Payday Loans 101

Jan 21st, 2015     Loans

Payday loans are small loans that are provided to customers with a fee. These loans are usually available at loan stores and banks. These loans are given to customers during emergencies and the customer doesn’t have to go through a credit check to receive a payday loan.

Even though a no credit check might sound alluring for customers with a low credit score, it isn’t advisable to take a payday loan as these loans charge a high fee. Example: A loan of $200 can have a fee of $50. There are instances where payday loans interest rates rise as high as 400%. It’s likely to be more than that, if customer delays in paying a payday loan.

Procedure to get a payday loan

Payday loan at a loan store: Customer has to apply for a moderate amount of loan for the period required. This could be anywhere between 3 days to 4 weeks and more. The customer should write a post dated check for the total amount which includes the loan amount and fee. The postdated check would be written by the customer on the day the payday loan is agreed for, however the financial institution will not issue this check unless the customers agrees for it. As the customer who takes a pay day loan would inform the financial institute when to issue the check based on the availability of funds in their account. The postdated check acts as a guarantee for the payday loan.

Payday loans got the name payday, as most of the customers who utilize this loan take it for a short period of time and pay it on their payday (salary day). If the customer is unable to pay the loan on the due date, the fee keeps increasing on it. Therefore customer’s who delay paying payday loans pay high fees to the lenders.

Payday loans

Payday loan at banks: Banks also provide customers with payday loans, as they can earn money on the fees accumulated on such loans. Such loans with banks are also taken due to emergencies for a small amount and a short term period. The fees charged by banks are similar to loan stores. In case of certain banks the name of payday loans might appear differently but its features will be the same.

The customer can apply for a payday loan by contacting the bank; if customer and bank are in agreement then bank would debit the customers checking or savings account for the loan amount and the fee on the due date. If the customer doesn’t have funds to pay on the due day, there is a possibility that bank takes the amount from overdraft facility and charge interest on it. Also when banks give a payday loan, they deduct their payment before the customer’s mortgage or loans payments. For customers with tight financial situation it can be difficult to deal with a payday loan taken from a bank. Bank also charges high fees for payday loans, in cases where customer is unable to pay the amount the fee would be multiplied and added to the loan amount.

Hence this can lead to a situation, where a customer pays more than the amount borrowed in the form of fees. Therefore while taking payday loans customers should weigh its pros and cons, only if it’s an emergency where there are sure to pay back the amount as agreed it’s sensible to take a payday loan account. Because delaying the payment of payday loan can lead to an increase interest rate of 1000% too. It’s always sensible to avoid such situations.

Common scenarios where customers take payday loans and how to avoid them

Financial difficulties: Customers tend to take a payday loan when they are going through financial difficulties. It’s more likely for people without income to be attracted to these offers as they usually require a small amount to meet their expenses. Also if the customer has financial difficulties, they wish to pay off their payments quickly. As payday loans are easily available they opt for the same.

In such situations, it’s advisable that customer avoids a payday loan if they are not sure of paying it. As the fees on payday loan increases and it can be uneasy for them to deal with the high fees accumulated on it. Customer can opt for a job. Also customers in these situations can borrow from friends and family. If the customer has a good credit score, then it’s more sensible to take an unsecured loan or other small loans, as the interest compared would be lower than the pay day loans fees. However it’s advisable to do the same when customer is sure of paying back the funds, as failure to pay the amount can affect the credit score of the customers.

Low Credit Score: If a customer has a low credit score, they might opt for a payday loan as this wouldn’t require a credit check. So the customer feels better to get the funds this way, than through a small loan via bank. However, a customer with a low credit score might already have other payments to deal with. Hence in such situations, the customer must ensure that their payments are managed wisely, wherein they rent and other main payments should be made including the payday loan account. If customers fails to pay the payday loan situation can worsen even more. Additional part time jobs can be opted in such cases. It’s always advisable for customers to maintain a good credit score.

Emergency situations: In situations where customer run’s out of their salaries, is not able to access funds in account as cards are lost and bank is closed. There can be many such situations including car breakdown etc then customer might opt for payday loan. In such situations customers can try and check the overdraft facility offered by banks as it can be much lesser than the fee on accumulated on payday loan. If customers save some emergency cash in their accounts, it would be much easier to face such issues.

Apart from the above mentioned reasons there can be several other reasons why customer opts for payday loans, Whatever the reason and situations might be its always sensible for customers to use these loans only in case of emergencies provided they are sure to pay of the amount as per the decided due date. If customers are okay to pay the high fees for the late payments, then it’s okay to opt for a payday loan too.

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FHA Loan 101

Jan 21st, 2015     Loans

FHA stands for Federal Home Administration; it’s an agency of United States government. FHA loans are home loans insured by the FHA. Therefore these loans are easily sanctioned than the other kinds of loans. Government insures the payment of loan just in case the customer fails to repay it. FHA loans usually have a small down payment; it can be anywhere from 3.5% and above. Due to which many customers are attracted towards such loans.

FHA loans

Who can apply for FHA loans?

Customers who are willing to buy a home with low down payment and are sure to repay it can apply for a FHA loan. FHA loans are easy to get as they are insured by the government. However not all financial institutions accept the application for the same. In such cases customers can apply elsewhere for FHA loan.

Before applying for a FHA loan, customer has to ensure that they are able to pay off such loans. These loans are granted for customers who have both low and high income provided they are able to prove that they have sufficient income to pay off the FHA loan. The customer’s credit income should be sufficient to pay the loan after subtracting all the debits on the account. Customers with low credit score are sanctioned FHA loans, however customers should be able to show that they can make the minimum down payment required for the loan.

The loan amount to be sanctioned would be based on the prices of the homes in the area customers are living in. If the customers are sure to get the loan after cross checking the above information, they have to fill a form and process it. If it’s acceptable, then the loan will be sanctioned.

Who should go for FHA Loan?

Customers who want to buy a home and prefer to do it via FHA, have to pay a fee to FHA to get the loan. Apart from that, customers have to pay an upfront mortgage insurance premium i.e. 1.5% would be added to the loan amount for the same. Sometimes the upfront mortgage insurance can cost more than the private insurance. Therefore it’s advisable for customers to calculate the mortgage insurance premium; if they find the charge sensible then they can opt for the loan.

The money earned by FHA in the form of upfront mortgage insurance and fees are used by the government to pay off the financial institutions in case the customer fails to make the payment at a later date.

Due to the additional charges incurred on FHA loans, customers with good credit score can opt for a normal home loan. As the down payment for a home loan for customers with decent credit score might be lower or same as an FHA loan. Hence it’s advisable that customers do a proper research and apply for a FHA loan only if they feel it’s beneficial than any other loans.

Advantages of FHA loans

FHA loans give an opportunity to low income and bankrupt customers to settle down in life: Customers with low credit score have a difficulty in getting loans sanctioned. However that’s not the case with FHA loans. Customers with low incomes and credit scores are given a chance and are likely to get the FHA loan sanctioned. Due to which these customers have the opportunity of setting up a home. Customers who are bankrupt and have experienced 2 to 3 years of financial struggle are qualified to get a FHA loan. This gives them an opportunity to get a FHA loan which can help the settle down in life.

Low down payment: The down payment of FHA loans can be comparatively lower than the other loans, this way customers can get a home by paying a decent amount.

No prepayment penalty: Usually when customer take a mortgage loan and wish to repay it in full before the term expires there are charges or additional fee for the same. However it’s not the same with FHA loans. Customers with FHA loans can repay the loan in full and they do not have to pay a penalty for the same.

Loan can be taken over by another person: If the customer who took the loan is unable to pay back the loan, then the FHA loan can easily be taken over by another person. In this case the second person who takes over the loan might get the benefit of paying lower interest, provided the 1st customer completed paying the high interest’s rates on the loan. FHA loans interest rate might reduce less after a certain period of time in most cases; this would be agreed while signing up for the loan.

FHA 203k loan for repairs and development of loan: In order to avoid the hassles of 2 loans and additional paperwork. FHA 203k loan sanctions loan for home and also repairs of the home. These loans might take longer than the FHA loan. However the complete loan would cover the purchase of home and also an additional amount for its repairs. There are certain guidelines that have to be checked before applying for same. In some cases certain repairs may not be acceptable by the FHA 203k. With this program customer can enjoy the benefit of one loan instead of applying for two loans.

Easy to get: FHA loans are comparatively easy for customers to get than any other loans, as these loans do encourage a wider range of customers and can be easily sanctioned.

FHA loan does have its own features and benefits; even then it’s always advisable for customers to check different kind of loans and features before applying for a loan. Only if the customer is sure that they are getting the best deal with the FHA loan then they can opt for it.

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