Loan Guide – Tips To Help You, Before Availing A Loan

For a given quality of a product, we want to purchase it at the lowest rate. Remember – loan is also a product and obviously we will like that we get it at the lowest possible cost. Therefore, before availing a loan, a little vigilance can save you many dollars.

So if you are planning to avail a Home Loan, Student Loan or Study Loan, Mortgage Loan, Home Equity Loan, Pay Day Loan, Vehicle Loan or Conveyance Loan etc., here are certain vital tips for you.

THE COST OF A LOAN CONSISTS OF TWO PARTS:

(A) HIDDEN COSTS
(B) INTEREST COST

A) HIDDEN COSTS:

These are the costs about which the representatives of the banks/finance companies are generally silent at the time of selling their product (i.e. loan). But these costs are very much written in the finer prints of the contract you sign with lender. So, it is wise to go through the entire content of documents you are going to sign for availing a loan. Believe me, there will be many points on which you will like to have clarifications from the lenders.

HIDDEN COST CONSISTS OF THE FOLLOWING THINGS:

1. UPFRONT INSTALMENTS:

Some finance companies take certain installments on the first day of the disbursal of the loan. Suppose you have availed a loan of $10,000 and your EMI (Equated Monthly Installment) has been fixed at $410 per month. Now the lender wants you to deposit, say 5 installments in advance. It means you will deposit $2,050 as upfront installments. In this case the finance company has financed you actually $7,950 ($10,000 – $2,050) but the amount of loan on which you are paying interest will be $10,000. The principal amount from your angle is $7,950 but the lender is charging interest on $10,000. So negotiate with the company for not paying any upfront installments.

2. PROCESSING FEE:

Processing fee is the fee charged from the borrower for preparation of documents. Processing fee is generally negotiable and certain companies waive off the entire fee on negotiation. The companies generally reduce the fee if do not waive off the entire fee. So try your best to negotiate on this front before agreeing to avail the loan. It will save you a handsome money.

3. CHECK BOUNCING CHARGES/LATE EMI CHARGES:

If you are not able to pay the monthly installment on time or the checks given by you for repayment of the loan have bounced due to certain reason, the lender will charge a penalty from you. Different companies charge different penalty in such cases. Check out with the competing companies and fix this condition accordingly. If not settled before hand, you will have to shell out as per the terms written in the contract which may be exorbitantly high.

4. FORECLOSURE PENALTY:

Foreclosure means paying back the entire loan before the agreed period. Suppose you have availed a loan and undergone an agreement with the lender to pay off the entire money in 24 equal monthly installments. After 10 months you have got some money from somewhere and now you want to pay off the entire loan to the lender. This is a case of foreclosure. The lender will charge certain percentage on the remaining principal. This is called foreclosure penalty. Certain lenders don’t let to pay off the entire money before a fixed period, say you will not be allowed to opt for foreclosure during first 6 months and after that you may pay off the loan that too with foreclosure penalty. The foreclosure clause should be clearly understood and settled with the finance company well in advance. After reviewing your financial credibility, the financer can alter/delete this clause to your benefit. So, do negotiate on this point.

INTEREST COST:

Interest cost is the main cost of the loan availed. Here are given some finer points to be learned about the interest rate component.

INTEREST RATE IS OF TWO TYPES

1. FLAT INTEREST RATE
2. MONTHLY REDUCING INTEREST RATE

1. FLAT INTEREST RATE:-

“Flat interest rate” is the rate of interest that is determined at the time of application and is fixed for the duration of the loan.

Let’s illustrate it with an example. Suppose you have borrowed $10,000 @ 4% flat rate of interest for 2 years. At simple interest rate formula, the interest for 2 year comes out to be $800. Now the lender adds this $800 in the principal and calculates EMI for 2 years.

i.e. EMI = (Principal + Interest) divided by number of months

In our example EMI comes out to be ($10,000 + $800) / 24 i.e. EMI will be $450 per month.

Looks to be very simple – Isn’t so? But you have borrowed $10,000 and paying interest on $10,800 for all the 24 months.

In reality, the interest burden must reduce every month as the principal is coming down with every installment repaid by you. Here you are paying $33.33 every month ($800 divided by 24) irrespective of the principal amount.

REMEMBER, THE COST OF FLAT RATE OF INTEREST COMES OUT TO BE ALMOST DOUBLE IN COMPARISON TO THE MONTHLY REDUCING INTEREST RATE. HERE IS THE TABLE SHOWING THE COMPARISON BETWEEN THE TWO.

HERE IS THE TABLE SHOWING FLAT RATE V/S EFFECTING RATE

FLAT RATE ========= EFFECTIVE RATE

2.00% ============== 3.70%

3.00% ============== 5.49%

4.00% ============== 7.29%

5.00% ============== 9.09%

6.00% ============== 10.89%

7.00% ============== 12.69%

8.00% ============== 14.49%

9.00% ============== 16.19%

10.00% ============= 17.99%

11.00% ============= 19.70%

12.00% ============= 21.50%

15.00% ============= 26.60%

18.00% ============= 31.70%

20.00% ============= 35.10%

24.00% ============= 41.70%

30.00% ============= 51.40%

This type of interest rate is prevalent in Auto Financing and Cash/Payday/Personal Loans etc. Looking at the above facts it is always advisable to go for monthly reducing interest rates. The effective cost of flat rate is quite higher than what is looks to be. For example the effective cost of 11% flat rate comes out to be 19.70 % – quite a high cost indeed!

MONTHLY REDUCING RATE:

This is the rate which is most cost effective. You should try your level best to borrow only at this rate. Under this rate, the actual amount of loan availed by you is debited to your account and interest is charged on this amount. The interest burden goes on declining with every installment paid by you as with every installment paid, the principal is coming down.

THIS RATE AGAIN HAS TWO VARIANTS

Fixed rate
Floating rate

Fixed rate remains fixed throughout the loan period whereas floating rate goes on changing with the rate prevalent in the financial market. If you expect that in future interest rate will rise then you should opt for fixed rate but if you feel that in future the rate of interest will come down then you should go for floating rate of interest. To sum up it becomes evident that some knowledge about the interest rate and some home work done before buying a loan product will help us in saving us a lot of money.

For more qualitative information on LOANS & FINANCE, please logon to http://www.imdollar.com

Bad Credit Loans – A Borrower’s Guide For Personal Loans

If you are in need of cash, a personal loan might be just what you need to be able to pay your bills. Many people who need money fast overlook the option of personal loans because they do not understand how they work. Or, they do not think that they will be able to qualify for one of these loans because they have a less-than-impressive credit score.

The truth is, however, that you can find personal loans even if you have a very low credit score of under 600 or even 550. There are several types of personal loans to choose from, including secured loans, unsecured loans, and auto title loans.

Secured loans are where you put up some sort of collateral – something of monetary value that the lender could easily sell in case you fail to pay back the loan principal. Because this type of loan is secured, it means that you can expect to pay slightly lower interest rates. Also, your credit score will not be much of a factor with these loans, since the fact you are putting up collateral helps to reduce the lender’s risk in the deal.

Unsecured loans, on the other hand, do not require that you offer up any collateral to the lender. That’s a good thing if you do not want to put something of value up for possible sale by the lender later on. However, the drawback is that you will have to pay a higher interest rate on your borrowed money.

An auto title loan, meanwhile, is very similar to a secured loan. In fact, it is a form of secured loan. With an auto title loan, you are using your car’s value as loan collateral. In the case of this type of loan, you are risking losing your car. And, interest rates can be pretty high.

If you can, your best bet among these 3 options is to go with an unsecured loan. Surprisingly, even if you have a bad credit score you should be able to find a bad credit lender who will lend you the money you need.

The trick to doing so is this: you do not want to just walk through the front door of any old personal loan lender and ask for a loan. Rather, you will first want to do your homework. Find a notepad and a pen. Then, start searching for personal loan lenders who make it a point to deal directly with people who have low credit (FICO) score. Take good notes so you know whom to call and who is offering you the best deals.

You see, bad credit personal loan lenders will not be nearly as hung up on your credit score as would be most lenders. While most lenders will run away screaming at the sight of a FICO score below 550, a bad credit personal loan lender will automatically see that as a challenge to try to meet or beat. By applying with them directly, you will be setting in motion their wheels, with the goal of finding a way to get you approved.

Final bonus tip: make sure that you do not limit yourself to applying to just one of these lenders. Instead, apply to at least 3-4 of them. That will increase your chances of landing the best rate.

Getting Personal Loans for Bad Credit Management: A Wise Financial Move

For many people in a financial quandary, the options available to guide them towards an improved situation can seem very narrow indeed. But there is a route that exists that can make a difference – namely, a special personal loan for bad credit management purposes, which are offered by a growing number of specialist lenders.

The chief attraction with these loans is that the old loans and their terms can be bought out, and replaced instead by one loan that is more easily repaid over a longer period of time. While fast loan approvals might be something of the past – at least in the short-term – the chance to turn the financial corner is hard to resist.

What is more, with a new personal loan that is easier to manage, there is no further damage suffered to the credit rating.

What Are These Loans?

It might seem strange that loans are available specifically to those who are already struggling to repay their loans. The principal, however, is that consolidation allows personal loans for bad credit borrowers to be used to repay the loans involved, while the borrowers have a chance to restore their credit rating.

Basically, the loan secured is used to repay the outstanding loans and debts that the borrower has, which ensures that the lenders get their money back in full. The new consolidation loan is repaid over a longer period of time, and in that way the monthly repayments are kept lower than the original debts combined. This makes the enterprise all the more affordable.

While fast loan approval may not be guaranteed, it clears away much of the pressure that a borrower is under. This has all-round benefits, so the usefulness of these personal loans is extremely clear.

Qualifying for Rescue Loans

Just like any other loan product, it is necessary for applicants to qualify for personal loans for bad credit management. A lot of things are taken into account when qualification is considered, with details of a credit report from one of the three credit agencies (TransUnion, Experian and Equifax) used to assess the terms.

For example, scores below 600 are considered to be bad, while anything between 600 and 650 is borderline. A decision by the financial company will also take into account the amount of money owed, the income of the borrower and his or her repayment history. From this information, they will be able to work out if taking on the new debt is feasible. A fast loan approval is unlikely.

The information will also dictate the terms of the loan, especially the rate of interest to be charged and how long the loan is to be repaid over. Often, these personal loans will have long lifespans so as to keep the monthly repayment sum as low as possible.

Consider Loan Security

Of course, the chances of getting approval at all are increased when security is offered as part of any personal loans, for bad credit management or specific purchasing reasons. This means that funds are available to those who can provide collateral.

Security practically removes the element of risk, and so two things happen. Firstly, fast loan approval is granted and secondly, lower interest rates are charged.

The only catch is being able to find items that match the value of the sum borrowed – something that not everyone can do. In this case a consigner is the best option, someone who is willing to guarantee monthly repayments will be made when the borrower is unable to pay. An alternative is to split the loan between secured and unsecured personal loans.