What you Should Know Before you Borrow Money by Patty Baldwin and Lori Chambers - HTML preview

This could also be to your advantage because they may be more willing to work with you seeing as you are one of their customers.

There are mainly two different kinds of loans, long term and short term, which is the amount of time required to pay back the loan. Long term would be for larger purchases like a home or business. Short term normally would be for a smaller amount like a car loan or inventory for a small business.

There is also secured loans and unsecured loans usually known as a signature loan. The secured loan would require that you put up something of value for collateral in the event that you were to default on the loan. Then they could seize the collateral and recoup the loss. An unsecured or signature loan most often requires that you have good credit and the bank trusts your track record when making the loan.

Sometimes, depending on your credit the bank may ask for a cosigner. A cosigner is someone who is being asked to guarantee the debt. Usually it is someone close such as a family member or a friend. This can be a good way for someone to build their credit if they don’t already have any. Many people do this for a child getting their first car loan.

You want to be sure that the cosigner understands the terms and conditions of the loan.

They will want to be sure that they can repay if the borrower were to default. We would recommend that if you choose this option that you would repay the debt.

Finance Companies

Finance Companies usually charge higher interest rates but are generally known to be more willing to take a risk than a commercial bank. Finance Companies aren’t as regulated as the big banks giving them more room to negotiate. The main reason is that a finance company unlike a bank does not receive deposits from the public. Another Copyright © 2005

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important thing to know when considering a loan especially for a business is that when you sign up for other programs they offer like payroll or accounts receivable management, they are more likely to offer a lower interest rate.

Credit Card Companies

There are pros and cons to borrowing money using a credit card. Credit cards are so easy to get these days but if you don’t do your homework you could be paying back many more times than what you borrow. When you are looking into different credit card companies you want to read the “fine print”. There are some companies that can actually raise your interest rate as much as 1.5% if they see a “derogatory” credit report on your record and many see any check as derogatory. An example would be if you apply for a new car loan and part of the process would be a credit check, the credit card company could very well see this a “derogatory” report and bump up your interest rate. Many people don’t know this and why it is also very important to check your statements every month.

One of the things you will want to find out is the APR or the Annual Percentage Rate which will generally be expressed as a yearly rate. This can vary greatly from card to card. The other term you will see is the “periodic rate” which is the rate applied to any outstanding balance which figures the finance charges each month.

The cards that offer a “variable rate” are cards in which the Annual Percentage Rate can raise or lower when interest rates change. This could be a good thing or a bad thing depending on your own situation. There are some cards that also have a “grace period” in which no interest is applied if you pay your bill in full before the due date. So if you need money and intend to repay it quickly this could be a plus especially since there are cards that can actually earn interest instead of paying it. Some card companies actually offer money back on each dollar you spend a month.

Credit cards can have many different fees and charges so you need to check them all out and make sure that you understand them before you finally choose the one for you.

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The bottom line is you need to shop around before finally picking a lender and the best loan for you. Some things to remember are:

• Know whether you want a loan or a line of credit

• Talk to several different lenders, banks, savings and loans, credit unions and mortgage companies

• Pay attention to the fees. The lowest monthly payments aren’t always the best option. You could end up paying more in the end.

• Always ask the lender to explain the loan in full detail

The Pitfalls of the % APR Credit Card

People used to think that they had enough on their benefits with their credit cards. They thought that the rewards they get and the low interest they have is already enough to last a lifetime.

However, there are instances when they get to have the chance of seeing promotions like 0% APR. Now, this is really something. But the question is, is it true? Is there a great probability that credit card companies can actually offer a 0% APR?

For most financial experts, they contend that it is, indeed, possible. In fact, credit card companies would definitely go for this kind of scheme just to get the consumers on their hook.

That sounds too good to be true, indeed. But the question is how come they can offer something so good just like that?

Normally, 0% annual percentage rate or APR lasts only for 6 months. The countdown starts from the day the credit card is claimed.

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In most instances, 0% APR are attractive to people who would want to have a balance transfer. This is because they would want to consolidate all of their debts into one payment only. And because they have a huge pile of debt, they would rather go to a credit company that can offer them lower interest rates.

With things like 0% APR credit card, who can resist them?

Moreover, with the 6-month timeframe, people will get to have the chance of paying their standing debts for a whole six month-period only. That would be a lot of savings.

But then again, 0% APR credit cards are not at all beneficial to everybody. As they say, there is always an exception to the rule. This refers to those who do not accumulate interest charges simply because they have outstanding balance. So, they wouldn’t feel the necessity of getting a 0% APR credit card.

The best credit cards for these types of people are those that offer rewards and cash backs instead of lower rates.

All of these boil down to one point, that people must be aware on how these wonderful offers can provide them the benefit that they want.

Online Credit Card Application:

the Easiest Way to a Customer’s Heart

Many credit cards are offered in the market today thus, making companies more aggressive in advertising and marketing their card services. These companies (e.g. banks, department stores, specialty stores, airlines, hotels, etc.) have found a powerful tool in catching the attention of prospective cardholders: online credit card application.

What advantage/s does an online credit card application offer?

The bottom line of online credit card applications is “convenience”. Online application is a dream-come-true to future cardholders. Imagine not having to queue in long lines just to have a credit card approved. No travel cost just to get to the card company’s office.

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Since everything is computerized and automated, processing of the application is faster and more efficient.

What is/are the drawback/s of online credit card application?

The major drawback in applying for a credit card online is Internet security: computer hacking makes identity theft possible. Make sure that online application is done through a trusted and secure computer.

Do credit cards applied for online offer additional benefits?

No, basically all the services and benefits are the same. Here are some of the benefits given to cardholders and future members:

1.

Airline miles

2.

Cash back

3.

Business

4.

Retail

5.

Shopping

6.

Rewards

How does one apply for a credit card online?

Online credit card application is very straightforward. Just follow the directions as prompted. Credit card companies have their respective web sites, which are easy to search in the web. Just type the name of the bank, department store/specialty shop, or airlines and add the key words “online credit card application”, and the computer screen will display the search results as well as the URL.

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Here are some other reminders when applying for a credit card online: 1. Determine your need for a credit card: travel, grocery, and business.

2. Assess your earning capacity and compare this against your needs.

3. Look around the web for the credit card that matches your needs.

4. Check out the following information about your prospective credit card company through the Internet:

5. Application fee. Some companies do not charge for applications.

6. Interest per month. Of course, choose the one with the lowest financial charges.

7. Benefits/Rewards/Advantages. These can sometimes spell the difference between good and best credit cards.

8. Disclaimer. This states additional limitations and/or scope to the credit card; make sure you read this.

9. Application requirements. This is to ensure that all necessary personal data and information are available to you when you do the actual online application.

10. Apply for a credit card online through a secure, trusted, and private computer, never from a public computer.

Indeed, there are lots of rewards and 0% APR credit cards out there. But if it will not work for those who do not really them because of the mentioned situations, then it’s best not to have them at all. Besides, the best 0% reward is not to have a credit card at all.

Cash It Back with Credit Cards

A cash back credit card gives annual rebates or gives back money to the card holder based on how much have been purchased with it. This type of credit card is suitable for Copyright © 2005

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those who rarely use cash in their transactions. The rebate is computed as a percentage of the total amount charged to the credit card in a year. Usually, rebates are between 1-2%.

Some can even go as high as 3%.

Are rebates always in the form of cash?

Strictly speaking, cash rebates should be in the form of cash. But now that card companies are diversifying, rebates may now come in the form of gift certificates and discount coupons. This somehow blurs the line between and among the different types of credit cards mentioned in the first paragraph of this article.

Some cash back credit cards offer upgrading of membership status, which allow their members more discounts and gifts during anniversaries and holidays like Christmas and birthdays. Moreover, some credit card companies also have partnerships with other consumer products that entitle their members to add product discounts in future purchases.

What banks offer cash back credit cards?

There are many banks that offer cash back credit cards in kind. They usually have a rewards program for members wherein cardholders receive gifts and discounts courtesy of partner product companies; discount coupons to hotels, restaurants, specialty stores; and travel miles for non-travel purchases. Below are some banks that offer cash back benefits.

1.

Citibank

2.

Chevy Chase Bank

3. HSBC

4.

Royal Bank Avion (Canada)

5.

Standard Chartered Bank

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Are cash back credit cards offered only by banks?

No. Since business establishments are innovating their services and benefits for their customers, some of them offer cash back to their loyal customers e.g. Discover Card (Discover Magazine). Aside from giving book and magazine discounts, airline miles are also offered by Discover Card. Big grocery stores such as Kroger’s, Wal-Mart, and Bi-Lo offer cash back but in the form of cash certificates and discount coupons.

How does one get a cash back credit card?

Since almost all credit card companies (e.g. banks, stores, airlines) offer cash (or in kind) back benefits, all that has to be done is to file an application in any of their office or stores, or signup online by visiting their web sites. Just be a word of caution for online applications, make sure that the transaction is made through a secure Internet connection since identity theft has become rampant with the advent of credit card use.

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Borrowing Money For a Business

When you need to borrow money to start a new business or fund an existing one you have all of the options we have discussed thus far as well as several others. Now we will go into some of the other options you have for borrowing money when it is for your business. They range from investors to government lending programs.

Leasing Companies

When you need money for your business a leasing company might be a good alternative to a traditional loan. Leasing companies will allow you to rent the assets you need as opposed to borrowing the money to rent them. This could mean lower monthly payments.

Private Investors

When you need money for a business, it may sometimes be beneficial to look into the option of finding an investor or partner. This could range from a family member to a close personal friend to anyone who has a common interest in your business.

There are networks of wealthy individuals called “Angels” who look to invest in companies just to increase their wealth. You want to find someone who has an interest in your venture. Apple Computers and Intel are examples of businesses that were helped by

“Angels”. They range from people who just want to do good to friends or neighbors who want to invest hoping you will be wildly successful. You can find these “Angels” through referrals from accountants or attorneys as well as non-profit angel networks. There are also web sites that search for angels to match with the prospective business owner. We would recommend that you do your homework on this option if you are looking to start a business because it is becoming more and more popular.

State and Local Government Lending Programs

There are state and local programs that will provide capital or support and even loans for some small businesses just to foster the economic development of some areas. The terms Copyright © 2005

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will usually be regulated by the state or local agency. You just need to check with your own state or local government agency.

Partnership

Sometimes when you need money to start or sustain a business finding a partner to invest may be an option for you. A partnership usually means that one or more investors would jointly own the company with you. You would have to be willing to share the profits and the losses with someone else. Some partners will want to be involved in the day-to-day business and some will not. The best place to look would be someone with a common interest as you, possibly someone with a business similar to yours. We would recommend that before you go into business with a partner you have something in writing so that both parties understand the terms and agreements of the loan and the liabilities be spelled out clearly.

We have discussed several different options where you can go to get a loan and depending on your own situation one of them may be right for you. In the next chapter we are going to go over how to apply for a loan. Sometimes this can be the most stressful part of the loan process but it doesn’t have to be. We will attempt to break it down and hopefully take away some of the stress. The more you know about the whole loan process the better off you will be.

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How Do I Apply for a Loan?

We have already discussed all the reasons you might need to borrow money and the different types of loans available as well as all the options of where to go to get the loan.

Now we are going to get into how to apply for a loan. The first thing you need to decide is exactly how much money you need. You don’t want to ask for too little or too much.

So the first step will be how much money do I need? There are also different plans when borrowing money for a business compared to a home loan or vehicle loan.

We will start with the business loan.

Business Loan

Although we just discussed borrowing money for a business, we’ve includede additional tips that will help you prepare.

You will definitely want to be prepared when you walk through the doors of a lending institution.

Be prepared to show three consecutive tax returns, financial statements for the business.

They may also want to see balance sheets, profits and loss statements, accounts receivable, debt schedules and projections for the next 12 months.

The lender may even want to see a Business Plan. Normally you will be assigned a loan officer and you will have to go through an interview.

These are just a few of the questions you may want to be prepared to answer:

• How and why did you decide to start or buy this business?

• Do you have any personal experience in the business?

• Are you planning to change the business and if so why?

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• If you are buying a preexisting business, why is it being sold?

• How was the purchase price determined?

• Is the inventory outdated?

• What are the terms of the lease if there is one?

• Do you need a license and will it be in your name when you purchase the business?

You will also need your employment details, details of any outstanding loans or credit commitments as well as banking details. This is where the 5 C’s of Credit come into play.

They are:

• Character- does the business and yourself have good credit

• Cash Flow- Is the business profitable

• Collateral- Do you have collateral if it’s needed? Be prepared to be asked to put your home up for collateral.

• Capital- Be prepared to put 10-20% for down payment. Normally it cannot be borrowed money.

• Conditions- Prepare to discuss the local economy, competition and the future of the business.

Home Loans

Home loans are different than business loans. There are many different loans that you can get and depending on your credit many different options. Most home loans go off a debt to income ratio so you may not know how much home you qualify for and different loans have different debt to income ratios. We are going to start with assuming that you have Copyright © 2005

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good credit and you are ready to buy a home. You can call any lending institution and simply tell them that you have good credit and ask them what would be the best interest rate they could give you.

Now once you have shopped around and finally decided where you want to go to get your loan you will have to go in and meet with a loan officer. They will have you fill out a pre-approval for a loan application and within a day or two be able to tell you how much money you qualify for to buy a home. Basically what they do is just get your credit score not your whole credit report.

After you have been pre-approved for a loan of a certain amount then you can go and shop for your new home. Maybe you have already found it and if so great then you can move on to the next step. If not, loan pre-approvals are usually good for six months so you have time to find a home. Once you have found your home that you want to buy you will have to go back into the lending institution and fill out a formal loan application.

The formal loan application means that the lending institution will ask you to sign for them to run your full credit report. We have already discussed this in detail but what it means is that the lending institution will be able to see everything about your credit. How you pay your bills and every late payment will be documented on the credit report. It also helps the lending institution to see what type of loan you qualify for.

They may come back to you and tell you that you can have the loan with contingencies.

They may want you to pay off a credit card debt or be on time with a certain bill for some amount of time. Usually the loan with contingencies will be good for up to six months. If your credit is decent the lending institution will usually work with you any way they can because they want your business. After all this has been taken care of the next and final step will be the Closing. The lending institution will usually schedule the closing with a Closing Company.

The closing is the date in which you actually buy the house. Papers will be signed and the money will switch hands. Some of the things that you may want to be prepared to have are the escrow money, which is the money for the down payment.

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You will also want to be prepared for some of the closing costs and what they are.

• Origination fee

• Appraisal fee

• Fee for the deed

• Taxes

• Mortgage Insurance or proof of insurance

• Survey fees

• Inspection fees

• Document preparation fees

These are just some of the things that can be included in your closing costs and depending on the contract the seller may actually pay up to 3% of the closing costs. You will want to do your homework and familiarize yourself with some of these terms when buying a home. It can only be to your benefit and it won’t take a lot of time.

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Cleaning Up Your Credit

If you have ever applied for a loan, credit card or insurance there is a file on you. This is known as your personal credit report. It is full of information on where you live, how you pay your bills and whether you have ever been sued, arrested or filled for bankruptcy.

Your credit report is used to evaluate applications for credit, insurance, leases and even employment.

Good credit means better loans and lower interest rates and lower interest rates generally mean lower monthly payments. People generally know if they have good credit or not even without the report in hand, but it would be recommended that you get a copy of your report and check for things that you may have forgotten about and just to see if there are any mistakes because mistakes on credit reports do happen.

Even if your credit score is low and the report isn’t so great it can be “cleaned” up.

Something that you need to keep in mind is that after you have gotten on the straight and narrow and cleaned up your credit, it generally needs to stay that way for up to 12 months before you can get a loan. So if you are just getting started it may take up to 18 months before you can qualify for a loan.

Your Credit Report Can Be

The Envy Of All Your Neighbors!

Sometimes, by the time you find out that there is such a thing as AAA credit, you don’t have it anymore. It is possible to repair your credit once things have gone wrong and reestablish credit at that level, but beware of gimmicks. There are the obvious options of bankruptcy, credit counseling, and debt negotiation in order to get your credit cleaned up.

Those are viable options, but you may be disappointed to find out that they will take some time to reestablish your credit rating—sometimes years. Many people try and bypass these common sense methods and instead turn to the plethora of books and videos that promise to give you an “AAA Credit Rating in 30-Days.” They make promises of credit ‘secrets,” and amazing tricks that they will share with you—for a fee.

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Unfortunately, all of these are either scams, or someone packaging and selling information that’s available for free. In short, if your goal is to reestablish AAA credit, it might be best to take the long road instead of the quick fix.

If you are just starting out with a clean slate and want to build fabulous credit and keep it, the first thing you’ll need to do is to set up a checking and a savings account. Points will be deducted from your score if you don’t have them. If you don’t have any credit history, begin by getting a credit card that has a manageable limit and low interest rate. Secondly, don’t borrow more than you can pay back. As you begin to use credit cards, which are an excellent way to build AAA credit, make sure you don’t go over credit limits or keep balances too high.

Eventually, you will want to own two to four cards. This will help your score because it shows lenders that you are mana