Month : October 2018

Debt Management

Pay-day loans – the fast, convenient and user-friendly was of borrowing money

Payday LoansPay-day loans are like any other loan products in as much as they need to be treated with respect and due caution. The fact of the matter is that most people have to borrow money at some point in their lives. Whether that borrowing takes the form of a mortgage or a pay-day loan from payday loan giants Wonga – they’re all loans. They all involve paying back interest of the original loan amount, and they all have to be repaid within a certain time frame.

An alternative to traditional bank loans

Pay-day loans have received a certain amount of bad press, but it’s not the actual product that’s at fault as much as some of the borrowers. The fact of the matter is that pay-day loans offer a new, modern alternative to traditional borrowing. In an ideal world most people will approach their bank for a loan. They offer flexible loan amounts, flexible repayment periods, and good rates of interest. But there is a problem.

The problem with banks is that the majority are so staid and stuck in their ways. They’re trying to reinvent themselves, but their hearts are not really in it in the same way as they are in the new Fintech start-ups that are setting up shop and challenging the old financial regime.

The loan application process from a traditional banks can be long and drawn out, and quite invasive. A large percentage of loan applications never succeed. This is where pay-day loans really score. The application process is fast and efficient. In most instances it can be carried out entirely online, which is something that suits South Africa’s young generation down to the ground. Banking innovation is key according to the Africa Progress Panel, and South Africa is not short of innovation.

Higher interest but over a shorter period of time

Admittedly the amounts lent out are relatively small. The initial pay-day loan product that market leaders Wonga (South Africa) has a ceiling of R2500. Given the fact that the loan period is so short (typically no more than 47 days) the interest charged has to be much higher than the interest on traditional bank loans, but it has to be that way in order to be viable for the lender. Its why these products are referred to as high cost short term loans (HCSTLs).

The advantages of speed and convenience

The beauty of pay-day loans is their speed and convenience. This is their main attraction; but it can also open a loophole for unscrupulous borrowers too; those who have little intention of paying the loans back if times are tough, and this is how some of the bad press originates. Even though most pay-day loan companies are responsible lenders, in order to make the loan application process as fast and user-friendly as it is, it does open the door to some “fraudulent” applications.

Responsible lending and borrowing is good for the South African economy

The majority of people who apply for pay-day loans do so carefully. They weigh up their options, and make sure they can pay the loan back when it is due. Having done their research carefully, some people are now beginning to use pay-day loans to start up their own on line businesses. According to a recent article in The-South-African.com there is a tough start-up market emerging, mostly reliant on self-funding.

Pay-day loans are a good product that offers an alternative form of lending. With responsible lenders and responsible borrowers, they can add a significant boost to the South African economy.

Money Management

Is there an alternative to using a payday loan?

Very few of us can get through life without getting involved in some kind of loan application process.  Even if we don’t want to borrow money, it is more or less forced upon us if we want to buy a home.  But when it comes to borrowing smaller sums of money, there are several alternatives.  But before you decide which the best one for you is, consider your financial position and your circumstances.  It is not always the traditional ways of borrowing which are the best.

With a payday loan you are not just talking about a lesser period of borrowing but also a much faster processing time.  Long terms loans (mortgages, personal loans) can take weeks to process and intense credit checks.  Because payday loans do not involve the same type of credit checks, they may be easier to obtain if your credit is less than perfect. 

Companies like wonga offer a short term loan which is simple to obtain via a very user friendly website.  These types of loans are also a good alternative to using credit cards or bank overdrafts as the repayment date is set when you take out the cash advance.    Referring to these types of loans as payday loans is actually misleading.  A payday loan implies borrowing against your salary and some companies do this by taking post-dated cheques etc. to guarantee the loan.  A loan from wonga does not work in this way.  They check your details online and within minutes the money can be in your chosen account.  You then just have to pay it back, in full, on the chosen date.

But under what circumstances might a short term loan be useful?  Basically any situation where you have run out of funds and need money in an emergency.  Imagine the nightmare scenario that you are unable to pay the monthly repayment which is due on a long term loan like a mortgage. Missing this payment will not only cost you interest charges and fees but will immediately impact upon your credit file, giving you a black mark going forward.  And once you have a black mark on there, it is not that easy to get rid of.  Using a short term loan in these circumstances enables you to make the repayment, thereby preserving your prising credit history and without costing you a fortune in interest charges.  You simple pay back the money as soon as you have cash available, which has to be within a month or less. 

So there are plenty of alternatives to the unfortunately labelled ‘payday loan’.  A simple search online will give you plenty of options and it is up to you to choose carefully and only deal with the reputable, well known, branded companies.

Borrow in haste, repent at leisure so the old saying goes.  But this does not have to be the case if you research your chosen method carefully and comply fully with the payback terms. 

Money Management

How to deal with identity theft

In the highly digitalized world, we live in the problem of identity theft is a real concern. The state-of-the-art security systems used by banks and other financial institutions are the favorite targets of hackers are there were some crucial breaches, including the recent Equifax situation which affected 145 million people. If you too think or know that you are a victim of identity theft, what can you do?

The warnings that something is off included unknown usage of your credit cards, unfamiliar charges, denial of medical services due to exceeding the limit and other notifications from IRS regarding tax returns. The real warning signs are calls from debt collectors or a sudden drop in your credit score.

Last but not least, being notified by your providers that they have been attacked or reading about it in the news is the worst way to find out about identity theft.

Here are a few ideas to act on immediately to protect your wealth and your name.

 

1.      Use alerts

Information is power,and the sooner you find out something is wrong you can take the appropriate measures. Start by putting an account usage alert on your phone. Each time there are financial operations you get a push notification. This measure can help you act quickly and freeze an account or reverse shopping.

Next, put a fraud alert on your credit report. Be sure to do this with each of the three major offices: Equifax, Experian, and Trans Union. The initial signal lasts for three months, but it can be extended up to seven years.

2.      Use a credit monitoring system

A step above simple alerts is using a dedicated credit monitoring system. It’s not only a way to prevent identity theft, but to see how well you are managing your finances. It keeps track of some different indicators, such as new accounts, large purchases, collection accounts, and more.

This is an additional layer of security since your identity can be stolen during regular transactions, not only security breaches.

3.      Notify creditors

If you are confident that you have been the victim of identitytheft, you should act fast to minimize damage. First go to your local police to open the case, as this document will be the base for your future actions.

If you live in a state where the police have no jurisdiction on cyber matters, it’s a good idea to talk directly with FTC by filling-in a report on https://www.identitytheft.gov/. They help you create a personal recovery plan and put it into action as soon as possible.

Once you have all this documentation, contact all your creditors and provide them with copies to demonstrate your innocence. Ask them to remove any debt that doesn’t belong to you. You should start contacting your creditors in reverse order, as it is most likely that the identity thief used your data just recently.

Don’t also forget to notify the Office of Inspector General if your social security number is the subject of the identity theft. You can apply to get a new one, with all the associated hustle and bustle. Speaking of changing documents, you might be forced to change your driver’s license or ID card as well.

4.      Change passwords

It’s a good practice to change your passwords anyway periodically, but if you had been the victim of identity theft, then it becomes mandatory. Avoid using the same password for all your accounts. It’s a good idea to use two-factor authentification for all your accounts that are connected to money, payments, and sensitive information. Opt for technologies with automatic refresh and one-time pad approach, so that you don’t have to memorize an additional password, it’s generated on the spot.

Home Ownership

What The Proposed New Mortgage Lending Rules Mean For Housing

When the housing market collapsed from the sub-prime mortgage crisis in 2008, the blame was laid squarely at the feet of banks and brokers who deliberately approved loans they knew were doomed to fail.  In the years since the initial collapse, lending has become much more restrictive as lenders, buyers, and the federal government fight to avoid another crisis.

In fact those restrictions are about to get much stricter beginning in January next year.  The Consumer Financial Protection Bureau or CFPB, which informs mortgage applicants about the terms of their agreements with lenders, wants tougher mortgage lending rules to restrict the volume of new loans in 2014.

The CFPB argues the rules are necessary to protect American households.  Average household debts across the country are near record highs, with a large percentage of those debts tied up in household financing.

But critics believe that the new rules could go too far, and reverse the newfound strength in the housing market after years of stagnant growth.  Americans are feeling confident about their plans to buy homes, but the new CFPB rules could mean as many as 50 percent of current applicants will be rejected by the new year.

A proper middle ground is required.  The US – and the rest of the world by extension, cannot afford to go through another global meltdown similar to the crisis begun in 2008.  This means that restrictions must be in place to prevent the type of sub-prime mortgage lending that led to the housing collapse.

On the other hand, rules that are too restrictive will prevent a greater number of applicants from being approved for financing.  If there are fewer people qualified to buy homes, the housing recovery will stall, if not reverse entirely.  Americans across the country are nearly unanimous in the belief that the housing market is crucial to the economic recovery as a whole – stalled progress on housing could mean another slide in economic stability.

The important thing for policymakers to remember is what Americans have come to learn on their own – balance is essential.  People will continue yearning to own a home of their own, but recognize they must fulfill that dream through a mortgage that is affordable.  Comparing offers from multiple lenders prior to locking in an agreement can help people get the best possible deal without committing to terms that are doomed to fail.

Home Ownership

How Can You Use a Second Mortgage to Finance Your Home Improvements?

Do you have any plans of getting your house renovated?  Do you plan to remodel your home or want to work on your basement? Are you thinking of ways for arranging money for remodeling your kitchen? You have a number of home improvement options that can help you with your finance improvements.

The financing schemes for home improvement are generally preferred as it is one of the ways of increasing the property value. Whether you want to work on the master bedroom or living room or fix those leakages in the pipes of your bathroom the home improvement finance will do the needful for you.

What do you mean by a second mortgage?

Compared to a first mortgage which already exists, a second mortgage is considered junior. Replacing an existing mortgage with a higher one it will be more cost effective for a borrower if he considers a second mortgage. Take for an example, your house is worth about $200,000 and you have already taken $120,000 as your first mortgage amount. You will be only considered eligible by the bank to take a first mortgage if the credit scores that you have are good enough for financing 80% of the total of $200,000 or $160,000.

You can only borrow $40,000 for your second mortgage when you have subtracted the sum of $120,000 taken for your first mortgage. The amount taken for the second mortgage is taken in public records and it almost becomes a kind of lien against the house.

In case you opt for a second mortgage you have to make a monthly payment additionally. So before you choose a second mortgage option it’s better to analyze the monthly expenses as well as obligations so that you can be sure of handling a new payment. Along with this, the risk involved should also be kept in mind. You have risked your home, so if you think you would be able to repay the mortgage amount then only go for the loan.

Benefits of a second mortgage:

A second mortgage comes along with a few innate benefits. Since it is based on the home equity, it is quite beneficial for a home owner as the funds are readily available. It is also considered a more secured loan and one can obtain it more easily compared to other loans. The interest that you pay on any second mortgage is even tax deductible. It happens to be one of the biggest benefits that do not usually come with other loans. You can easily deduct interest payable on your second mortgage from the taxes.

So when it comes to home improvements a second mortgage is always the best option to finance it. Since the interest rate is  a bit low you can be very confident of repaying your loan. Moreover renovating your house may not call for a huge sum of money compared to what it goes in purchasing a new one. But it is not that less that you can pay it with the amount that you have in your savings account.

The option left to you is that of a second mortgage which is more secured and thus preferred. There are even many buy to let mortgages options that allows the investor to borrow a sum of money for purchasing private rented sector’s property that they further give it on rent to tenants. Since late 1990s this has been a very popular practice in UK.

Financing your home improvements have become easier with the second mortgage option. You can be rest assured of getting a secured loan and thus concentrate on giving your home a new look.

Author Bio:

Jonny Pean is a finance expert by profession. He finds immense pleasure in writing financial blogs with a special mention to buy to let mortgage option and  Mortgage calculator from emortgagecalculator.co.uk.