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Saving Money: How A Secured Loan Could Help

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how secured loans can help a savings plan

Saving money and taking out loans does seem like contradictory actions, but it is possible to achieve both at the same time. Loans and credit are often associated with financial hardship and a time when money might not be readily available. This is not strictly true, there are times when taking out a loan or putting a payment on a credit card could be tactical and actually help you save money in the long run.

We are looking at when a secured loan could save you money and how best to use them to exploit the biggest benefits and the biggest savings!

What Is A Secure Loan?

A secured loan is a source of credit that is secured by an asset. This means that any money that is borrowed, is done so against an asset which is most likely a property. This means that it is less risky to lenders and they are more likely to offer lower loan rates, ultimately saving you money on the cost of a loan. A secured loan does usually have a minimum threshold though, some lenders start at $15,000 minimum but it’s more likely to be about $25,000. Caps on the amount that can be borrowed are really quite high but will be subject to the value of the asset you are willing to make available. This could be anywhere up to $100,000.

Many might get a secured loan thinking it is safer than other financial products. This is actually a little mis-led because, as with all financial commitments you may make, there is risk involved. Voluntarily putting the equity in your house up to secure a loan means that if you miss payments and default on the loan, the creditor will make a claim on your house. The penalties for missing or late payments, and the threshold for when a creditor has the right to claim your asset, will differ from lender to lender. Some creditors may be more strict than others and it may be worth comparing the best secured loans companies to ensure you feel confident with your agreement.

Don’t fret too much if you know you are not going to be able to make your repayment dates, as long as you contact the lender as soon as you are aware of this. FCA regulated lenders (which all the best secured loan lenders will be) are required to follow protocol and may be able to provide advice to help you get a grip on your finances. Moreover, when you are dealing with the financier directly, they could work to arrange alternative repayment dates that suits your financial situation a little better. This might be just after payday, for example, rather than half way through the month.

What Can Secure Loans Be Used For?

Secured loans are flexible financial products that can be used for almost everything a personal loan can be used for, but with the added benefit of having higher borrowing limits and providing borrowers with access to even more cash when they need it.

Transferring Unsecured Debts

Just like an unsecured personal loan, a secured loan can be used for debt consolidation. This means that you can transfer multiple debts into one place, making them easier and tidier to manage. There are so many benefits to using a secured loan in this way:

  • Transferring your debts into one place helps you save money as you are less likely to incur multiple late fees and other costs as multiple debts are hard to keep on top of.
  • Secured loans are typically available for lower rates and are cost-effective for debt consolidation because they could work out so much cheaper throughout the duration of the loan, when compared to the cost of multiple other loans.
  • The high borrowing limit means you are likely to be able to transfer all outstanding debts and just owe the one creditor, rather than several. Standard unsecure loans might not be enough to cover outstanding debts.

The risks should not be totally disregarded but shopping around for the best secured loan rates and being confident that you can meet the repayment schedule as agreed will not put any of your assets at threat.

Home Owner Loans & Home Improvements

Secured loans are sometimes referred to as a homeowner loan. This is because the most common asset that is put up is the equity that you own within your property. Moreover, one of the most common reasons people take out a secured loan is so that they can spend the money on home improvements, home repairs and emergencies or other property-based expenditures.

This may seem a little frivolous, especially if you are trying to save money, but there are several instances in which a secured loan for changes to your property could save you money:

  • Upgrading For Efficiency – Whether you are still using outdated appliances or have single glazed windows and doors, taking out a secured loan with a good rate could help you to save money on your bills. Making changes to your home could save you around $1000 per year on energy costs.
  • Moving Home Is Expensive! – Reports differ, but moving home is an extremely expensive affair. Taking out a secured loan and making changes to your home could mean you don’t have to move at all. With higher borrowing limits at a low rate, you could build a brand new bedroom, convert your attic or build an outbuilding – whatever you feel is necessary. What’s more, this kind of spending is an investment, you will get a return when you do eventually feel it is necessary to move, whereas when you move home, the money is just spent and lost.
  • Bulk Buying Saves Money – Taking out a loan to completely renovate an area of your home or property could be much more efficient than saving up and paying for the works little by little. You will also get a much quicker benefit of your new, upgraded home.

Secured Car Financing

Although this is not the kind of financing that puts money directly into your account, car financing is often a type of secured loan. This works because a creditor will pay a business for your vehicle and you make repayments to them. When the repayment terms are met and all the money is paid off, you will own your car. Until that point, it technically belongs to the creditor. These may be independent or a branch of the trader where the car was purchased.

Firstly, it is vital to shop around for the best deals for car financing, but in many cases, this is the cheapest option for those who cannot foot the full cost of a new car. You could save money because the interest and APRs are low on secured loans, but you also have the flexibility of a lower deposit. This means you don’t have to stretch your finances too thin when you do not have the capacity or back-up cash to cope with a big deposit.

Compare Secured Loans For The Best Rates

Consumers, homeowners and savers looking for loans should always compare their financial products before they commit to them. You can either use price comparison websites, or better yet, for even quicker access to the funds you may need urgently, apply directly with a lender that is also able to act as a broker and connect you with other lenders or present alternatives that may be the most cost effective for your situation.

Comparing loans online is simple with tools such as moneysupermarket.co.uk. Savings experts recommend that consumers use two comparison tools to ensure they are not weighted or biased, for example, using a dedicated comparison tool and an independent lender that will also show you the loans available from competitors. Moreover, it is also recommended that for safe-borrowing, you should do a little investigation into a company before entering a loan agreement with them. You may be made aware of consumer complaints or could find companies that are recommended or the ones that are better left untouched because they bolt on extra fees and hidden costs!

Other Benefits Of Using A Secured Loan

Other than the potential savings on the total cost of a loan, there are other benefits for those who are considering a secured loan, or at least comparing their options.

Firstly, you are more likely to be approved for a secured loan, in comparison to an unsecured loan, especially if you have a bad credit score or it’s anything less than perfect. It’s easy to slip with your repayments on loans or forget the payment date and get a negative mark on your credit score. The consequences when you take out a secured loan can be a little more severe, but they won’t be anything too major if the payment is made quickly and the mistake was genuine. A secured loan is backed by the value of different assets, whatever that might be, which means those with bad credit can offset their risk to borrowers by offering an asset as a back up.

A secured loan is also a good option for those with a bad (or unestablished) credit score or low credit rating because they could rebuild their score. As we have already established, a secured loan is easier to obtain than an unsecured loan if your history is less than perfect. This means that if you are looking to rebuild after injunctions or harmful marks on your profile, such as a CCJ for example, a secured loan is one of the safest and low-cost ways for you to do this. In the long term, making the effort to rebuild how credits consider you as an applicant could also save you money, as you may present as less of a risk and have access to lower APRs, more advantageous interest rates, longer or extended incentives such as interest free months and other rewards or benefits that a creditor might offer to an attractive borrower.

Another advantage of using a secured loan is that it means those people with bad credit, or those who are looking to borrow larger amounts¸ do not have to find a guarantor, who otherwise might have locked in a loan at a decent rate. This allows those who do not have a suitable person to use as a guarantor to still have access to the money they need to complete their home improvement project or manage all their debts in one place, at a cheaper rate.

Although it might not be saving money, one of the most common reasons you might apply for a secured loan is because of the higher or lifted lending limits. As a secured loan is borrowed against something, a pension for example, lenders are happier to lift their limits and will often have a set minimum and maximum. This means homeowners and all other borrowers could get their jobs done in one fell swoop, rather than in installments. Ultimately, this could reduce the number of loans used and save money in the long run, but individuals would have to compare rates and also consider that

 

5 Ways To Have Your Student Loans Forgiven

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And Which Forgiveness Paths Could Close Soon

5 Ways To Have Your Student Loans Forgiven And Which Forgiveness Paths Could Close Soon
Does your student loan situation look hopeless? Don’t give up hope yet. Consider these alternative repayment programs that can provide manageable loan payments and lead to forgiveness of a portion of your loan in exchange for some form of service.

1. Public Service Loan Forgiveness (PSLF)

As it stands, the PSLF program allows those working in government organizations and certain non-profit organizations to achieve loan forgiveness.

To qualify for forgiveness, borrowers must make ten years of qualifying payments under one of the income-driven repayment (IDR) programs offered by the Department of Education.

These programs are popular with certain professions like police or fire department employees and public defenders where collegiate expenses aren’t in line with the pay provided by a public service position.

Legislative Changes

The 2018 Consolidated Appropriations Act, which was passed in March and funds the government through September, has created a one-time-only $350 million expansion of the PSLF program.

This fund will cover the cost of canceling the loans of public servants who unknowingly selected non-qualifying repayment plans.

These loans will be forgiven on a first-come, first-serve basis until the fund runs out.

Watch for Updates

The Department of Education is currently assessing the full impact of the Act on PSLF, so keep checking the official site for the latest updates.

Be warned: Although the latest spending bill ignored many of President Trump’s proposals, his administration still seems intent on eliminating the PSLF program eventually.

It isn’t clear whether this would also include eliminating the corresponding Teacher Loan Forgiveness program aimed specifically at teachers in low-income districts or service agencies.

2. IDR Programs

As with PSLF, the IDR programs may be subject to change within the next budget. Currently, there are four federal programs that generally offer loan forgiveness after twenty years of regular payments that represent 10 percent of your discretionary income.

The four are the Revised Pay As You Earn plan, the Pay as You Earn plan, the Income Based Repayment  plan, and the Income Contingent Repayment plan.

However, the proposed Trump budget seeks to combine all these programs into one program, changing the monthly payment to 12.5 percent of discretionary income but forgiving the remaining loan balance after fifteen years.

3. State Student Loan Forgiveness Plans

If the federal government won’t help you, perhaps your state can. Currently, there are only five states that do not offer at least one form of student loan forgiveness plan (Alabama, Connecticut, Tennessee, Utah, and West Virginia).

Texas leads the way with nine different programs targeted at specific groups such as physicians, nurses, and educators. Check the options in your state to see if any state programs apply to you.

4. U.S. Military Service

The Army, Navy, Air Force, and National Guard all have a series of programs for loan forgiveness for active-duty military members and veterans.

While some loan forgiveness programs may end up on the budgetary chopping block, it seems highly unlikely that the current administration – or most administrations – would accept cuts in forgiveness programs within the military.

If forgiveness does not apply, the military also offers deferment options on subsidized loans during active duty service.

5. Employer Programs

Some larger employers offer partial student loan repayment as a recruiting tool. Only 4 percent of employers offer these programs, according to an estimate from the Society for Human Resource Management — but if you find such an offer, take full advantage of it.

In special circumstances, other loan forgiveness programs may be available. If your school closes prior to your graduation, you may be able to have the loan discharged.

Students at for-profit institutions that engage in fraudulent or illegal practices may also qualify for student loan discharges.

Remember Taxes

While forgiveness can make a huge difference in your finances, don’t forget about taxes. Except for the PSLF and Teacher Loan Forgiveness programs, loan amounts that are forgiven are classified as taxable income for that year — and your tax bill may skyrocket as a result.

The President could suggest to do away with the PSLF and IDR programs again in the next budget proposal later this year.

Keep up with the latest developments to see what options are available to you – and make sure that you make your existing student loan payment on time to maintain eligibility for any forgiveness programs.

This article was provided by our content partners at MoneyTips.com. Photo ©iStockphoto.com/DanielBendjy

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Jumbo Student Loans Increasing — What Indebted Students Should Do

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Jumbo Student Loans Increasing What Indebted Students Should Do
Jumbo debt is usually associated with commercial borrowing along with large residential mortgages — not something that college students normally take on. Until now: Jumbo student loans account for 17 percent of academic debt.

There’s nothing inherently wrong with large student loans, and historically the default rate has been low on such loans. People who borrow large sums of money usually go for advanced degrees that translate into higher salaries.

However, a February 2018 study by the Brookings Institution found that large-balance student loan borrowers have increased dramatically in recent years – and the typical profile for such borrowers has changed.

Large Balance Borrowers Soaring

In 1992, only 2 percent of student loan borrowers owed over $50,000 upon leaving school. In 2014, that number rose to 17 percent. Just over half of total student loan debt is held by this small percentage of large-balance borrowers.

Default rates are low in this group (typically around 4 percent), but the consequences are large. Student loan borrowers with balances over $50,000 account for almost 30 percent of defaulted student loan dollars.

Large-balance borrowers aren’t making much progress on repayment. The median borrower in this group from 2010 owes 5 percent more on their debt than they did after leaving school.

Demographics and Deferments

According to the Brookings study, the change in borrower demographics and the increase in deferments and forbearances are largely to blame.

The share of large-balance borrowers attending for-profit schools – where the eventual salaries are less likely to cover borrowing costs – increased from 2 percent of borrowers entering repayment in 2000 to 15 percent in 2014.

If you are struggling to deal with a jumbo loan, these statistics don’t surprise you. Your greater concern is how to get out of the mess you’re in.

Limited Options

For borrowers with large balances and lower income levels – and no reasonable expectation of an income large enough to cover your debts – the options are limited.

Deferment and forbearance may help in the short term, but they only delay the inevitable.

Bankruptcy is not generally an option for student loans. A sound repayment strategy is the answer.

 

“If you’re in a tough position income-wise, though, it can make sense to start by getting on income-based repayment if you qualify,” said Miranda Marquit, a money expert with financial education website Student Loan Hero.

She continued, “While it’s not the best long-term strategy, it can at least help you get your feel under you and improve your cash flow while you work on your repayment strategy.”

You’ll need to reassess your budget, cutting spending to bare minimums and reducing other forms of debt.

Create Surplus

Create a monthly surplus and apply that to the student loan with the highest interest rate first. Make sure your student loan servicer is applying any extra payments per your wishes.

“You might actually have to call your servicer and specify that extra payments should go to principal,” Marquit said.

She continued, “Many servicers just apply to the next month’s payment, including next month’s interest. It’s more effective if the entire amount of your extra payment is reducing your principal.”

It’s important to avoid credit card balances during the repayment period. You’re going in the wrong direction if you’re accumulating credit at 16 percent interest or higher to pay off a student loan with a single-digit rate.

Loan Forgiveness Programs

If you have federal student loans, see if you qualify for income-based repayment plans or the Public Service Loan Forgiveness Program (PSLF).

Both programs provide avenues for forgiveness of remaining debt after 25 years of payments – and in the case of PSLF, the forgiven amount isn’t considered to be taxable income.

PSLF requires planning, since you must be working full-time for a qualified employer (government positions at any level along with certain non-profit jobs) and make ten years’ worth of qualifying payments. If you find this path appealing, find a suitable job and apply now.

Can You Refinance?

Refinancing may be an option, but only if you can secure a better rate – and if you are burdened with high student loan debts and are having trouble paying it off, the odds of qualifying for a lower rate than your student loan are grim.

“You need good credit and a solid income to qualify for many refinancing programs. They can be a great tool, but you might not meet the criteria,” ,” Marquit said.

“Instead, it’s important to carefully evaluate your education options before settling on school and then being aggressive in paying off debts when you finish.”

Jumbo debt should only be incurred when you’re likely to have a future jumbo income to pay it off. Make sure that you look at college as a value investment and not just a reason to avoid the real world for several years.

This article was provided by our partners at moneytips.com. Photo ©iStockphoto.com/AldoMurillo

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The Geography of Student Loan Debt

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Map Shows Patterns of Educational Debt

The Geography Of Student Loan Debt Maps Show Patterns of Educational Debt
America’s outstanding student loan debt reached $1.52 trillion in the first quarter of 2018, according to information from the New York Fed. Have you ever wondered whether a significant amount of that debt is located in your city – or even in your zip code? Wonder no more.

The Mapping Student Debt Project at the Washington Center for Equitable Growth used extensive data from Experian and the annual American Community Survey conducted by the U.S. Census Bureau to create a color-coded interactive student loan debt map.

Map filters allow you to display color-coded average student loan balances, delinquency rates, and median incomes for more than 41,000 zip codes in America.

Joint Venture

This interactive is a project of the Washington Center for Equitable Growth with data made possible by Generation Progress and the Higher Ed, Not Debt partners.

You can hover the cursor over a particular zip code to find information on the average student loan balance and delinquency rate for that zip code, as well as the median income.

Racial demographics may also be included. If you prefer, you can type in your zip code or city and the map will zoom in on your designated area.

Compare Factors

What’s the value in such a map? By comparing all three factors (loan balances, delinquency, and income), researchers can distill useful relationships from the data.

You may think that higher student loan balances lead to higher delinquency rates, but the data shows that lower median income is a far greater factor.

Higher loan balances correlate more to high median incomes – suggesting that debtors with higher balances used their degrees to acquire higher-paying jobs that make repayment easier.  (Think of doctors and lawyers, professions that have high educational costs but great returns on investment.)

Delinquencies in Lower-Income Areas

By the same logic, the data shows lower-income areas are more prone to delinquencies even though loan balances are often lower as well.

Discrepancies tend to stand out in metropolitan areas as affluent zip codes mix with less affluent ones. The map of Washington, DC provides a clear example.

Zip codes with relatively low loan balances mirror the areas with low median incomes and clearly stand out as high delinquency areas on the delinquency map.

Rural Areas

Rural areas generally follow the same rules, but smaller populations can skew the data.

For example, the category of “astronomical” loan balances – constituting anywhere from 100 percent to a staggering 724 percent of the average loan balance – is often found in rural zip codes such as 67862 in far southwestern Kansas, 89412 in the northwestern corner of Nevada, and 59025 on the Montana/Wyoming border.

All three zip codes also have high or extremely high delinquency rates – possibly the result of a few large and delinquent student loans in a small population.

West Coast

Similarly, the West has a scattering of extremely high median incomes in sparsely populated counties – likely due to large ranches that cover a large portion of the county.

Overall, the data shows that student loan burdens are spread across all income levels, but the percentage of gross income consumed by student debt ranges from approximately 2 percent in the high-income areas to 7 percent in areas with median incomes of $20,000.

That shouldn’t be surprising – but what it does suggest is that too many residents of low-income areas did not receive significant value for the lower amounts they borrowed.

Either they didn’t graduate or couldn’t parlay their degree into a suitable paying job.

Policy for Debt

Anomalies aside, the Mapping Student Debt project provides useful information that can help policymakers devise innovative ways to address student loan debt.

In addition, it can let you know if you’re keeping up with your neighbors when it comes to student debt.

The Geography Of Student Loan Debt Maps Show Patterns of Educational Debt

This article was provided by our content partners at MoneyTips. Photo ©iStockphoto.com/baona

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5 Worst Mistakes of Online Borrowing

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5 Worst Mistakes of Online Borrowing
Getting a personal loan online has grown into a multi-billion-dollar industry, with lenders ranging from individuals in peer-to-peer programs to big banks.

Although countless Americans have been helped by the ability to borrow money without leaving home, others have hurt themselves by being ill prepared for the process.

“Because the loans are being evaluated remotely, the chances of making a mistake are increased,” warns Todd Nelson, business development officer of LightStream.com, which offers personal loans ranging from $5,000 to $100,000 in value.

Nelson reveals the five worst mistakes you can make when borrowing money online.

Ignoring Inaccuracies on a Credit Report

Credit bureaus constantly receive information about your credit use and history, contributing to a profile that lenders consider to evaluate creditworthiness.

Says Nelson, “Your credit report indicates important items like, how much revolving debt are you carrying? Are your auto payments up to date? Any past bankruptcies? Is your mortgage being paid on time? The answers to these and other data points impact whether you’ll be approved for a loan and how much you’ll be charged in interest rates.”

Typically, the stronger and deeper your history of good credit, the less you’ll be charged to borrow funds.It is important that you look at your credit report to make sure that your record is accurate before you apply.

Work with the bureaus to fix any mistakes. A few small errors can mean the difference between approval and denial, or you may have to pay a higher interest rate than you should to fund the loan.

Not Shopping Around

Counsels Nelson, whose firm can fund loans on the same day of application, “The initial step many consumers take in looking for an online loan is to visit a search engine and then click on the first link that pops up.”

It’s important to research several options in order to secure the best deal. Pay attention to the details of the offer.

Rates and fees are separate items that contribute to the annual percentage rate (APR) in a loan.

“If you choose us or any other lender, make sure that you understand both rates and fees,” said Nelson. That leads to the next mistake on the list.

Not Locking in the Best Rates and Terms Combo

The smart financing strategy is to lock in the lowest APR over the shortest payback period.

Use an online calculator to help figure out the right balance of affordable monthly payments over time. Paying back your loan quickly may demand higher monthly payments, but your overall financing costs can be significantly lower in the long run.

Also, make sure your lender does not charge pre-payment penalties. That leads to the next mistake.

Skipping the Fine Print

Some companies blatantly boast “no hidden fees” in big headlines that apparently don’t mean much once you read their disclosures. That’s where you find out that the companies published their fees in small print somewhere on their site.

“Technically, those fees aren’t hidden —- you just need to search carefully to find them. As a result, you may wind up paying significant costs for application processing, closing points or account maintenance. You may also wind up with additional fees down the road, with late fees for a missed payment or a pre-payment fee if you decide to pay off your loan early,” Nelson explains.

Nelson is proud of the fact that LightStream does not charge fees or prepayment penalties.

Getting Out of Debt… Then Going Back for More

Debt consolidation financing is a popular solution offered by many online lenders. It makes a lot of sense to refinance high rate credit card balances by paying them off with a fixed-rate, lower-APR loan.

Nevertheless, Nelson warns that, “Many consumers make the mistake of running up their credit cards again after they’ve been paid off.” His advice? “Get out of debt, and cut up those cards.”

This article was provided by our partners at moneytips.com. Photo ©iStockphoto.com/fizkes

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Give Thanks if You Have One or More of These Financial Things

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Thankful for Finance

Everyone has had a period of time that they have felt bad about their current financial situation. However, it isn’t usually all that bad. Of course, it could be better, but always remember it could also be worse. There are a few things you may have that you should be deeply thankful for.

A Steady Job

One of the things many people can be thankful for is having a steady job. Regardless of whether it’s part time or full time job, a job where you receive a paycheck each week is something to be very thankful for. Considering that many people are without steady income, even a little bit helps.

Having Insurance

If you have any type of insurance – health, homeowners, renters, car, etc. – you should consider yourself lucky. Even if you’re insurance isn’t the best plan available, you’re still better off than a lot of people who don’t have insurance. For instance, just imagine how much money you might have to pay out of pocket if something happens.

Investment Fees are Lower

If you invest your money, you must be happy that investment fees are lower than they were ten or twenty years ago. Investing can be a great way to accrue more money – provided your investments pay off, that is. Investment has changed a lot over the years and a lot of the chances have made a more positive financial impact for investors.

Borrowing from Friends or Family

Do you have friends and family who have offered to lend you money in times of need? Not everyone has those opportunities, so be lucky if you have financially stable friends and family members you can rely on. In turn, they’re probably just as thankful if you’re someone who can offer to help them out.

Low Mortgage Rates

Anyone who is paying a mortgage, trying to refinance a house, or thinking of buying a house is probably happy to see that mortgage rates are incredibly low. Right now rates have dropped below 4% and economists expect that rates will remain low for the foreseeable future. Even the slightest dip in interest rates for mortgages is a financial relief.

Having a 401(k)

Those of you who work at a company that offers a savings plan are lucky, especially if your company offers a high percentage match. While this might be seen as money you’re not immediately seeing flow into your bank account, it will help you out once you retire. Considering the future of Social Security is up in the air, having a 401(k) to fall back on is a great thing to have. If your company offers a 401(k) plan that you’re not currently signed up for, you should look into it.

Scholarships, Sponsors, and Financial Assistance

Many people complain about certain state or federal programs that offer assistance to those with limited finances, and while some of these programs have their flaws, they also have some great advantages. For instance, financial aid or scholarships can help lighten a student’s tuition bill, financial assistance programs can help people have their medical bills or prescriptions covered, or sponsor programs can help children or adults achieve the school, career, or life goals they need to succeed. Anyone who has received help from these programs is almost always grateful for them.

You’re Debt Free

If you’re debt free, you’re one of the lucky few. So many people are swimming in school, medical, or credit card debt. Debt can be hard to get rid of, especially if you don’t have the funds to pay off those bills each month. Being debt free – or at least having a steady plan for paying off your debt without floundering – is one less thing for you to worry about.

Photo: Flickr: Cindi Albright