Archive for the ‘Personal Loans’ Category

Almost Half a Million Cubans Apply for Personal Loans with the new Banking Laws

The bank is struggling to meet demand for services and may open new branches in Havana and provincial capitals, Mayobre said.

Cuba’s central bank has extended 3.23 billion pesos ($135 million) in personal loans since lending to individuals began in December 2011, Communist Party daily Granma said Thursday.

The total of borrowers stood at 378,011 as of Sept. 30, Granma said, citing bank Vice President Francisco Mayobre.

President Raul Castro’s administration authorized lending to individuals as part of a package of reforms aimed at “modernizing” Cuba’s socialist economic model.

Most of the borrowers have been people wanting to build or renovate homes and small farmers, Mayobre said, acknowledging that borrowing by would-be entrepreneurs to start businesses has fallen short of expectations.

“Surveys have been done and it has become clear that self-employed workers have a lot of doubts and dissatisfaction about the work of the banks,” he said.

The central bank said it has taken steps to make the personal loans process more flexible for borrowers, such as simplifying requirements for documentation and repayment guarantees and introducing variable interest rates and terms.

The bank is struggling to meet demand for services and may open new branches in Havana and provincial capitals, Mayobre said.

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Personal Loans and Bad Credit

Stack of credit cards

One of the key determining factors in establishing the interest rate and terms of a loan and a loan’s basic availability is the prospective borrower’s credit. People with bad credit face more restrictions and disadvantages when attempting to secure a loan – and personal loans are not exempt. While having a high credit score may enable greater borrowing opportunities, people with bad credit may still be eligible for a variety of personal loans with a number of different terms and requirements.

Government data on the U.S. lending industry reveals an estimated 11 percent of loans consist of secured personal loans for consumers, a percentage that likely relies on borrowers with poor credit. By taking out a secured loan backed by equity, an automobile or other valuable possessions, those with bad credit may be able to obtain more attractive interest rates and convenient repayment plans.

Unsecured personal loans for borrowers with poor credit may also be available from some lenders, though particularly bad credit may result in less appealing loan conditions, including the maximum amount that may be borrowed. Recent interest rates for UK borrowers seeking small personal loans have reached over 20 percent, making repayment potentially challenging and forcing some loan seekers to offer collateral or seek credit rating improvement services prior to signing.

Bad credit is often a hindrance for securing an agreeable personal loan, but it does not make finding a suitable lender impossible. Whether through researching potential lenders alone, employing the services of a loan assistance agency or compromising on loan terms, borrowers with bad credit have several options for finding funding.

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How to Maintain a Good Credit Score

Girl thinking while looking upwards with hand on chin

One of the most important things that many lenders consider is your credit score, which indicates the borrower’s financial history and his or her ability to pay back debt. A bad credit score, while not a death sentence, can cause a plethora of problems when applying for or paying back a personal loan.

A credit report, though different companies can vary, usually contains the same basic information, which a lender uses to grant a personal loan. The first is the individual’s personal information; his or her name, Social Security number, date of birth, address and employment information. The second is information about all the accounts the individual has open, including auto loans, credit cards and mortgages, and the payment history for those accounts.

The third item is the individual’s history of credit inquiries, or the number of times he or she has authorized access to his or her credit score. The final piece of information is the individual’s negative items, including overdue debt, missed payments, legal suits and bankruptcies.

The first step in managing credit is to review his or her credit report and know his or her credit score, the most common of which is called a FICO score. It is important to check this report – most financial planners advise about once a year – but making inquiries more often than that can also be harmful. One of the important reasons to check this score periodically is to check for any errors and also for evidence of identity theft.

An individual can check his or her credit score in three ways: online (for free) at annualcreditreport.com, by calling 877-322-8228 or by mailing a request form to Annual Credit Report Request Service at P.O. Box 105281, Atlanta, GA 30348-5281.

There are a number of simple measures an individual can take to maintain or improve his or her credit.

Some actions to avoid regarding your credit include opening multiple lines of credit in a short period of time, short selling a home, cosigning on someone else’s debt – especially if they stop making payments, consistently paying only the minimum payments on credit card bills, requesting his or her credit score too often and applying for cash advances from a credit card. These actions may not significantly reduce the borrower’s actual credit score, but they stand out as alarm bells for potential lenders.

To maintain a good credit score, good financial practices are usually sufficient. It is important to pay bills on time, keep outstanding balances low on credit cards, pay off debt and keep on top of all accounts.

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Line of Credit vs. Personal Loan

Red apple and green apple

When a borrower is in need of cash fast, there are many options – two of which are a line of credit and a personal loan. Both offer money when it’s needed from a private lender like a bank, but each has its own benefits and consequences and fits a different personal situation.

Borrowers should remember that if they need to purchase something but don’t have the money up front, the first and easiest option is charge the amount on a credit card. This option is only viable, however, if the borrower knows he or she will have the money to pay this charge back when the credit card bill comes. If this is not the case, there are other options.

A personal loan – which can be secured or unsecured by an asset – allows the borrower to take out needed funds in a timely manner, as most will authorize funds on the next day. It offers a fixed term and a fixed rate, making repayment relatively simple. The borrower must pay back the loan in full.

With an unsecured personal line of credit, the individual can borrow funds as he or she needs them. The borrower and the bank from reach an agreement to determine the maximum amount on the loan. Then, the borrower can take out this money periodically during the term of the line of credit without having to reapply for the loan. These loans may have a lower interest rate than credit cards but this rate can still be on the higher side – although these rates are lower with a better credit score.

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Understanding Your Credit Score

Magnifying glass over words "Credit Score"

Credit scores represent how much of a credit risk borrowers are to lenders. Particularly for unsecured loans, like personal loans, a borrower’s credit score must meet a lender’s expectations.

Credit scores are determined from information held by several credit bureaus, but are congregated into a single report by a company called Fair Isaacs Corporation, more commonly known as FICO.

FICO is the creator of a complex algorithm that determines the risk an individual poses to lenders. Unfortunately, that algorithm is kept under lock-and-key and is constantly changing, so nobody outside the corporation knows the exact factors that cause borrowers’ scores to rise or fall, but FICO has provided some general hints as to how scores are determined.
 
There are five main factors:

  • Payment history (35%)
  • Current debt (30%)
  • Length of credit history (15%)
  • New lines of credit (10%)
  • Types of credit used (10%)

 
Each of these factors contains many facets FICO considers when determining how to rate an individual.

Payment History

A person’s past carries the most weight when determining how risky that person will be when it comes to financing in the future. When considering how creditworthy an individual is, FICO looks at individuals’ rate of delinquency, duration of all delinquencies and their ability to remedy a delinquency.

Current Debt

The amount individuals owe when compared with their account balances can negatively impact their score because FICO has to assume an individual can only handle so much at any given time. Consider two similar individuals making the same out of money. Both apply for a loan, but one of those individuals has a large existing auto loan while the other does not. In FICO’s eyes, the one without any debt would be more capable of paying off a new line of credit, and thus may earn a higher score.

Length of Credit History

FICO likes to use the past to measure the future. If FICO is scoring a young 18-year-old teenager with an established job and salary, FICO will still take its lack of knowledge of the teenager into account. After all, the teenager has yet to prove to the financial world how responsible he or she is when it comes to making good on a debt.

New Lines of Credit and Types of Credit

The number of newly opened accounts an individual has draws the attention of FICO, and usually in a negative light. It may seem like a person ought to receive a benefit if they have many lines of credit open while still making good on their debt, but FICO sees those individuals as risks. Like the length of an individual’s entire credit history, new lines of credit have yet to be tested in the eyes of FICO.

The types of credit somebody has also carries weight. A credit card from a clothing store (or multiple cards at that) is not as telling as a home mortgage. Likewise, taking out many high-risk loans, or carrying a balance on many credit cards simultaneously (despite paying those balances off on time) raises FICO’s red flag.

All five of these factors are considered by FICO, and your score is being constantly updated. If your score is lower than you’d like, or in the event it drops, it is still possible to raise your credit score. With the right knowledge, motivated commitment, and hard work, anybody can climb upwards on FICO’s credit ladder.

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Financing a Small Business

Sapling growing in palm of hand

There’s a common saying that goes, “It takes money to make money.” While most do not have access to large sums of cash before attempting to start a business, there are a few routes available to entrepreneurs who hope to establish the necessary funds required to make money.
 
Equity Financing or Debt Financing
 
The first decision a young business owner must make is what kind of financing he or she will use for starting and maintaining their small business. The two most viable options are equity financing or debt financing.
 
Equity financing allows small business owners to acquire money in exchange for shares in profit that the business will make. This allows a small business owner to obtain financing without incurring any debt.
 
Equity financing is usually only available through non-professional private investors—friends, family, employees, and customers. But there are those who call themselves venture capitalists, or professional equity financers, who may opt to fund an emerging small business. Venture capitalists are rare though and must be presented with good evidence that a business will succeed before they take the large risk of offering investment money.
 
When investors are not available, as common for most brand new business owners, debt financing usually proves to be the most viable option. Debt financing is the category that personal loans fall under: money that is lent to an individual or organization that must be paid back with interest.
 
Small business personal loans can come from a variety of sources. These sources usually include banks, credit unions, and the government. The Small Business Administration (SBA) is a government agency that guarantees loans on behalf of business owners. This alleviates some of the risk for lenders and encourages them to issue money to these small and growing businesses.
 
In addition to government guarantees, these personal loans are usually also secured by a company’s assets. Additionally, they often require a borrower’s personal guarantee in order to qualify. In the event of default, the company’s assets will be used as collateral, and if those assets do not satisfy the cost of the loan, the borrower will be pursued. This ensures the small business owner is serious about his endeavor, and justifies the lender’s risk of issuing money to a stranger with a dream.
 
Food For Thought
 
Before applying for a small business loan, borrowers need to be sure of their business plan, and they must be sure of their chance for success. To help owners with this decision, the SBA has offered a variety of questions to consider before taking out a personal loan for a small business:

  • Can your business repay the loan?
  • Can you repay the loan if your business fails?
  • Does your business pay its bills?
  • Are sales growing?
  • Are profits increasing?
  • Do you have strong competition?
  • What does your business’s future look like?

 
These questions are meant to help a business owner determine their ability to pay back a loan. If one’s vision of the future is optimistic and they see their business growing, then a personal loan may be the perfect tool for jumpstarting their business’s growth and profit-making potential.

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Ready Yourself for Holiday Spending

Piggy bank with Santa hat

Consumers are gearing up for the holiday season. They are not only looking forward to time with friends and family, holiday meals, and vacation time, but they’re also excited to give presents to their loved ones. As a result of the gift-giving cheer Christmas and other holidays bring, the month of December, for many, proves to be very expensive. According to the American Research Group, shoppers spent nearly $ 650 on Christmas gifts in 2010. Unless consumers have been setting savings aside for the holiday season purchases, they may find themselves short of cash. Luckily, there are a few paths to take in order to circumvent any lack of cash-on-hand. Credit cards are always a quick and accessible option. Charging gifts on credit allows consumers to “buy now, and pay later,” which is an excellent option for those without adequate savings to get through the holiday season. However, this also creates a potential pitfall, in which borrowers may subject themselves to compounding interest rates if those cards aren’t paid off in a timely manner. If a shopper would rather fixed interest rates and payments, or doesn’t have a credit card, they may want to consider a personal loan. A Safe and Fixed Payment Plan Small personal loans can be taken out by any with decent credit, and can help arm shoppers with cash-on-hand for their holiday shopping expeditions. Personal loans are good for those without any collateral, as they can be issued to borrowers in a completely unsecured manner. Granted, unsecured personal loans tend to come with higher interest rates, but they can still prove to be better options than credit cards if a borrower doesn’t believe they will pay a credit card off before the amount compounds. That is because personal loans are loans with fixed payments and fixed interest rates. Your monthly payments remain constant, and the loans will amortize by the time the agreed-upon term has been fulfilled. For those insisting on receiving lower interest rates, consider a secured personal loan. Secured personal loans are guaranteed by collateral or a co-signer, resulting in reduced risk for the lender and a reduced interest rate for the borrower. Shop Responsibly Once qualified for a personal loan, shop away. Borrowers need only to remember to shop within their means. It’s never a good idea to carry long-lasting debt over material purchases that are not an absolute necessity… despite all the smiles that would be made as a result. Be realistic about what you can afford and how long you want to be making payments that spawn from holiday expenditures. It’s not necessary to over extend your personal finances or condemn yourself to six months of repaying a personal loan (and definitely not on a compounding credit card bill) all as a result of the holidays. Rather, remember what the season is about. Enjoy this time of the year, spend some time with friends and family, and let the gifts just be something on the side.

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Borrowing From or Loaning to Family Members

Piggy bank family

When big banks and traditional means of lending fail borrowers, or when one desires to avoid the paper work and strict lending practices of institutions, there is often another route to obtain money: loved ones. But the decision to borrow money from a family member (or loan money out to a family member) is not a decision to take lightly. In fact, this form of lending may come with even more strings attached than traditional personal loans—and the repercussions can be far more irreparable than credit scores.
 
Take a Look at the Current Market
 
Whether borrowing or lending, the current market rates can be a significant tool for family members to make sure they are not getting ripped off.
 
Interest rate reports, current tax conditions, and a study of what the borrowed money is needed for can help any family member determine how much to lend and at what rate. More often than not, family will try to provide a deal for their loved ones, so charging lower interest rates than traditional lenders could prove to be very helpful.
 
That being said, family members who are issuing a personal loan need to make sure they are protected: charge an interest rate that is realistic for the borrower’s financial circumstances. Also, only issue an amount that the borrower can feasibly pay back. There is nothing worse than a family feud over monetary matters.
 
For the borrower, market research is crucial so they know whether or not they are being ripped off. It may not even be a deliberate move, as not everybody is financially up-to-date, and family may offer rates to borrowers that they believe are correct, or simply “remember” were correct. Borrowers are responsible for protecting themselves by becoming educated.
 
The use of an online personal loan calculator can be invaluable when determining affordability at various rates.
 
Think of an Appropriate Term
 
The next step is determining how long the money will be borrowed for. A family borrower may try to stretch themselves in an attempt to repay debt quickly since they’re dealing with a family lender, but this may not be a wise move. Borrowers must propose a realistic term with a well-planned payment schedule—one that they know they can afford and pay off.
 
For the family lender, it’s their responsibility to keep their borrower down-to-earth when it comes to a payment plan proposal. Don’t allow a borrower to take a loan out longer than they would be allowed to at a bank. On the same token, don’t allow a borrower to stretch themselves thin.
 
Work together and come up with a healthy, realistic loan term.
 
Put it in Writing!
 
After agreeing upon a personal loan amount, interest rate, and term, then it’s time to draw up a contract.
 
This is not a step to miss, so it needs to be said again: make a contract.
 
Just turn on a mid-day television show featuring judges solving disputes between friends and family members. They all echo the same sentiment: “Don’t lend money without putting it in writing.” God forbid an argument arises between family members over lent money, but if it does happen, having a signed contract will be helpful in not only solving the dispute, but also in saving the relationship. Families are there to help, love, and provide support. They’re a strong bridge, and one that shouldn’t be burned over trivial monetary matters.
 
Consider an Alternative
 
Maybe a family member doesn’t have the credibility to risk lending money to, or maybe a borrower doesn’t have financially able family members to borrow from. If this is the case, fortunately there are alternatives. Banks and credit unions offer personal loans and installment loans. If neither of those are viable options, then payday lenders are usually willing to lend to those with even the worst of credit.
 
Just remember, family tends to be more forgiving than banks when it comes to delinquencies. However, the ultimate repercussion from defaulting entirely on a loan may result in something much more severe when dealing with family.

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Dealing with Debt Collectors

Man stressed out on phone

One of the most annoying types of phone calls is from debt collectors. Whether the collector simply harasses a debtor or resorts to full blown threats, the interactions between debtor and collector are rarely pleasant ones. But what collectors don’t want the public to know is that a personal loan debtor (or those holding any sort of loan) has much more power than he or she usually realizes. Debtors need to be aware that they can put an end to many of the tactics collector’s use to squeeze money from defaulted borrowers.
 
Stop Calling Me
 
From calling upwards of 10 times a day to threatening to call the police to place a debtor under arrest, collectors use the phone to best of their ability. More often than not, a collector uses these tactics in order to break the will and force payment from a personal loan debtor. But repeated calls, offensive language, and threats are all illegal when it comes to debt collection methods.
 
Since they’re illegal, consumers can put a halt to such actions, and even make a collector cease all contact, with a simple written letter.
 
If a collection agency ignores the written instructions to stop contact, a consumer can sue the agency for breaching federal law. Smartmoney.com interviewed Robert Hobbs, deputy director of the National Consumer Law Center, who said statutory damages of $ 1,000 can be awarded in addition to legal fees in the event a debtor sues a collector who continues contact after being served a written notice to stop.
 
Wage Garnishment Requires Permission
 
In most cases, before debt collectors can reach into the bank accounts of personal loan debtors and intercept incoming checks, they must receive permission from the debtor.
 
Social Security, veteran’s benefits, disability checks, and, in some states, unemployment benefits are all protected from wage garnishment as a result of loan default.
 
But that doesn’t stop collectors from claiming they’ll begin tapping into those sources of income unless they receive payment immediately. As Jan Jones of the Alaska credit-counseling service explained to Smartmoney.com, “When you don’t know that that’s not possible, you’re going to do whatever you have to do to prevent that from happening.”
 
Before granting collectors permission to garnish wages, borrowers should be aware that most collectors aren’t able to touch that money unless expressly allowed by borrowers themselves.
 
Be Aware of the Statute of Limitations
 
Barring student loans, many different kinds of personal loans have a statue of limitations. In other words, if a consumer defaults on a personal loan and a collection agency doesn’t collect on the defaulted loan before a certain period of time elapses, then the loan can no longer be pursued through legal means.
 
However, collectors will try to trick consumers by calling and simply demanding a very small payment for the debt. If the borrower pays any amount (regardless of how small) towards the expired debt, then the loan’s statute of limitations clock is restarted, and the borrower may open themselves up to legal repercussion again.
 
Consumers can protect themselves against this practice by educating themselves on the statute of limitation laws in their state. State-specific attorney general websites can provide more information regarding the time limit associated with various lines of borrowing.
 
Record and Write
 
In order to ensure self-protection, borrowers need to learn to record every interaction they have with collectors, and get everything in writing.
 
If a collector calls a borrower, that borrower should document the time of the phone call, the name of the called, the nature of the call, any threat used, and the collection agency’s name. Having a written record of all of this information will prove to be invaluable in the unfortunate event a lawsuit comes to fruition.
 
Whenever an offer or declaration is made, make sure it’s in writing. If a borrower wishes for a collector to stop making phone calls, write a letter and send it via certified mail. If a debt collector agrees to change the terms of monthly payments or reduce loan principal, make sure to have a written receipt of the agreement and terms. Don’t ever rely on oral promises.
 
By following this advice, borrowers can avoid some of the common pitfalls and tricks collectors try to pull on the unsuspecting and uninformed.

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Dealing with Debt Collectors

Man stressed out on phone

One of the most annoying types of phone calls is from debt collectors. Whether the collector simply harasses a debtor or resorts to full blown threats, the interactions between debtor and collector are rarely pleasant ones. But what collectors don’t want the public to know is that a personal loan debtor (or those holding any sort of loan) has much more power than he or she usually realizes. Debtors need to be aware that they can put an end to many of the tactics collector’s use to squeeze money from defaulted borrowers.
 
Stop Calling Me
 
From calling upwards of 10 times a day to threatening to call the police to place a debtor under arrest, collectors use the phone to best of their ability. More often than not, a collector uses these tactics in order to break the will and force payment from a personal loan debtor. But repeated calls, offensive language, and threats are all illegal when it comes to debt collection methods.
 
Since they’re illegal, consumers can put a halt to such actions, and even make a collector cease all contact, with a simple written letter.
 
If a collection agency ignores the written instructions to stop contact, a consumer can sue the agency for breaching federal law. Smartmoney.com interviewed Robert Hobbs, deputy director of the National Consumer Law Center, who said statutory damages of $ 1,000 can be awarded in addition to legal fees in the event a debtor sues a collector who continues contact after being served a written notice to stop.
 
Wage Garnishment Requires Permission
 
In most cases, before debt collectors can reach into the bank accounts of personal loan debtors and intercept incoming checks, they must receive permission from the debtor.
 
Social Security, veteran’s benefits, disability checks, and, in some states, unemployment benefits are all protected from wage garnishment as a result of loan default.
 
But that doesn’t stop collectors from claiming they’ll begin tapping into those sources of income unless they receive payment immediately. As Jan Jones of the Alaska credit-counseling service explained to Smartmoney.com, “When you don’t know that that’s not possible, you’re going to do whatever you have to do to prevent that from happening.”
 
Before granting collectors permission to garnish wages, borrowers should be aware that most collectors aren’t able to touch that money unless expressly allowed by borrowers themselves.
 
Be Aware of the Statute of Limitations
 
Barring student loans, many different kinds of personal loans have a statue of limitations. In other words, if a consumer defaults on a personal loan and a collection agency doesn’t collect on the defaulted loan before a certain period of time elapses, then the loan can no longer be pursued through legal means.
 
However, collectors will try to trick consumers by calling and simply demanding a very small payment for the debt. If the borrower pays any amount (regardless of how small) towards the expired debt, then the loan’s statute of limitations clock is restarted, and the borrower may open themselves up to legal repercussion again.
 
Consumers can protect themselves against this practice by educating themselves on the statute of limitation laws in their state. State-specific attorney general websites can provide more information regarding the time limit associated with various lines of borrowing.
 
Record and Write
 
In order to ensure self-protection, borrowers need to learn to record every interaction they have with collectors, and get everything in writing.
 
If a collector calls a borrower, that borrower should document the time of the phone call, the name of the called, the nature of the call, any threat used, and the collection agency’s name. Having a written record of all of this information will prove to be invaluable in the unfortunate event a lawsuit comes to fruition.
 
Whenever an offer or declaration is made, make sure it’s in writing. If a borrower wishes for a collector to stop making phone calls, write a letter and send it via certified mail. If a debt collector agrees to change the terms of monthly payments or reduce loan principal, make sure to have a written receipt of the agreement and terms. Don’t ever rely on oral promises.
 
By following this advice, borrowers can avoid some of the common pitfalls and tricks collectors try to pull on the unsuspecting and uninformed.

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