit Unions

Banks and credit unions are always an option, but banks tend to have more stringent requirements for loans. Try your local credit union as they are dedicated to helping their community as much as possible. One way they do this is by lowering the requirements of loans, so they are an option for more people. You might find that you can get a good loan with great terms from your community credit union.

Conclusion

Major appliances do play a major role in our lives. If you are extremely accustomed to having an appliance and it suddenly stops working, it can feel a lot like missing a part of yourself. You suddenly have to figure out how to live without it. That can be difficult when you have no alternatives available at the time. Even at your most desperate times, try not to make any rash decisions.

Getting a personal loan for major appliances now just to lose it for non-payment in a couple of weeks is not going to help you one bit. Same goes for any loan. Even if you want to get something else, like a loan for a computer, think carefully about the reasons for getting a personal loan.

Instead of acting out of emotion, think through your situation logically and analytically. If you must, ask yourself what advice you might give a friend if they were going through the same situation that you are. Quite often, people on the outside can see things that those on the inside cannot. So, looking at it from a different perspective might help you come to a better solution. However, if you absolutely must or choose to get a personal loan for major appliances, be wise about it by carefully considering the terms of the loan.

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Do Personal Loans Affect Your Tax Return?

Posted on | by Nwayita Perry | Leave a Comment on Do Personal Loans Affect Your Tax Return?

Many people use personal loans to suit a wide variety of different needs. Some people use them to pay off debt, fund a vacation, or even pay for car repairs. There are many uses of personal loans, which you can easily see if you ever try to get one. This is why the right question to ask is whether personal loans affect your tax return.

Personal loans are designed for general use and don’t have to be used for specific things, unlike a house loan or car loan. Although personal loan functions as added funds, in addition to your income, it’s not considered income. However, there are circumstances when a personal loan is considered income. In these situations, personal loans affect your tax return.

How Do Personal Loans Affect Taxes?

As discussed earlier, personal loans affect your taxes when they’re forgiven. A personal loan becomes taxable in this instance. Plus, you may have to report your interest payments on a loan if they are tax-deductible. Personal loans affect your tax return if your lender sends you a tax form called a 1099 C. You’ll have to report the loan’s principal or interest to the IRS as taxable income. Personal loans that are used for investments, business expenses, and qualified education expenses are tax-deductible.

Exceptions in Cancellation of Debt

Generally speaking, cancelled debt or personal loan is considered taxable income. Here are some cases when this is not the case:

  • ☛If a loan is forgiven as a gift from a private lender, it’s not considered income. The exceptions don’t end there.
  • ☛If a lender forgives a loan of thirteen thousand dollars or less as a gift, it’s protected under the million-dollar lifetime exemption gift tax. It’s not taxable as income.
  • ☛If a lender dies and cancels a debt in the will it’s not counted as income either.
  • ☛Other circumstances that may exclude a loan from taxation include a Chapter 7 or Chapter 13 bankruptcy. In addition, if your loan was discharged as a result of a Chapter 11 bankruptcy, you won’t owe taxes.

What is a Personal Loan?

Personal loans are for general use and can be used for anything. Generally speaking, personal loans aren’t considered income. They must be repaid and aren’t considered income because of this. These loans can be obtained through banks, peer to peer lending systems or an employer, as well as from many other sources. These loans differ from other loans, like car and house loans, because they are unsecured and don’t usually require collateral. A house or car loan that goes unpaid can result in the loss of a house or repossession of a car. This is an important thing to consider when thinking about whether personal loans affect your tax return.

The ABC’s of Personal Income Tax

Taxes are taken out of our paychecks before we ever see the dollars we work so hard for. When you buy items at the store, sales tax is charged in addition to the cost of the item. Savings accounts are interest-bearing and the interest is taxable. In addition, if you own a home you will more than likely pay property tax. Even when you buy a car, you pay special taxes upfront as well as in your car note.

You can’t escape taxes. They are everywhere. But it’s important to be educated enough to understand personal income taxes. The tax dud date is the 15th of April everywhere. Once you file your taxes, you will get a refund if you’ve paid more income tax than you owe. If you owe more than you’ve paid, you’ll have to pay the difference. If you don’t receive a refund and owe nothing, you’ve had enough withholdings and deductions to pay all of your tax liabilities. Understanding how your income tax works is part of tax management.

Why Isn't a Personal Loan Considered Income?

Although a personal loan increases the amount of money you have, it's not considered income. The primary reason why a personal loan isn't considered income is that it's money you have to pay it back. This is also the reason why a personal loan isn't considered taxable income.

Main Points to Remember About How Personal Loans Affect Your Tax Return

Conversely, there are scenarios when personal loans affect your tax return. If your loan is forgiven by the lender, the money you received will be considered income because you don’t have to pay it back. Other situations include scenarios when the lenders forgive the loan and consider it a gift. Once the loan is forgiven, it is considered a COD or cancellation of debt and you no longer have to pay it back.

These are examples of how a personal loan can be considered taxable income. In certain situations, personal loans affect your tax return. A loan can be looked at as income if it has has been forgiven. In addition, if the interest on your loan is taxable, you will have to report that as well. The circumstances under which Personal Loans affect your Tax Return is very specific. If your loan is forgiven and you are required to report the interest on your loan, are both situations where your personal loans affect your tax return. However, it should be noted that a loan of $13,000 or less, that a lender decides to gift to you, is not considered income and is not taxable. However, there are some situations when personal loans affect your tax return.

If You Owe Income Tax From a Personal Loan

If you’re lucky enough to get your loan forgiven, you’ll need to prepare yourself to pay the income tax on your loan. It is now considered a cancellation of debt which means that its no longer a loan. It’s income because you don’t have to pay it back. It may be scary to find yourself responsible for paying the income tax on a forgiven loan. However, you’ll need to act quick. If you don’t have funds available to pay your income tax debt you may need to set up a payment plan.

Beware, however, because the payment plans often include higher interest and penalties. You may be better off taking out another loan if you’re left with a costly payment plan. Just keep in mind that you do have options. Don’t panic. Use all the tools available to find the best method to eliminate this tax debt. You may find yourself taking out another loan to cover your tax debt.

What is a W-2 and a W-4

When you’re hired as an employee you’re required to fill out a form called a W-4. This form allows you to choose how much federal income tax is withheld from your paycheck. There are many tax tips you can employ when it comes to filling out your W-4. Your W-4 will tell your employee how much to withhold from each of your paychecks. A W-2 is the form that employers send you at the beginning of each year which indicates how much you made during the prior year as well as how much was withheld. You will need to use the information on your W-2 to fill out your tax return.

W-2 form
W-4 form

Should You Take Out a Personal Loan to Pay Off Income Tax?

If you file your income tax and owe money you will need to pay the money owed by April 15th. If you don’t have the money, the IRS does offer payment options. However, these options include penalties and interest. As a result, many people consider taking out a personal loan to pay off the debt.

A personal loan has advantages over many other payment options. Personal loans can have lower interest rates than credit cards. Both options usually have higher interest rates and penalties than the IRS plan depending on your credit and other factors. More often than not, a personal loan allows you to pay the IRS what you owe, but you need to make sure you’re not paying more than what’s offered by an IRS payment plan. A consumer loan is often a wise choice when it comes to paying off debts if you can save on interest or you need lower payments with a longer-term loan.

Conclusion

It’s obvious that education is a big part of the solution when it comes to understanding personal loans and income tax and how the two work together. It’s also a good idea to know what it takes to qualify for a personal loan and what to do if you don’t qualify. There are usually alternative options that you can try if you can’t get a conventional loan. However, regardless of what you do take your time and read the fine print. Pay attention to the interest rate, terms, and the amount of the loan. Don’t take the first offer you get. If you’re uncomfortable with any part of the loan, don’t take it. Use the online tools and a finder to help you decide on the best loan for your particular situation. You won’t be sorry that you took your time and found what was best for you.

Remember, an ounce of prevention is always worth a ton of cure, even in situations that are rare and unlikely. Personal loans are rarely considered income. However, do your homework to ensure that you’re not missing any important details, and to be aware whether personal loans affect your tax return in your specific situation.

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A Guide to Understanding the Personal Loan Process

Posted on | by Julia Peoples | Leave a Comment on A Guide to Understanding the Personal Loan Process

Let us face it, most of us need a loan at some point in our lives. Unless you are independently wealthy, you are going to find a time when you need a loan. Most of us cannot, or choose not to, put out a large sum of money for large purchases, such as a car or house. You may even need a loan for smaller purchases.

Or, you may find yourself in a position where an emergency arises and you need money fast. Those are times when you may need a consumer loan. I understand that the thought of a personal loan may be a scary one. We are going to make the process less scary with this guide. We are going to share many tips, including where to get a loan.

Personal Loan Process – Step by Step

The amount of money you pay per month depends on how much you borrowed, the length of time and the interest. We will talk more about interest a little bit later. A personal loan can be used for just about anything. The lender typically asks you what you plan to do with the money, but they do not use that reason as a determining factor.

An unsecured personal loan process.

Step 1. Apply For A Personal Loan?

You have decided that you want to get a personal loan, but you do not know where to start. You know you need to do some loan shopping to find the right one for you. The easiest part of the loan process is the application process. Depending upon on what type of lender you choose, the application process make vary slightly. The easiest of all applications is an online loan.

You simply fill out the online application and submit it. After that submission, the lender determines what documentation is needed. You must then submit those documents online. If you pick a more traditional lender, you have to go into the bank and fill out the application.

At a traditional bank, they have representatives that help you fill out your loan paperwork. When using an online lender, you have to fill out all the paperwork on your own. It is really a simple part of the personal loan process. It may take you more time to collect the documents for the bank than it does to fill out the application.

What Documents Do I Need for a Personal Loan?

As I stated above, the application process is fairly simple. There is always documentation that the lender asks of you. The first thing you need to provide is proof of identity.

This should be something that has your picture and name on it, such as a drivers license, military ID, or passport. You also need to provide proof of income. You can do this with paystubs, W 2 forms, tax forms and documents, and bank statements.

The lender may ask you to provide proof of your rent or mortgage payment and your utility bills. You should expect to provide any of this documentation within a few days notice. The lender may also ask you for proof of any retirement or annuity payouts you might be getting. You can always ask why they need the documents, but keep in mind, failure to provide them may mean you are denied.

Step 2. Credit Check

You may think that your credit score should not be a big deal, but lenders think it is. Your credit score is a large part of the personal loan process decision. So, let us spend a few minutes on credit scores. Your credit score is a three digit number that could stand between you and a new house, or car. It can, in some instances, even prevent you from getting a job. So, it’s really important and you should understand why.

It may seem like only a number to you, but to a lender it signifies how risky you are when it comes to loaning money. Credit scores range from 300 to 850. The lower your credit score, the worse your credit is considered. Anything above 700 is considered a good score. Anything below about 650 is starting to get into the fair to bad range. Most people fall into the 600 to 750 range. The reason for most credit scores dropping is late or missed payments. It is hard to get and maintain a good credit score.

It only takes one or two mistakes and your credit score decreases. If your credit score is low, you can bring it back up but it does take consistent and hard work. You should protect your credit score and do everything you can to not let it fall below what is considered good.

What if I Have Bad Credit?

If you do not know what credit score you have, you should pull your credit report and take a look at it. You want to make sure there are not any errors on your credit report. If there are errors, you should work to get them fixed. If you can fix some of the errors on your credit report, you should be able to improve your credit score. Once you know what is on your credit report, you can decide how to handle it.

If you do have bad credit, you can still get a loan. It may be a little harder and requires more work on your part, but it is possible. When you have bad credit, some banks will not approve you for a loan. Other lenders, like credit unions and online lenders, are more willing to loan you money with bad credit. The interest rate is going to be higher, so you end up borrowing more money.

The lender may require that you have collateral. A loan with collateral is a secured loan and it means that you are using something, such as a car, house, or jewelry to secure your loan. If you do not pay back the loan, or default, the lender can take your collateral and own it.

The good news is the lender gives you one last chance to bring the loan current so you do not lose your collateral. If you do not have the best credit, you need to shop around to find the best loan for you. Most importantly, read all the fine print and understand the personal loan process.

Step 3. Lender Decision

Once you apply, the lender sends your application to the underwriter. This is part of the personal loan process where you just have to wait. You do not have anything to do during this time. It can also be the most frustrating part of the process because you truly have no control. You just wait and see what happens. You may be asked for more information during this process, so be prepared.

During this time, the underwriter looks at all of the documentation you provided, checks it and double-checks it. The underwriter looks over your credit report, reviews your income and debts and does some other administrative tasks. If your loan is approved, the rest of the documents are filled out and sent back to the lender. The lender contacts you and lets you know it has been approved or denied.

This is when you confirm the amount for which you are approved. The terms of the loan are outlined for you, including the interest, your monthly payment and how many months you must pay back the loan. Up until this point, all of the numbers are tentative and considered subject to approval.

What Do Lenders Look At When Approving A Personal Loan?

Lenders look at different pieces of information when determining approval for a loan. Income and credit score are two of the major factors a lender uses to determine approval. Let us table credit score for just a moment and focus on income and some of the other factors. Most lenders want you to have a job, or a steady stream of income.

There are title loans that depend solely on the title of a vehicle, but we are not considering that type of loan in this situation. Lenders want to verify your employment. They ask for paystubs and bank statements. They may even want to call your employer. Not only are they interested in how much money you make, but how long you have been with your employer.

Lenders determine your stability based on how long you have stayed at one job. If you bounce from job to job, they may think you are not stable and therefore a risk for lending money. They also want to have faith that you can pay back your loan. A stable income indicates that you should be able to repay. The more money you want to borrow, the higher the lender wants your income to be.

Step 4. Sign Credit Agreement

One of the most important pieces of your loan is the interest rate. As I mentioned before, the lower your credit score, the higher the interest will be. Ultimately, that means you borrow more money.

Lenders use your credit to determine the annual percentage rate (APR). Interest rates can vary anywhere from 5 percent to 36 percent. Those with the best credit get loans with an interest rate of 5 percent. Those will poor credit end up with 36 percent interest.

The best way to illustrate this is with an example using numbers. If you plan to borrow $10,000 and have 5 percent interest, that means your total interest is $500. You borrow $10,500 from the lender. If the term of your loan is 36 months, that means you will pay $291.67 per month.

Now, let me show you how that changes at 30 percent interest. You borrow $10,000 at 30 percent interest, which makes your total interest $3,000. The total amount you have borrowed from the lender is $13,000. Your monthly payment becomes $361.11.

With a higher percentage rate, you end up borrowing $2,500 more and pay about $70 per month. I have shown you two extremes here to really emphasize my point. You should shop around for the best rate for you by spending the time to look for the right lender for you. This helps you save money in the long run.

Are There Fees With A Personal Loan?

When you are looking for a personal loan, always look at the fine print. Personal loans may have fees associated with them. They are part of the personal loan process and it is important to know about them ahead of time.

Origination Fees

Some of the fees of which you should be aware are origination fees. An origination fee covers the administrative costs associated with the loan. It covers all the paperwork that occurs. The origination fee is rolled into the loan payment.

Application Fee

A lender may charge an application fee. This is a fee simply for you to fill out the application. This is a fee that you must pay out of pocket before the loan is even processed. If your loan is denied, you still have to pay the application fee. All other fees are charged as part of an approved loan. If your lender is charging you an application fee, you may want to find a different one. There are many lenders that do not charge this fee.

Late Payment Fee

There is a late payment fee. This is typical for most bills. If you pay the bill late, there is a fee you will pay. The fee varies with each lender, so be sure to read the contract. You also want to determine if the fee increases with each subsequent late payment. In addition, when you make a late payment, it can have an impact on your credit.

Early Payment Fee

Another fee your lender might have is an early payment fee. Sometimes, this may be called an early termination fee. The lender may charge you this when you pay back all the money you borrowed early. The bank makes money off of you by charging you interest. When you pay off the loan early, they lose the interest on that additional time. They may charge a fee to offset the money they are losing. You must be sure that you understand all of the fee associate with the personal loan process of the loan for which you apply.

Step 5. Get the Money

The amount of money received can range anywhere from $200 to $100,000 depending on your credit, the lender’s loan amounts, the amount you request and more. Money can show up in your account as soon as tomorrow.

Man counting money.

Is A Personal Loan Right For Me?

Ultimately, you are the only person that can answer that question. You must decide for yourself if you should apply for a personal loan. However, there are some factors that can assist you in making that decision. First, do you really need one and can a personal loan fit within your budget. What is your intention for the loan and is it something you really need? You should also ask yourself, does a loan payment fit into your budget.

In other words, can you afford to pay it back? You really must take a hard look at your budget. Remember, while it is nice to get a large sum of money, you always have to pay it back. Once you use that money for something else, you still have to make monthly payments. The first step is understanding your budget. You should know how much money is coming into your bank account. You also should know how much is going out of it. Then look at what is left. If it is zero, or close to it, a personal loan may not be for you.

Which Lender Is Right For Me?

There are so many lenders on the market willing to lend money. You get emails offering you special rates. You still get mail in your mailbox with all of their special offers. Perhaps, you’ve even seen commercials on TV. But how do you know which one is right for you? There is no magic involved. The right lender for you is the one that gives you the best deal and fits your parameters.

The lender that gives you the money you want to borrow with terms that are agreeable to you. A lender that makes sure you are comfortable with the personal loan process is the right one for you. Make sure whichever lender you pick, it is a credible one. Make sure you understand all the fine print and the lender is willing to answer all of your questions.

It’s important that the lender you’ve choose is reliable and serious. Don’t just go with the first lender you find. Do your research and pick the best option.

Should I Consider An Online Loan?

I am sure that you have heard of cash loans online. You may have heard something like get money fast. Or even, fast cash in your bank account. While those are typically presented by online lenders, not all online lenders are alike. Online loans are on the rise as one of the top ways to apply for a loan. The process is super simple:

You fill out a quick application online from the comfort of your home. Then you supply the necessary documents by uploading them online. You usually get an approval within 24 hours of completing the application. Then the money is in your bank account within 24 hour of the approval. It really is the simplest personal loan process you can do. Do not get too excited, yet. Online lenders can be great. There are a few things to keep in mind.

Smart Money Tip!

One is that you can often receive a higher interest rate from an online lender. This is not a hard and fast rule, but there is a high chance. Pay attention to the bottom line. Look at the interest rate and make sure it works for you. Do not get sucked in by how fast and easy it is. Fast and easy might cost you more in the long run. Just pay attention and know what you are signing.

Applying with an online lender can be more risky. There are many people out there looking to scam people out of money. These people prey on those in desperate situations. Someone looking for an online loan might be desperate and might not be as vigilant as he might be in a different situation. Scammers now this and look for easy targets. Do not be an easy target. Always do your research.

Always find out information about a potential lender. Lenders must be authorized to do business in your state. Make sure the lender has proper certification. Make sure that you can find information about the lender and do your research. Spending a few hours researching a lender can say you a lot of headache and lost money in the long run. Your financial security is worth the extra time. As always, read the fine print and understand the terms of any contract you sign.

Conclusion

We have gotten to the end of the guide to understanding the personal loan process. We hope that you have a better understanding of the entire personal loan process. There are some key points that we really want you to take away from this guide. You must know that your credit score matters and can make a huge impact on your loan and how much money you end up paying.

You need to understand how your credit score is calculated and what impacts it. It is important that you read the find print of any loan application that you sign. Make sure you are getting the best loan for you with the best rate. Most importantly, you need to make sure you can afford to pay back the loan. You need to take a hard look at your budget and determine if you can actually afford to pay back the loan.

Remember, protecting your credit is the most important thing you can do. You do not want to do something that hurts your credit.

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Common Loan Definitions and Related Terms: Lending 101

Posted on | by Carlie Lawson | Leave a Comment on Common Loan Definitions and Related Terms: Lending 101

The Merriam Webster dictionary defines a loan as a temporary lending of money to an individual or organization with an interest rate attached. Of course, while the dictionary makes it sound simple, loans are a little complicated.

An Abridged Dictionary of Loan Terms and Definitions

When you begin looking for a loan, you hear a lot of unfamiliar terms. You need loan definitions. Your lender probably won’t sit down and explain them all to you. We will. This glossary explains loan terminology in the most straightforward manner as possible. It breaks the terms down into categories that reference the context in which you’d read the term.

Loanry does not lend money. We function to help you find a lender. We set up a loan mall so you can easily shop personal loans among many lenders, almost as easily as you could visit a shopping mall to pick up a new pair of jeans. Because of this, we just do not have contact with you; your lender does. So, we want you to understand the loan procedure basics and loan terms. We find it better to educate you and give you the tools. The Loanry team wants you to ultimately save money. If you do decide to borrow then please use our library of personal finance education tools to borrow smart.

We are not trying to frighten you with this huge list of terms, but financial institutions use their own lingo. You will get a much better loan deal if you understand what the lender refers to with each term and know what it will cost you. We’ll break this up into types of loan definitions, for example, explaining fees in one section and references to loan terms in another.

The great news is that once you learn the lingo, it remains the same regardless of the loan type or the type of lending institution you find. Whether you need a student loan or a home loan or a car loan or some other type of loan, these terms apply to every situation.

General Loan Terms 101

Let’s start with the loan definitions you will come across regardless of the type of installment loan you consider. You’ll read these terms in all types of loan documentation.

Amortization

This refers to the equal loan payments planned out during a specified period to pay off the debt on time.

Amortized Loan

An installment loan also gets referred to as an amortized loan due to its planned series of equal installment payments that repay the loan amount, plus interest without the need for a balloon payment.

Anniversary Date

The annual anniversary of the loan. The initial anniversary date occurs on the twelfth payment’s due date. Thereafter, it occurs on the same annual date noted on the MOP Promissory Note.

Annual Percentage Rate (APR)

The percentage rate referring to the amount of interest charged on the loan

Balloon Payment

A final payment to fulfill the promissory note on an installment loan in order to discharge the debt. The balloon payment is typically much larger than the monthly installment payments.

Beneficiary

The lender listed on the promissory note that is secured by a deed of trust.

Borrower

The person eligible for the loan and who carries the primarily responsible for its repayment.

Character

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Lenders base your character on your credit score and credit history.

Capacity

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Lenders determine your capacity or ability to repay a loan, based upon your monthly income and your outstanding financial obligations.

Collateral

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Collateral refers to the property of merit you provide as a guarantee of re-payment when you apply for a secured loan.

Capital

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. Capital refers to your savings or other assets a bank can claim if you default on the loan.

Conditions

A term that refers to one of the five criteria that lenders use to determine whether to extend a loan to you. The conditions of your loan describe how you intend to use the loan.

Curtailment

This refers to an extra payment that reduces the loan’s principal balance before the final balloon payment.

Default

Essentially, failure to repay the loan as specified in the Deed of Trust or Promissory Note.

Demand Note

The term demand note refers to a loan the lender can recall at any time that has no fixed term or repayment schedule.

Friendly Loan

The phrase friendly loan refers to a financial agreement between friends, family, or business associates. These rarely have legal documentation since they are typically verbal agreements. This makes it tough to legally challenge them.

Loan Commitment

The term loan commitment, also called loan approval, refers to the letter issued by the lender that commits to funding for the specified borrower and property. It contains conditions that must be met prior to funding the loan. It expires 60 days from its date of issue.

Loan Denial Letter

A letter from the lender that denies a loan to the specified individual. Depending on the type of loan, the letter may state the denial reason. These reasons may include credit history or score, inadequate monthly income or lack of verifiable liquid assets.

Loan Servicing

The process of operational procedures management and the collection of payments related to a loan.

Loan Underwriting

The process and procedures of risk analysis including loan factors such as credit score and history, assets, employment, etc. used by a lender to determine whether to extend a loan to an individual.

Loan Withdrawal Letter

A letter from the lender acknowledging a borrower’s desire to withdraw their loan application/approval from the lender. It may or may not state the reason for withdrawal.

Home Loan/Mortgage Specific Terms

Some loan definitions only apply to property purchases. These terms apply to home loans, mortgages, investment property, business properties, etc. If you visit Accury, our real estate related partner site, you’ll come across many of these terms.

Appraised Value

The monetary value of a single-family home as determined by an approved appraiser.

Co-Signer

A person who assumes loan responsibility, but does not take a title interest or live at the property.

Close of Escrow

The legal meeting at which the property officially and legally transfers between the lender, buyer and seller.

Co-Borrower

A second individual who assumes responsibility on a loan. This person also has a title interest in the property, meaning they co-own it, and they intend to occupy it as a primary residence.

Date of Recordation

The date on which a deed of trust is officially entered on the books of the county recorder in the county in which the property is located.

Deed of Trust

Sometimes used instead of a mortgage, this financial security instrument conveys the property’s title in trust to a third party to ensure the payment of the promissory note. When the borrower pays off the loan, the deed transfers to the homeowner.

Down Payment

The initial payment offered for the purchase of a piece of real estate. The loan amount covers the difference between the real estate’s purchase price and the loan amount. While some loan types, such as VA loans, allow for a borrower to forgo a down payment, the typical amount is at least 10 percent of the home’s purchase price.

Equity

Equity refers to the property’s fair market value less the current debt on the property. You can leverage the equity on your property to receive a loan, also called an equity line of credit.

Escrow

In escrow, a third party handles the funds disbursement and paperwork as an agent and intermediary for the buyer and seller.

Escrow holdback

When the home needs repairs or treatment for termites, the firm handling the escrow withholds funds until the repairs or treatment is complete.

Evidence of Insurance

This insurance document confirms the property is insured by a homeowners’ policy. This is not a copy of the insurance policy, but a letter or statement of commitment to insure a specific property beginning on a given date at a specified premium.

Hazard Insurance

This is more commonly referred to as the homeowner’s insurance policy.

Home Improvement

Repairs and/or additions made to better the status of the permanent structure of the primary residence.

Home Loan Coordinator

The person designated by the Chancellor of each campus and Laboratory Director as the Home Loan Coordinator. This individual serves as the primary contact at the campus level for loan applicants.

Homeowners Association

An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Homeowner’s Insurance Policy

An insurance policy available to owners of private dwellings that covers the dwelling and contents in the case of fire, wind damage, theft, and, personal liability. The typical policy does not include flood or earthquake coverage.

HUD-1 Closing Statement

A document required by the Department of Housing and Urban Development (HUD) that discloses all financial information related to funds received and disbursed at a loan’s closing.

Inspection Reports

This term refers to reports generated by the inspector the borrower hires to assess the home’s condition before closing on the home. These usually include a home inspection report and a termite report. The home inspection may include specific detailed reports on the condition of the foundation and roof, as well as, a geological report and a septic tank inspection, when a septic system is present.

Interest

Interest has two meanings. The first is a reference to the annual percentage of the loan you will also re-pay in consideration for the loan. The second meaning is also a business term meaning a share, title or right in a property or business.

Joint Tenancy

Joint ownership by two or more persons giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Lender’s Escrow Instructions

Instructions produced by the Office of Loan Programs for an escrow or title company detailing the documentation and procedures required before a loan is funded.

Loan-to-Value (LTV) Ratio

The ratio of the principal balance of a mortgage loan to the value of the securing property, as determined by the purchase price or Appraised Value, whichever is less.

Mortgagee

The lender that holds the Deed of Trust or mortgage.

Mortgagor

The borrower who named on a Deed of Trust or mortgage.

Refinancing

The process of paying off an existing loan and establishing a new loan.

Renovation

The restoration of the primary residence. Generally, this includes repairs, improvements and additions to the permanent structure of the primary residence

Monetary Transfer Terms

Some loan definitions you need to know, refer to the manner in which loan monies transfer from the lender to the borrower.

Automated Clearinghouse (ACH)

A money transfer network that electronically transmits funds from one participating financial institution to another.

Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) refers to the actual transfer of funds through an ACH. In loan terms, it refers to the transfer of the loan amount electronically from the lender to the borrower. Other EFTs include direct deposit and debit card transactions.

Types of Loan Definitions

You’ll find many types of loans available. Financial institutions specialize. Some offer credit cards, some offer mortgages, some offer unsecured loans and some offer many types of loans. Here are the unusual terms you might come across when exploring loan types.

Bridge Loan

A loan type used in real estate with a loan term of less than 12 months. Considered a temporary loan, the bridge loan provides the borrower the net proceeds from an impending home sale so the borrower can purchase a new home. The borrower repays the loan with the proceeds of the home sale.

Deferred Payment Loan

A loan that defers all monthly interest and principal payments to the promissory note’s maturity date. The loan principal balance, plus the accrued interest comes due when the deferment ends. These are common with student loans.

Graduated Payment Mortgage

You will commonly see this written as GP-MOP. It refers to loan type related to the Mortgage Origination Program (MOP) that provides an initial lower interest rate than the standard rate. There minimum rate is 2.75 percent. The interest rate will annually increase by 0.25 percent to 0.50 percent until it equals the standard rate.

Interest-only Payment Loan

This type of loan does not amortize. During the loan term, the borrower pays only the interest each month. They re-pay the principal as a lump sum when the length or the loan term ends.

Unsecured Loan

This type of loan typically charges higher interest rates but requires no collateral. Credit cards and student loans are the most common types of unsecured loans. This is the most common type of consumer loan.

Fee Definitions

Application Fee

A nominal charge, typically of $50 or less, that accompanies the loan application. You pay this fee at each lender, for each loan application submitted. If your loan application gets denied, you will get charged another fee if you re-apply. Some lenders waive the re-application fee if you have good credit.

Administration Fee

You’ll incur the administration fee to process the loan application. This charge ranges between $35 to $50. Some lenders bundle this into the application fee.

Origination Fee

The origination fee typically amounts to about ten percent of the loan. It can be charged in addition to application and administration fees or in addition to them. It is paid from the loan monies, for example, if you apply for a $1,000 loan, you’ll receive $900.

Late Fee

You only incur a late fee if you pay your monthly payment late or miss your payment. These range from $30 to $37. You get charged for each late payment. You may receive one-time forgiveness of this fee, if your lender offers it.

Prepayment Penalty Fee

Your lender counts on making back the cost of loaning you money by charging interest. If you try to pay it off more quickly, by making double payments or large lump sum payments, in addition to your monthly installments, you’ll pay a fee. It is a hefty fee, generally amounting to about 80 percent of six months of interest.

In Conclusion

The plethora of terms and loan definitions can seem overwhelming but we hope this short glossary helps you better understand them. Loanry wants you to find a lender for your financing needs. We try to make it easy for you to find lenders and their loan offers. While we cannot promise you will find a lender here that can get you a loan, we can make it as simple as possible for you to look for the right lender who can help you. We even offer money tools to help you compare different types of lenders.

Our service lists numerous types of personal loan options from a plethora of lenders. These consumer loans include credit cards, installment loans, payday loans, mortgage loans, student loans, car loans, and more with both short-term and long-term options. Our loan mall has lenders who offer high and low-interest rates. You’ll find options for those with great credit, bad credit, and no credit. Print this article or keep it open in a separate browser window while you loan shop. That lets you refer back to it easily. Make your loan search simpler. Start at Loanry and find the lender you need. Loanry connects you with reputable companies that may give you a loan if u qualify for it. You can check whether you qualify right now, by putting in your information below. We do not loan money, but we do make it easier to help find a lender for you.

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How to Establish Credit History When You Have No Credit History?

Posted on | by Myra H | Leave a Comment on How to Establish Credit History When You Have No Credit History?

Young adults and students are often frustrated by the problem of having no credit. It seems unfair, but almost every business or service requires a good credit rating before you can purchase their goods or services. Up to a few years ago, the young and students had no recourse but to use Mom’s and Dad’s credit card to establish credit history of their own. This did nothing for their own credit, though.

Fortunately, there are over half a dozen ways to establish credit history if you have no credit. Credit is no longer strictly about credit cards. Paying your rent on time (and that’s if you can find an apartment with no credit history,) paying your bills on time, and other solutions we’ll discuss here all add up to a credit history. First, though, those with no credit should understand how and why it works.

Understanding The Basics Of Credit

If you’ve never paid on a car loan, a mortgage, or had a credit card, then the Big Three (Experian, TransUnion, and Equifax) don’t know you’re there. They call this being “credit invisible.” If you’ve paid off a loan or used a credit card maybe once or twice, the Big Three call this “credit unscorable.” There simply isn’t enough information with which to give you a credit score, good or bad.

Experian logo.
TransUnion logo
Equifax logo.

You’d be surprised how many people – 26 million to be exact – deal in cash. They buy large ticket items like cars from Craigslist, rent an apartment or room detailed by friends or family, and make monthly payments on other things outside the credit arena. Some don’t even have bank accounts; they pay their bills with Post Office money orders. Thus, they have no way to establish credit history.

The Way Lenders See it

You have bad credit due to the fact you haven’t shown a responsible repayment history. To the credit bureaus, they know nothing about you because you’re “invisible”. It’s easy to see how credit is a necessity, because cash and checks are usually not accepted in many places. How many times do you stand behind someone at a restaurant while they write a check for their meal? You can’t order pizza without a credit card, pay for something on Amazon or even get groceries without a credit card.

That’s not all. Anything in life requires a credit check. Applying for a job often calls for a credit check. The employer needs to see that you are a responsible person which means paying your bills on time. If you need health, auto, or home insurance, expect a credit check. These people need to know that you’ll pay them. Even the power company checks your credit. If you don’t have any or bad credit, expect to pay a hefty down payment as security in case you don’t pay your bills.

Establish Credit History with No Credit History

There are ways to establish credit history if you’re beginning from scratch. The gold standard of creditworthiness is FICO scores. Each little thing you pay for shows up there. Hold your chin up, you got this. Here’s how.

FICO credit score.

☛ Get A Credit Builder Loan

This is one of the most painless ways to establish a credit history. Go to a bank or credit union with which you have a relationship. A credit builder loan is one in which you borrow a specific amount of money. They will hold the money in an account to which you won’t have access.

You will make monthly payments. When the amount is paid off, you will receive your money minus the interest you paid. They will report to all three credit bureaus your timely monthly payments which will establish credit history for you.

Most credit builder loans offer a range between $300 and $1,000. The point is not how much you borrow, but being able to repay the loan on time each month. Borrowing more than you can repay might mean late payments or no payments at all. Be very sure you can afford the monthly payments before you begin the process.

You’ll be paying interest on the loan. Some lenders don’t return the interest when the loan is paid off. Some return a portion of the interest which they call “dividends.” Read the contract carefully, and make sure you understand the interest, fees, and whether or not the lender will return none, all, or a portion of the interest at the end of the loan.

Since you’re doing this to build credit, some lenders won’t do a credit check on you. Instead, they’ll check your banking records. Here they will find if you have any bounced checks, and if you pay your bills. These things might affect your approval for a loan. You’ll need to bring with you:

  • Name, address, and phone number of your employer
  • Paycheck stubs
  • If you’re self-employed, you’ll need tax returns to prove income
  • Housing payments
  • Checking and savings balances
  • References
Important pros of Credit Builder Loan

Two of the most important pros of obtaining a credit builder loan are that you’re basically paying monthly into a savings account. This teaches you discipline. The other pro is that when you go for other loans, you’ll have the experience and knowledge of taking out just the right amount and the ability to pay it on time every month.

☛Build Credit With Your Parents’ Help

Mom and Dad usually have at least one credit card. You can ask to be an authorized user of their cards. You won’t have to have a card of your own; just use theirs. Ask your parents to contact the credit card company to see if they report the authorized user’s payments to them. You need to be sure of this. Otherwise, your efforts will be for naught.

Be prepared to make your payments on time each month. If you don’t, you’re messing over the beginning moves of establishing credit history as well as causing your parents’ payments to be late or non-existent. They could end up with bad credit which serves no purpose for either of you.

The biggest pro of being an authorized user on someone else’s credit card is that their credit history makes yours look good. You don’t even have to use the card. The primary card holder’s credit is reported on your credit report. How cool is that?

☛Build Credit With A Co-signer

If you have a parent, another family member, or a friend with good credit, you could ask them to co-sign a small personal loan in order to build or establish credit history. The payments you make will be reported to the credit bureaus, and you will establish credit history.

The only downside to co-signing a loan is that if you default on the loan or your payments are late, then the co-signer is responsible for paying the loan. Both your credit will be adversely affected. There might possibly be ill will between the two of you. Make very sure you make your payments on time for both your sakes.

☛Build Credit By Paying Your Bills

A great number of people assume that their rent, utilities, phone bill, cable, and insurance among others are reported to the credit bureaus. The fact is that the credit bureaus only see this information if you’ve failed to pay and the debt goes to collections. The only credit entity that does get these reports is FICO. So it does pay to pay your bills in a timely manner.

If you want the credit bureaus to be notified of your timely payments on bills, then contacting a third-party reporting agency is your best bet. Two such agencies are Credit Karma and RentTrack. Be aware you might have to pay a yearly premium for this service. It’s worth it, though, to be able to build your credit from nothing.

Young man using credit card for paying bills on laptop.

☛Build Your Credit By Buying A Car

The first credit most young people have is buying a car. Once you’re out of school or college, you have to get around to find a job. Buying a car is a sensible way to accomplish this. Make each month’s payments on time, and you will establish credit history.

☛Build Your Credit With Student Loans

Nine out of every ten students get their education with student loans. You may have a grace period before the student loan organization begins reporting your payments. In any case, pay them on time every single month for a good credit rating.

Applying online to a college usually means Sallie Mae. However, if you’re wondering where to get a loan, most lending institutions offer student loans. The rates and fees will vary, but they are another method of getting student loans.

What Credit Bureaus Look For?
Credit bureaus look for five things when they check your credit. The first is a history of payments, how much you use your credit, how long you've had credit, hard hits on your credit, and your credit mix. When you use both revolving and installment credit and pay them off on time, your credit gets a boost.

☛Build Your Credit With Store Cards

Sears, JCPenney, Kohl’s, Exxon, Mobile and dozens of other companies offer their customers brand credit cards. If you spend lots and lots of money with these and other stores, chances are pretty good you’ll pay your monthly credit card bill.

The best way to handle store credit cards is to buy with it only what you would have bought with cash. Pay the entire balance each month on time. Ask the credit department if they report to the three credit bureaus.

Let’s Talk About Credit Cards

No one gets a credit card before they establish credit history. Credit cards are how the Big Three credit bureaus recognize people. With a credit card, you are no longer “invisible” or “unscorable.” Here are ways to get one.

Secured Cards

This is when you put $200 or $300 in the bank and let it sit there for a year or so. Don’t touch it. The bank or credit union will see this as collateral for a secured credit card. The amount in the bank or credit union is usually the credit limit on the card. You won’t be able to make large purchases, but when you make the monthly payments on time, the bank or credit union might give you an unsecured credit card a couple years down the road. In both cases, they will report your timely payments to the credit bureaus.

Secured cards were never meant to be used forever. The purpose of such a card is to build or rebuild credit. When you qualify for an unsecured card, then you can close out the secured card account. Make sure the secured card has low annual fees.

Store Cards

If you work for a major department store, a place like BF Goodrich, or you manage a Mobile gas station, chances are good that you could get a store credit card. If you’ve little to no credit, then your credit limit won’t be very high. Pay it off on time every month for at least a year, and the company usually raises your credit limit. It all goes on your credit report which gives you a track record.

Starter Credit Cards

These were devised for young people with no credit history. Adults with bad credit can start all over again with a starter credit card. Some are secured by amounts as small as $49, while others are regular credit cards. Some carry annual fees while others don’t. The credit limit is usually $300, but you’ll run into some pretty high interest rates to the tune of 20 percent.

The goal is to pay as little as possible when it comes to fees and interest. Make sure to pay the balance on time and in full if possible. In time, you’ll be able to qualify for a regular credit card with better fees and interest. Capital One offers a starter card with no annual fee just to give you an example.

Student Credit Cards

To qualify for this card, young people must be registered at an accredited four-year college. This is an easier card to qualify for, and some even offer perks like cash back. Pay the balance on time and in full, and you’ll be on your way to a good credit score.

Subprime Credit Cards

This is absolutely the last resort for anyone trying to establish credit history. These cards are usually sought by those who have tried other avenues and failed. Those with no credit at all and those with bad credit are not turned away.

The trouble with subprime credit cards is that they hit you with astronomical fees and interest. The government has tried to regulate them, but they find ways to get around it. This is a do it at your own risk thing, but we’d be doing you a serious disservice if we didn’t at least let you know that it’s there and to beware of it’s bad points.

Let’s Talk About Loans To Establish Credit

We’ve talked about car loans to establish credit history, credit builder loans, and student loans. For every thing you need to pay for, there seems to be a loan for it. Sometimes they’re called personal loans, sometimes payday loans.

There are two types of credit: installment credit and revolving credit. Installment credit is when you pay back money loaned on a car or a mortgage. Revolving credit is when you pay monthly charges against a credit card. The card revolves because the credit is available once again. Credit bureaus want to see a variety of credit on your credit report, so a good mix of both gives them a reason to approve your credit.

Let’s talk about personal loans first.

Personal Loans

Personal loans are installment loans that require a certain credit score to get favorable rates. You apply for a certain amount of money, sign the paperwork, and receive your funds. You will repay the money each month with interest and fees. Now you can borrow any amount, but it’s best to keep the amount low enough that you won’t have trouble repaying it. The loan terms are usually one or two up to six years to repay the loan. Make sure you pay it on time each and every month. Ask the loan officer to report your monthly payments to the Big Three credit bureaus.

Payday Loans

Payday loans are given to people in sudden emergencies that need to be paid for right now. They are based on repayment from your next paycheck. Those just beginning to build a credit history should stay away from payday loans. They charge an insane amount of interest and fees. This often makes it hard for people to repay. They take out another payday loan to pay off the first one. You can see the trap people fall into. These aren’t reported to the credit bureaus.

Conclusion

Know that we all understand your frustration at being too young for a lot of things. You’re old enough to vote and drive a car, but you can’t have credit. We understand how it feels to wonder what to do and where to go for answers. We hope this conversation helps you at least get an idea what to look for when you do begin your credit journey.

You should know that before you look online for personal loans, there are companies that don’t lend-they direct. You explain your needs, your time frame, the amount of money you need to borrow, and they can help you find a company that might fit your needs. They don’t lend. They know bunches of lenders, though, so their website is an interactive framework in which you find a lender for you. Without these free services, you’d have to do all the footwork yourself. We’d like to help, so let us know how your credit journey is going.

Loanry

How Does A Personal Loan Effect Your Credit?

Posted on | by Blaine Koehn | Leave a Comment on How Does A Personal Loan Effect Your Credit?
How Does A Personal Loan Effect Your Credit?

There are several things you need to consider before you get any type of loan and this includes the impact the loan will have on your credit. However, the primary determinant for this aspect is your credit profile. Sometimes a personal loan can help improve your credit scores and credit, especially if your primary purpose of taking a personal loan is to help pay your existing higher-interest rate debts. Before we can dive deeper into this issue, it is important to know what the definition of a personal loan.

Understanding the link between your credit score and personal loans requires you to know what a personal loan is first.

How a Personal Loan Affects Your Credit

A personal loan is a type of credit issued by credit unions, banks, or digital lenders. This type of credit makes it easy for people to make big purchases, bundle high-interest debt into an easy to manage low-interest debt, or start a business. A personal loan usually has a lower interest rate compared to credit cards. These types of loans can also be used to combine several credit card debts into monthly lower-cost payments.

While your credit profile can be a robust tool, signing off on any loan especially a personal loan can certainly be a serious obligation. Thus, it is important to weigh both the pros and cons of a personal loan and how it will affect your credit score.

Let’s see when a personal loan can affect your credit history and score.

You Apply for a Personal Loan

A formal application of a personal loan triggers a thorough credit check that enables the loan checker to perform an evaluation of your credit history. This type of inquiry usually takes away at least five points from your credit score. However, the new application accounts for at least 10% of your total credit scores. A thorough credit inquiry basically stays on your report for at least two years, but it can only affect your credit score during the first year.

You Shop Using a Personal Loan

A majority of online lenders allow borrowers to pre-qualify for a consumer loan using a soft credit check. This type of check is routine, as it allows them to establish your creditworthiness. A soft credit check will not affect your credit history and score, but it does allow you to shop around different online lenders for the best terms and rates. Loanry helps borrowers find a lender online.

You can do so, by simply visiting their website, as Loanry makes some of the information you require for registered online lenders available. Make sure you are not only comparing multiple lenders, but you are also considering whether the lender offers its consumers the soft check.

You Repay Your Personal Loan Regularly

Both VantageScore and FICO, which are the different credit scoring methods available, consider your payment, as the most critical factor when calculating your credit score. Your ability to repay your loan makes up 35% of your total credit score. Having a consistent record for on-time debt payments helps build your credit score in the long-term.

Most online lenders report their borrowers’ repayment activity to at least one or all the three national credit bureaus. These bureaus are TransUnion, Equifax, and Experian. Working with an online lender that reports your repayment progress to one or all three bureaus means that you have to be consistent with your payments, as this will help build your credit score and reports.

You Consolidate Your Debt

Consolidating your debt into a consumer loan can help improve your credit score, as it lowers your credit utilization. This means a personal loan affects your credit score in a positive manner. To determine your credit utilization, lenders simply calculate how much available credit you utilize. Personal loans help add installment credit to your reports, and this further helps to improve your credit score

Credit utilization formula.

You Miss a Payment

Another way a personal loan affects your credit is when you lack to make regular payments. However, it is important to note that missing a payment due date even by a few days cannot affect your credit score. But, when you make a payment towards your personal loan that is 30 days late, online lenders may report you to credit bureaus and this can damage your credit score.

For instance, if you have a FICO credit score total of 780, a 30-day delay in paying your personal loan can lower your score by at least 90 to 110 points. This means you will have moved from an excellent score to a fair credit score. Having a suitable budget that takes into account all of your required repayments including a personal loan, can help you avoid missing payments.

So, what happens when a personal loan effect your credit? Are there any ramifications that follow? The next section will focus on how your credit score affects your life.

How Your Credit Score Affects Your Life

Just like a personal loan affects your credit; your credit score can also affect your life. Even if you have a credit score that is as low as 500, you can still get credit, however, this comes with a rather high-interest rate or specific conditions like getting a secured credit card or depositing money. But as your credit score increase, you start to have even more access to available credit products that have lower interest rates and pay less.

For instance, if you have a credit score of 620, you would pay a range of $65,000 to $200,000 for a 30-year mortgage. While a person with a score of above 760 will pay less than that for a shorter period. In the long run, borrowers with a credit score of above 760 have plenty of options including 0% interest credit cards and they qualify for 0% financing on vehicles, as well.

How do You Improve Your Credit Score?

After discovering how a personal loan affects your credit, what next? Well, if the impact is a bad credit score then their several ways you can try to improve your credit score. But, if it had a positive impact on your credit score, there is no harm done, by having a higher score. So, here are some of the ways you can improve your credit score.

Check Your Credit Reports to Make Sure They are Accurate

Sometimes, credit history reports can be notoriously inaccurate. But, it is important to note that this might not be the fault of any of the credit bureaus. Credit bureaus maintain accurate credit records and they report the information they acquire from different lenders. But, the trouble is that, they can sometimes get information from lenders that is not right. This reason may arise if files get mixed up and this eventually causes mistakes during the data entry process.

Checking your credit score by reviewing reports from credit bureaus enables you to check for inaccuracies. Once you have established a mistake has been made, you can then file a dispute. Disputes to credit bureaus are made online and it follows dispute procedures for each bureau. Fixing these mistakes is an excellent way of improving your credit score.

Fix Your Late Payments

Like discussed earlier, one of the ways a personal loan affects your credit is when you miss your payments. To help fix your credit score, you can try disputing all your late loan payments even if they may be accurate. When lenders report late payments, the credit bureaus require them to verify the information they present, and this can sometimes take time.

If the lender fails to respond within the given time, the bureaus will then remove the negative information from your report. But, if this does not help you get rid of your late payments, you can try negotiating with your lender to put your late payment information on your history rather than credit score. If your online lender agrees, they can easily change your payment information with the help of credit bureaus.

To avoid late payments make sure you try paying off all your debts, making big payments if possible, or bringing the account current. Doing this in exchange for the removal and correction of all your late payment information, is an incentive no lender can refuse. Alternatively, you can try to get your lender to accept a particular amount of money and this will have your account show, closed and paid as agreed on your credit history.

Come Up With a Plan to Help Improve Your Score

Nobody constructs a house unless they have a plan. To improve your credit, you also require a plan that will show you just how to improve your score. The first step of your plan should be signing up for a credit tracking system. This will help you know your score. The next step should be cleaning up your credit report. Cleaning up your report requires you to make sure that all the information in your report is accurate.

Once that is done, the next step is reducing spending, coming up with a budget, and dealing with your older debts. For instance, if you are using a credit card to buy things, then you are spending too much. Try using cash only instead, or try carrying one credit card. This will keep you from overspending. Also, when you run out of cash, try to stop spending. This will make it easy for you not to spend money, you do not have.

Also, avoid taking personal loans if you are not sure you have the finances to pay back the loan. If you cannot handle paying back your loan you already have, make sure you do not add even more debt by taking a personal loan.

Types of Personal Loans

There are primarily two main types of personal loans and they are:

Unsecured Loans

These are personal loans that do not require any collateral. The lender makes a decision as to whether you qualify for a loan based on your credit and financial history. If you do not qualify for this type of loan or one with lower interest rates, the next option is applying for the second type of loan.

Secured Loans

These are personal loans that require collateral like a savings account. In the event that you are unable to pay back the loan, your lender has the right to acquire your assets, as a form of payment for your loan.

However, most of the personal loans available are unsecured and since the lender cannot possess your assets, this why the loan interest rates of personal loans tend to be higher compared to loans that require security.

How to Apply for a Personal Loan?

Applying for a consumer loan is a fairly simple process, especially when working with online lenders. Online lenders make it their priority to speed up your application process and avail the money to you within a short time. However, before settling for a particular lender, it is important that you check their terms, as this will make it easier for you to determine their charges and interest rates.

The fact that every online lender has its own loan structures and customized rates means that you have to first shop around for a rate and loan that is convenient before settling for one. Once you are ready to apply, your chosen lender will want to understand your financial situation first. This will help them determine whether to grant you the loan or not.

For this, the online lender will ask you to provide different types of information about your financial state and yourself. Some of the factors they require include:

Your Credit Score and History

When you make an official application— as opposed to a qualification request, the online lender will have to perform a background check and

learn more about your credit history and score. Most online lenders have a specific credit score they require from their applicants in order for them to lend you the money you require.

People with high credit scores are always eligible for higher loan limits with a better rate. Individuals with longer credit history also fare well when it comes to getting the best loan limits.

Income and Employment

Your online lender may ask for employment and income information in the form of pay stubs, tax returns, or W-2s. For specific reasons, lenders tend to feel confident lending to people with a steady and solid income.

Your Debt-to-Income Ratio

To determine this ratio, online lenders tend to use a key metric, which helps them predict a person’s ability to pay a loan back. The ratio indicates your debt amount compared to your income. If your ratio is at 50% or lower than that, then you are in a good position to not only acquire a loan but to pay it back, as well.

To ensure that the entire process is thorough, some online lenders may also ask for phone consultation after your first application. Speaking to an applicant is useful; as it helps, you understand the technicalities of your application and repayment process. You also get to have your questions answered.

But, it is important to note that, the amount of time you take to finally get a personal loan varies across institutions. For instance, banks take longer compared to online lenders. Online lenders can sometimes give you an offer within a few days of your application and provide funds, as well.

After learning, everything about personal loans, the next section is discussing how a personal loan affects your credit.

Conclusion

It does not matter how a personal loan affects your credit score, the important thing is that you still have the ability to improve your credit score. And all it takes is:

  • Correcting all the errors that appear on your credit report
  • Fixing all the delinquent accounts you have by trying to pay them off, as this will help the lender get rid of any negative information on your credit file.
  • Pay down all your debts, as this will help improve your payment ratio.

Do not let a personal loan affect your credit in a negative way, you have the power to improve your score.

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