Trapped in Payday Loan Debt? Here’s How You Can Escape.

Trapped in Payday Loan

Nobody likes being in debt, but it’s even worse when it seems like there’s no way out. That’s how the 12 million Americans who take out payday loans each year usually feel. That’s understandable, considering they pay out around nine billion dollars in loan fees. But there is hope—you don’t have to be stuck in the payday loan debt cycle forever.

Why It’s So Easy to Get Buried in Payday Loans

Payday loans are unsecured personal loans targeted at people who need money fast but don’t possess the type of credit or collateral required for a more traditional loan. Usually the only requirements to qualify for a payday loan are an active bank account and a job. Companies like MaxLend, RISE Credit, and CashMax have made an art out of providing high-interest loans to people who feel desperate and out of options.

The very structure of payday loans is set up to keep people on the hook. Here’s a breakdown of what payday loan debt looks like, according to the Pew Charitable Trusts:

  • It’s not short-term. Although payday loans are advertised as quick, short-term loans, the average payday loan borrower is in debt for a full five months each year.
  • Loan fees are huge. Average loan fees are $55 every other week, and the average borrower pays $520 per year for multiple loans of $375.
  • People borrow for the wrong reasons. Most payday loan borrowers—70%—spend the money on everyday expenses, like groceries, gas, and rent, rather than on emergencies.
  • It’s a vicious cycle. To totally pay off a loan, the average borrower would need to fork over $430 the next payday following the loan. Because that’s a big chunk of change, most people end up renewing and extending the loan. In fact, 80% of all payday loans are taken out two weeks after another one was paid in full.

What Happens If I Don’t Pay My Payday Loan?

As with any other loan, if you default on a payday loan, it can result in growing fees, penalties, and possible legal action. Because many payday loans use automatic debit payments to take funds directly out of a bank or prepaid account, you can also end up with overdraft fees on top of everything else. This can leave you without the funds you need to pay for necessities like food, childcare, and utilities. To top it all off, you may also experience a barrage of calls and threats from debt collectors.

This all sounds extremely unpleasant, but there are ways you can get help with payday loans.

How to Get Out of Payday Loan Debt

As we’ve established, it’s crucial to stop the vicious cycle of payday loan debt. There is payday loan help, but it can be hard to know where to start.

The best way out can depend on where you took out the loan. Laws governing payday loans vary from state to state. Some states, like Colorado, are currently working to change the way payday loans are administered in order to make it easier for customers to pay loans back and avoid the snowball effect of constant loan renewal. Other states require payday lenders to offer borrowers an  Extended Payment Plan (EPP), which stops the accrual of fees and interest.

Here’s a closer look at some of the options available to get rid of payday loan debt.

Extended Payment Plans (EPPs): If you borrowed from a lender who is a member of the Community Financial Services Association of America (CFSA), then you may be in luck. CFSA’s Best Practices allow a payday loan customer the option of entering into an EPP.  This means you’ll have more time to repay the loan (usually four extra pay periods) without any additional fees or interest added for that service. Best of all, you won’t be turned over to collections as long as you don’t default on the EPP. Here are the steps to follow if you want to apply for an EPP:

  • Apply on time. You must apply for the EPP no later than the last business day before the loan is due.
  • Sign a new agreement. If you took out your loan through a storefront location, you’ll have to go back to that location to turn in your application. If you took out a loan online, you’ll need to contact your lender for instructions about how to sign your new agreement.

Credit Counseling: If an EPP isn’t an option, you may want to talk with a credit counseling agency. While credit counseling agencies spend their time helping consumers get out of debt, these kinds of loans can present unique challenges. “It’s not a traditional loan with set guidelines in terms of how they work with us,” explains Fox. In spite of those challenges, there are things a credit counseling agency can do to help you get out of payday loan debt:

  • Restructure the payback. Fox says that payday lenders who are members of the CFSA “seem to be more lenient” and are “more apt to try to work with people.” Those lenders will often “restructure to pay back (the balance) over six to twelve months when coming through our program.” But he also adds that this applies in  only about 40–50% of the payday debt situations clients are dealing with.
  • Negotiate a settlement. If restructuring the payback terms isn’t an option, the credit counseling agency will try to work with the lender to determine a settlement amount that will resolve the debt altogether. If you can pay off the loan with a lump-sum payment (this is the time to ask Mom or Dad for help), the agency may be able to settle the debt for a percentage of the outstanding amount.
  • Adjust your budget. If no other options are viable, the agency can work with you to come up with a budget that will help you find the money to get the loan paid off. Sometimes that means reducing payments on other debts, consolidating debts, or reprioritizing other expenses.

Bankruptcy: Nobody wants to resort to this option, but sometimes it’s the only way to get out from under this kind of debt. There is a myth out there that you can’t include payday loans in a bankruptcy. However, that is not the case: “For the most part, payday loans aren’t treated any differently in bankruptcy than any other unsecured loan,” writes attorney Dana Wilkinson on the Bankruptcy Law Network blog.

Another unsubstantiated claim is that you may be charged with fraud or arrested if you can’t pay a payday loan back or if you try to discharge the loan. One of the reasons this fear is so widespread is that payday loan debt collection scammers often make these kinds of threats, despite the fact that these threats are illegal.

What to Do After You Get Rid of Payday Loans

After you get out of payday loan debt, you want to make sure you never go to a payday lender again. Some of the smartest things you can do to start cleaning up your credit include signing up for a free credit report. Regularly checking your credit is the best way to make sure you clear up any mistakes. Plus it’s rewarding to see your credit score improve.

You can also sign up for credit repair or search for a consolidation loan to help you pay off all of your debt. This allows you to start moving in the right direction financially.

Getting out of payday loan debt can seem daunting, but it’s worth the effort and hard work. Taking control of your finances—and actually being able to plan for the future—is a reward worth striving for.

Are you trapped in payday loan debt? Or have you found your way out? Share your story in the comments below.

Image: Ingram Publishing

The post Trapped in Payday Loan Debt? Here’s How You Can Escape. appeared first on Credit.com.

11 Ways to Lower Your Monthly Student Loan Payments

Student loans are a huge burden but they don't necessarily have to be. It's possible to lower your monthly student loan payment with the right tips.

Student loan debt is a huge burden for millions of Americans, representing the second largest form of consumer debt in the country. A large monthly student loan payment can make it difficult to afford your other living expenses. Luckily, there are many ways to make that monthly payment more affordable.

Here are 11 ways to lower your monthly student loan payment.

1. Income-driven Repayment Plans

Federal borrowers with insufficient income should consider an income-driven repayment plan, which lowers your monthly payment based on your income and family size. There are several income-driven repayment plans, including the Revised Pay As our Earn Repayment Plan (REPAYE), Pay As You Earn Repayment Plan (PAYE), Income-Based Repayment Plan (IBR) and Income-Contingent Repayment Plan (ICR).

Each plan is different, but they all reduce your payments to a set percentage of your discretionary income. You can work directly with your loan servicer to determine which plan is right for you.

2. Loan Consolidation

If you have multiple federal loans, a direct consolidation loan will combine them and allow you to make a single monthly payment. Consolidation can also extend your repayment period up to 30 years, reducing your monthly obligation. Keep in mind that this would increase the amount of money you pay in the long run.

3. Pay Ahead of Time

If you’re still enrolled in school or you just graduated, it could be beneficial to start paying on your loan now. Many federal student loans do not accrue interest until the grace period after graduation expires. If you start making small payments now, you’ll reduce the principal of your loan and the overall interest you’ll pay.

4. Employer Student Loan Repayment Assistance

Many government employers have offered loan repayment assistance for some time, but even private companies are getting in on the game to attract millennial workers. Before you jump at a job offer from an employer with a student loan assistance program, you’ll want to check the details to see if the program actually reduces your monthly payment.

“About 4% of employers are now offering employer-paid student loan repayment assistance,” said Mark Kantrowitz, Publisher and VP of Strategy at Cappex.com. “However, the employer payments are almost always in addition to the borrower’s payments and the borrower may be required to make at least the standard monthly payment. So, the main impact is on shortening the repayment term, not in reducing the monthly payment amount. “

5. Graduated Repayment Plans

Graduated repayment plans will temporarily reduce your monthly payments, increasing them every two years. This is a good choice if you currently can’t afford your payments but have confidence that your income will steadily increase over the next ten years.

Graduated repayment “starts off with very low payments, just above interest-only, and increases the monthly payment every two years. No payment will be more than three times any other payment,” said Kantrowitz.

6. Extended Repayment Plans

Extended repayment plans increase the lifetime of your loan up to 25 years. This will drastically lower your monthly payment if you’re currently on a ten-year payment plan. You will end up paying much more over the life of the loan.

7. Refinancing

Refinancing your federal loans with a private lender can help you get a better interest rate, which could lower your monthly payment and save a lot over the life of your loan. For this option, you’ll need good credit. To see where your credit stands, you can check two of your scores for free on Credit.com.

You’ll also want financial stability. That’s because private lenders don’t offer income-driven repayment plans, deferment or forbearance and many other options available to federal borrowers. If you fall on hard times with a private loan, you’ll have fewer tools at your disposal.

8. Roll Your Loan into Your Mortgage

If you have a home with some available equity, you could roll your student loan into your home equity line of credit (HELOC). This can reduce your interest rate, but will likely require good credit.

9. Automatic Payments

Many lenders offer payment or interest reduction as an incentive to sign up for automatic payments. Check with your loan servicer to find out if they offer this option.

10. Use Credit Card Rewards

Some credit cards offer rewards that can be put directly toward your student loan. For instance, the Citi Thank You Preferred Card for College Students earns points that can be redeemed for a check that is issued to your loan servicer.

11. Deferment or Forbearance

If you’re desperate to reduce your payment, deferment or forbearance can pause or significantly reduce your monthly payments for a limited amount of time. Deferment also pauses interest, while loans in forbearance will continue to accrue interest.

You must work directly with your loan servicer to apply for deferment or forbearance. Qualifying circumstances may include financial hardship, unemployment or military deployment.

Image: Jacob Ammentorp Lund

The post 11 Ways to Lower Your Monthly Student Loan Payments appeared first on Credit.com.

How to Get Approved for a Small Business Loan

Getting a loan to start or grow a small business is rarely easy, especially since the financial crash of 2008 and the credit crunch that followed. Finding the right lender and navigating the application and underwriting process is challenging. So being adequately prepared and taking practical steps to improve your chances ahead of time can help reduce the amount of time you’ll spend and reduce your frustration with the process. With that in mind, here are four tips for getting approved for a small business loan.

Know your business credit score AND personal credit score

Gerri Detweiler, Education Director for Nav, a platform that connects small business owners to financing, says that the first thing any small business owner should do before applying for a small business loan is check their business and personal credit score. “Some lenders may review one or the other, and some review both,” Detweiler says.

How to find your business credit score:

Your business credit score is based on trade credit (when a supplier allows you to buy now and pay later) and other debt in the business name, such as credit cards and equipment loans. Business credit is measured on a scale of 0-100, with a score of 75 or more being the ideal range. Both Experian and Dun & Bradstreet calculate business credit scores.

If your business is very new or hasn’t used credit in the past, you may not have a business credit score. In that case, Detweiler says, your personal credit score will probably play a larger role in getting the loan approved. Most lenders look for a personal credit score of 640-660 or higher.

How to find your personal credit score:

 

Find the right type of lender for a small business loan

Traditional banks may be the first option that comes to mind when you think about a small business loan, but Detweiler says most banks don’t make startup loans. Even existing businesses may have a hard time getting a bank loan of less than $50,000, depending on the lender.

Your first step should be talking to the bank or credit union that holds your business checking and savings accounts. They may be able to offer a term loan or line of credit. They may also be able to help you with a loan backed by the U.S. Small Business Administration (SBA). The SBA’s 7(a) Loan Program is designed to help small and startup businesses with financing for a variety of purposes.

Nonprofit small business loans

If a traditional or SBA loan is not an option, you might consider a nonprofit microlender. These loans are a bit easier for startups to qualify for. Their standards are less stringent because profit is not the lender’s objective. They often focus on helping disadvantaged communities or minority business owners. According to the Aspen Institute’s FIELD program, the top U.S. microlenders are:

  • Grameen America – helps women in poor communities build businesses
  • LiftFund – offers microloans in Texas, Louisiana, Mississippi, Alabama, Arkansas, Missouri, Kentucky, and Tennessee
  • Opportunity Fund – provides loans to low-income residents of California
  • Accion – offers loans from $5,000 to $50,000 throughout the U.S.
  • Justine Petersen – provides loans under $10,000 to entrepreneurs who don’t have access to commercial or conventional loans

Get your financial statements in order

Whether you apply for a loan through a bank, credit union, or non-bank lender and whether you rely on your business or personal credit, anyone who lends money is going to want financial statements.

Getting your financial statements in shape before applying for a loan will increase your chances of approval and help you qualify for more competitive rates. For your business, these are the key documents a lender will want to look at:

  • Profit and Loss (P&L) Statements
  • Balance Sheets
  • Statement of Cash Flows for the past three years

Providing financial statements can be a significant hurdle for small business owners and startups who’ve neglected their bookkeeping. If you’ve been cobbling together the books on your own, you probably haven’t been preparing your business financials in a recognized basis of accounting such as Generally Accepted Accounting Principles (GAAP). You may need to hire an accountant to get your business books in order and prepare the financials. This can be costly, so find out what your lender requires before you get started.

The lender may also want to look at a personal financial statement:

  • Your assets
  • Liabilities (debts) and contingent liabilities (such as a co-signed loan or outstanding lawsuits)
  • Income

You can download a Personal Financial Statement form from the SBA website for an indication of the information you’ll be required to submit, but banks often require their own form.

Run your own background check on Google

Gil Rosenthal, director of risk operations at BlueVine, a provider of small business financing, says lenders will often Google loan applicants and check social media profiles to see what others are saying about the business and its owners.

Loan underwriters are looking to see whether you are considered a trusted authority online, whether you’re using social media to promote your brand, and whether you quickly and effectively respond to customers. Be cognizant of your online reputation, including Yelp reviews, and keep your business and personal social media profiles up to date.

If your online reviews are less than glowing, Rosenthal says, “you can mitigate the impact by being prepared to explain anything negative that comes up in the application process.”

The bottom line

Even if you have all of your proverbial ducks in a row, finding the right terms from the right lender may take some time. By anticipating what your lender will review and require, you’ll greatly increase your chances of getting approved for a small business loan.

The post How to Get Approved for a Small Business Loan appeared first on MagnifyMoney.

9 Ways to Get the Most Out of Your Credit.com Account

Here's how to use the tools at Credit.com to get your financial life in order.

Chances are if you’re reading this you’re ready to take control of your financial life. Well, we want to make sure you’re getting the information and help you need to do it. That’s why we’ve put together a list of nine ways you can make the most of your Credit.com account.

1. Download the Credit.com App

Download the Credit.com app for iPhone and get updates on your latest credit score information while you’re on the go. You’ll also have access to the latest news and information from Credit.com’s blog.

2. Begin Tracking & Improving Your Credit Scores

Included with your account is a recommended plan to improve your personal credit scores. It shows you in what areas your scores could improve and offers guidance on how to achieve an attainable goal. And if you run into problems, don’t worry. You can reset your action plan at any time so you can get guidance on your real-time credit situation.

3. Get the Latest News

Besides helping you track and improve your credit, our credit experts offer regular articles on ways to cut back on your spending, get better terms on your credit cards, save money on a wide variety of everyday purchases and more. You can check the latest news on our app or on our website.

4. Follow Us on Facebook & Twitter

Beyond our daily articles, you’ll get bonus information through our Facebook and Twitter pages. And be sure to watch for our live chats on Twitter where we discuss a variety of financial topics.

5. Use Our Financial Tools

Want to know how long it will take you to pay down your credit card debt? We have a calculator for that. We also have financial tools to help you figure out the lifetime cost of your debt and how much house you can afford.

6. Get Help Fixing Your Credit

Is your credit in need of some professional help? Not sure if it is? Check out the free consultation provided by our partner Lexington Law. You can also look at getting help from a credit repair company, like our partner CreditRepair.com. Lexington Law and CreditRepair.com also have iPhone and Android apps.

7. Use Our Interactive Calculators

We’re not just about helping you improve your credit, we’re also here to help you find the best rates and terms for your particular credit standing. Whether you’re looking for a personal loan, a mortgage loan or even student loans, our tools can help you find the right product to fit your needs.

8. Compare Credit Cards

Finding the right credit card can be daunting. That’s why we’ve compiled numerous expert guides for helping you choose which cards are right for you. Do you need a rewards card? A balance transfer card? Which cards do you even qualify for? We provide you with answers so you’ll know what to look for when applying, and offer tips for the application process.

9. Ask Us Questions

Our credit experts genuinely want to help you get the guidance you need. Something isn’t clear? You want further information? Ask your question on Twitter, our Facebook page or in the comments section of our blog articles.

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The post 9 Ways to Get the Most Out of Your Credit.com Account appeared first on Credit.com.

15 ZIP Codes With the Most Underwater Properties

Mortgage debt is a desperate struggle in many areas of the country. See where underwater homes are most prevalent.

Nearly a tenth of homes with a mortgage in the United States were considered “seriously underwater” at the end of the first quarter of 2017, according to statistics from ATTOM Data Solutions.

These homes — all 5.5 million of them — are not physically flooded, though the situation is nearly as alarming: A property is seriously underwater if the amount owed on the loan secured against it is at least 25% higher than the value of the property.

The good news is that the number of seriously underwater homes is down from the same time in 2016, but up slightly from the fourth quarter.

Where Are the Trouble Spots?

“While negative equity continued to trend steadily downward in the first quarter, it remains stubbornly high in often-overlooked pockets of the housing market,” said Daren Blomquist, senior vice president at ATTOM Data Solutions.

These pockets exist in several Rust Belt cities, Las Vegas and central Florida, Blomquist said. And nearly a third of all homes nationwide valued at less than $100,000 are seriously underwater.

Using ATTOM data, we’ve compiled the ZIP codes where at least 65% of the properties are seriously underwater. They represent the worst areas in the country.

Remember, if you’re in the market for a new home, a good credit score can help prospective homeowners secure lower interest rates on their mortgages. You can check two of your scores free on Credit.com.

15. Chicago ZIP Code 60636
Properties with loans: 7,875
Properties seriously underwater: 65.6%

14. Detroit ZIP Code 48227
Properties with loans: 7,825
Properties seriously underwater: 65.8%

13. North Chicago ZIP Code 60064
Properties with loans: 2,856
Properties seriously underwater: 65.9%

12. Milwaukee ZIP Code 53206
Properties with loans: 3,189
Properties seriously underwater: 66.2%

11. Detroit ZIP Code 48234
Properties with loans: 6,096
Properties seriously underwater: 66.6%

10. Maple Heights, Ohio ZIP Code 44137
Properties with loans: 7,694
Properties seriously underwater: 66.8%

9. Detroit ZIP Code 48205
Properties with loans: 7,574
Properties seriously underwater: 67%

8. Riverdale, Illinois ZIP Code 60827
Properties with loans: 5,391
Properties seriously underwater: 67.4%

7. Dolton, Illinois ZIP Code 60419
Properties with loans: 6,673
Properties seriously underwater: 68.2%

6. Detroit ZIP Code 48228
Properties with loans: 9,993
Properties seriously underwater: 68.2%

5. Detroit ZIP Code 48224
Properties with loans: 8,974
Properties seriously underwater: 69.4%

4. Las Vegas ZIP Code 89109
Properties with loans: 6,327
Properties seriously underwater: 69.9%

3. Detroit ZIP Code 48235
Properties with loans: 9,629
Properties seriously underwater: 70%

2. St. Louis ZIP Code 63137
Properties with loans: 5,954
Properties seriously underwater: 70.6%

1. Trenton, New Jersey ZIP Code 08611
Properties with loans: 4,426
Properties seriously underwater: 74.6%

Image: eclipse_images 

The post 15 ZIP Codes With the Most Underwater Properties appeared first on Credit.com.

Here’s How Many People Actually Have the Worst Credit Score

It is possible to have a rock-bottom credit score. Find out exactly how many U.S. residents meet this dubious threshold.

As confusing as credit scores can be, most people get the basic concept: You want a high score, not a low one. What qualifies as a good credit score depends on the scoring model you’re talking about (and there are dozens of them), but a common range is 300 to 850. The higher your score, the better. You don’t have to aim for an 850 to get the best terms on a loan or qualify for top-tier credit cards, but anywhere in the high 700s is a good place to be.

Ideally, you’re not anywhere near the bottom of the range, but it is possible to have a 300 credit score on a 300 to 850 scale. The good news: A very small portion of the population has such a score. The bad news: Some people do.

How Many People Have the Worst Credit Score?

There are 294 million “scoreable” consumers, and only 0.01% of them had a 300 credit score, according to data credit bureau TransUnion pulled for Credit.com in March 2017. (A scoreable consumer is someone with enough information in their credit files to generate a VantageScore 3.0. TransUnion said 4.28% of the population is not scoreable.) While 0.01% is a really small portion of consumers, it still means 29,400 people have the worst credit score (on the VantageScore 3.0 scale). In other words: It’s totally possible for your credit to hit rock-bottom. (You can see where you stand by getting two of your credit scores for free on Credit.com.)

 

Though it’s uncommon to have the worst credit score, having bad credit isn’t. More than a quarter (27.66%) of consumers have a credit score between 300 and 600, which is considered bad credit or subprime credit. Conversely, 20% have a super prime credit score (781 to 850). The average credit score was 645 when TransUnion pulled the data.

How to Deal With Terrible Credit

TransUnion didn’t identify common factors among consumers with a 300 credit score, but they pointed out some characteristics of subprime credit files: “Generally speaking people with poor credit (300-600 score) usually make late payments, only contribute the minimum amount, carry high percentage balances on multiple cards and apply for multiple lines of credit within a short period of time,” said Sarah Kossek, a spokeswoman for TransUnion, noting that the factors vary by individual.

So if you want to avoid joining the population of people with bad credit (or you want to get out of the club), it’s smart to make credit card and loan payments on time, pay down your debts, use a very small portion of your credit card limits and apply for credit sparingly. It’s also a good idea to regularly review your credit reports for accuracy, as errors may be hurting your credit. You can pull your credit reports for free each year at AnnualCreditReport.com.

If your credit is the worst, figuratively or literally, well, you can find a full explainer on how to fix it right here.

Image: mikkelwilliam

The post Here’s How Many People Actually Have the Worst Credit Score appeared first on Credit.com.

What You Should Know About Mortgage Paperwork

Yes, mortgages come with a lot of paperwork. Here's how to make it easier on yourself.

Getting a mortgage is every bit as arduous as you might think. While lax mortgage lending standards helped pave the path to the financial crisis a few years ago the pendulum has swung so far the other way in 2017 that getting as simple as a 30-year fixed rate loan is incredibly complex given the amount of paperwork and disclosures required.

Here is what you should expect if you plan to buy a home in 2017 or beyond.

Communication

What this means to you, as a homebuyer, is to trust your lender and expect the mortgage process, in terms of the paperwork, to be thorough. The mortgage process could be compared to an airplane ride. No ride, destination, flight attendant, captain or any aspect of each individual flight is the same. Every flight is different.

Every loan is different as well. If you have ever been on a flight and experienced turbulence, that turbulence is the equivalent of a lender coming back and asking you for documentation, even though you already provided it at the beginning. Asking you for documentation a handful of times is normal.

Remember, a good lender can do a thorough job examining your financials before you go house hunting. This will ensure you can get a loan at a good rate while intercepting future issues that may arise. Before you go to a lender for pre-approval, you’ll want to check your credit scores to see if there are any issues or errors weighing down your scores that you can quickly fix. You can get your two free credit scores on Credit.com.

Time

Time is not on your side when purchasing a home for two reasons: You might have a fee for every day you don’t close on time, which could be as much as $100 per day. If you close three days late, that’s $300 in the seller’s pocket. The other reason is your interest rate lock. If you don’t close on time, it might cost you as little as $500 or as much as a few thousand to extend your rate lock commitment to the investor.

Time is also not on your side because there is an expectation your lender and Realtor have that you to provide documentation to them within 24 hours. This means your answer to the request made Monday asking you for a paystub is expected by Tuesday, no later than Wednesday. Delays in the process can be costly and stressful, especially if everyone is counting on the transaction to close by a certain day and it doesn’t due to failure to receive documentation in a timely manner.

The best two things you can do for yourself when purchasing a home are one, get the needed documentation to your professional in a timely manner, and two, expect to be on call for each day of your 30-day purchase contract. Going into the transaction with those expectations up front will help ensure your transaction closes on time.

Image: PeopleImages

 

The post What You Should Know About Mortgage Paperwork appeared first on Credit.com.

What to Do When Your Parents Kick You Off Their Credit Card

parent_credit_card

Plenty of parents make their kids authorized users on their credit cards, and for good reason. Credit cards provide a way to build credit, giving teenagers an early financial leg up (provided the card is managed responsibly) by establishing a credit history before they’re old enough to get a credit card on their own.

It can also be a great chance for parents to supervise how their children are spending and help them learn financial lessons, like making payments on time or reading a credit card statement. Even checking credit scores and reports through free credit score tools (such as those on Credit.com) and free annual credit reports at AnnualCreditReport.com can help them reach their financial goals.

But at some point, there comes a time when all parents cut the cord (and the card), kids must make it on their own in the world of credit. What now?

If that recently happened to you, there are two starting points where you’ll likely find yourself: having a good credit score or having a not-so-good credit score.

If Your Credit Scores Are Good

If your parents have been making timely payments on the card you also carry, you likely have a credit score that is good enough to get your own credit card. If that’s the case, you can consider some of these credit cards for good credit. If you’re still in school, you might want to consider a credit card specifically designed for students.

Remember, if you’re under 21, you’ll need to demonstrate an ability to repay or have a willing co-signer to qualify — federal law prohibits issuers from extending credit cards to you otherwise. You should also check your credit before applying so you know where your score stands, because the inquiry will temporarily ding it.

If your parents are only just now starting to talk about removing you as an authorized user from their card, it might be a good idea to ask them to wait until you apply for a new card in your own name. This will ensure that your credit score remains high — closing credit card accounts can have a negative impact on your credit scores — while you go through the application process.

Better yet, you can ask your parents to take your card but keep you as an authorized user on their account. As long as they are making payments on time and not carrying high balances, this will help you even further in establishing a good credit history. That’s because roughly 15% of major credit scores is based upon the length of your credit history. So the longer you’ve had credit, the more points you’ll earn toward your total credit score.

If Your Credit Scores Aren’t So Hot

If your parent or parents are having financial difficulties and haven’t been making timely payments on the credit card or have run up a high balance — credit utilization is a big factor in credit scores — you might not have very good established credit.

The good news is, you have options, and getting disconnected from your parents’ credit could be a very good thing for your scores. Authorized users are not considered responsible for making payments, so if negative information is appearing on your credit reports because of the account, you can contact your lender and asked to be removed from it. After that, the account should stop appearing on your credit reports. If it doesn’t, you can file a dispute with the credit bureaus.

Next, you can start on your own financial road by first checking your credit scores to see exactly where you stand. You might also want to check your credit reports to make sure everything on them is accurate (see the free credit scores and reports links in the second paragraph). If afterward you’re certain you have “thin” or “bad” credit, there are some credit cards — both secured and unsecured — that you can consider applying for to help you establish or rebuild credit.

If you find out through checking your credit scores that the situation is actually not all that bad, you can try applying for a credit card for fair credit.

Credit cards can be a simple way to establish and build credit, but they’re not your only option. You can also consider credit-builder loans to get you started.

Whatever your decision, remember that your credit is an important for everything, from getting a car loan to renting an apartment, opening utilities and sometimes even landing a job. So taking care of it should be a top priority. You can build good credit in the long-term by making all loan payments on time, keeping debt levels low, limiting new credit inquiries and only adding a mix of credit accounts as your wallet and score can afford them.

More Money-Saving Reads:

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The post What to Do When Your Parents Kick You Off Their Credit Card appeared first on Credit.com.

Is There a Difference Between a Co-Signer & a Co-Applicant?

The terms “co-signer” and “co-applicant” may sound like they’re the same, but there are actually some key differences between the two that are important to understand if you’re thinking about financing a loan alongside friends or family members.

What’s the Difference?

A co-applicant, also sometimes referred to as a co-borrower “is a full-fledged partner in the account or loan transaction,” Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions, said in an email. Each person has all the same rights and responsibilities pertaining to the loan and, when it comes to applying for the financing, both parties’ financials, including income, are generally used to calculate how much credit should be extended, he said.

Co-applicants are typically common when it comes time to buy a home.

“For mortgages, this divides the responsibility of repayment equally between the two property owners,” Bruce McClary, vice president of public relations and external affairs at the National Foundation for Credit Counseling, said in an email.

But, no matter what type of financing is involved, both parties are on the hook for any missteps.

“If defaulted, both parties are equally fully responsible even if it was only one of them who ran up the charges (we usually see this with credit card accounts when clients divorce),” Nitzsche said.

Co-signers, on the other hand, are generally added to an account in order to help someone with no credit or bad credit get financing.

“The healthy credit record of the co-signer can help the other person get past credit approval thresholds and qualify for more affordable rates,” McClary said. But, despite that role, a co-signer generally isn’t granted the same usage rights as the primary borrower. (For instance, a co-signer on a mortgage may not have property rights to the home.)

Still, “if the primary applicant fails to repay the account according to the terms of agreement, the lender can [pursue] the co-signer for the remaining balance,” McClary said.

It’s also possible to be a guarantor, someone who “guarantees” a loan for a friend or family member.

“A ‘guarantor’ … is similar to a co-signer except that the guarantor doesn’t become liable until the bank has exhausted all other means of collection from the primary borrower,” Nitzsche said. “With a cosigner, the bank can come after both parties right away for collection.”

Considering a Co?

Remember, in all these instances, you could ultimately be on the hook for payments and charges. Plus, any unpaid bills, defaults, collections accounts, or, if the debt is attached to a mortgage, short sale or foreclosure, will likely appear on your credit report and damage your credit score. That’s why you should always consider all your options very carefully before signing alongside someone on those dotted lines.

And, no matter what route you go, it’s important to keep an eye on your credit so you know how any co-signed or joint accounts may be affecting your credit. (You can view two of your credit scores for free each month on Credit.com.)

If a co-signed or joint account has tanked your credit, you may be able to improve your score by disputing errors on your credit report, paying down high credit card balances and limiting new credit inquiries until your score rebounds.

More on Credit Reports & Credit Scores:

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Review: American Business Lending Small Business Loan

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American Business Lending is a Preferred SBA non-bank lender offering SBA small business loans. SBA Loans are guaranteed by the Small Business Administration. Since the government may guarantee up to 85% of this small business loan, the lender is able to qualify business owners with more lenient standards and offer a lower interest rate than traditional loans.

You can borrow $300,000 to $5,000,000 for commercial financing. This loan can be used for expansion, refinancing, business acquisitions, start-ups, franchises, furniture, fixtures, equipment, inventory and working capital.

Loan interest on the American Business Lending SBA Loan is the prime rate + up to 2.75%. The Wall Street Journal prime rate at the time of publication is 3.50, so you can expect an interest cap of 6.25%. However, interest on this loan is floating, which is another way of saying variable. Interest rates will adjust quarterly based on the prime rate.

The loan term is 7 to 25 years. Collateral may be required. There’s a minimum 10% down payment. You may be able to avoid a down payment if you’re getting a loan for a refinance.

The American Business Lending Loan Process

There are four steps to the loan process. First, you’ll get assigned a loan officer. They’ll help you choose which loan product is the best for you and then you put in an application. During the application process you’ll turn in a few documents to qualify you for the loan including:

  • Financial statements
  • Federal tax returns for your business from the last 3 years
  • A business plan or projections for the next two years if your business is a start-up
  • A purchase agreement if you’re buying real estate or business assets
  • The franchise agreement if you run a franchise business
  • A copy of the note being refinanced if you’re refinancing a loan

From there, your application goes into underwriting where your loan request will be reviewed. An underwriter will possibly follow up with questions to qualify you. You get a credit decision within 72 hours of turning in your complete loan application.

Once approved, you’re given a commitment letter, which includes: your interest rate, loan amount, collateral required and other loan terms. You’ll have to pay a good faith deposit, which will later be used to cover the closing costs, credit reports and other fees associated with taking out a loan. After signing the commitment letter and turning in your good faith deposit, you can expect your loan to close within 30 to 45 days.

Since we just mentioned closing fees, now’s a good time to go into how much this is going to cost you.

Fees and Gotchas

American Business Lending charges a $1,500 fee for packaging the loan on top of the SBA guarantee fee charged by the Small Business Administration and other closing costs.

The Small Business Administration fee is charged to the lender and the lender can choose to eat the cost or charge it back to you. In this case, American Business Lending will charge you. The SBA guarantee fee for this loan will range from 3% to 3.75% of the guaranteed portion depending on how much you borrow.

Aside from packaging and the guarantee fee, there’s a prepayment penalty to consider. If you take out a loan that has a term less than 15 years, there’s no penalty for paying early.

If you have a loan term of 15 years or more you can prepay up to 25% of the principal during the first 3 years without penalty. Payments you make above 25% will cost you 5% of the principal the first year, 3% the second year and 1% the third year.

Pros and Cons

We’ve gone over the basics. Let’s head into the pros and cons of this loan:

Pro: Competitive interest. Loans guaranteed by the Small Business Administration have an interest cap. The prime rate has been at a low, so even though interest is variable it’s still a good deal for now.

Con: Fees. This lender is transparent with most fees there’s just many fees to consider. Particularly the closing costs and early prepayment fee. American Business Lending doesn’t say how much closing costs are exactly but you will be charged to cover appraisals and environmental reports, loan closing attorney’s fees, credit reports and lien searches. You may also get penalized if you’re able to repay this loan early.

Pro: Loan size. American Business Lending gives you the flexibility to take out a large loan amount and you can borrow for a longer time span than you can for other non-SBA business loans. We’ll cover a non-SBA business loan below so you can see the difference in loan amounts and terms.

Con: Loan size. The loan size is a plus for business owners who want to borrow over $300,000, but a negative if you’re looking for a smaller loan amount. Other SBA Loan products like the SBA Express Loan allow you to borrow $50,000 through an expedited process. American Business Lending doesn’t appear to have this option.

Pro: Experience with SBA loans. One of the downsides of SBA Loans is the application process. You have to qualify with the lender and also have your paperwork approved by the Small Business Association. According to the American Business Lending site, it’s a preferred SBA lender and the loan officers are experienced in processing these loans. Ideally, this experience will make the process less burdensome.

Con: Long wait time for funds. Applying and closing this loan will take awhile. Getting a credit approval will take 3 days. Then closing will take up to 45 days after you sign off on the contract. If anything should hold up the process like an appraisal you could be waiting for a few months until you get your hands on the loan.

American Business Lending

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Alternatives to American Business Lending

In our comparison section, we’re going to put the American Business Lending SBA Loan against two competitors including one that also offers the SBA Loan and another lender that doesn’t offer SBA Loans.

SmartBiz has an SBA Loan process that’s handled completely online. You can borrow $30,000 to $350,000 for 10 years. Interest ranges from variable 6.25% to 7.25%. Interest is higher at SmartBiz because the Small Business Administration sets a higher interest cap for smaller loans that have shorter loan terms.

You can pre-qualify for a SmartBiz loan within 5 minutes and get funding within 7 days of completing your application. SmartBiz doesn’t have a prepayment fee. The packaging fee is 4% in addition to closing costs. For loans above $150,000, there’s a 2.25% SBA guarantee fee.

smartbiz

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Funding Circle can get you funds quickly and with a competitive interest rate, if you have a good to excellent credit score. You can borrow $25,000 to $500,000. This is comparable to the amount you can borrow from American Business Lending. However, the loan terms are shorter.

You have between 1 and 5 years to repay your loan. If you’re taking out a six-figure loan a short repayment window could be a challenge. Interest is from 5.49% to 21.29% APR. There’s an origination fee of 1.49% to 4.99%.

Funding Circle

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Who Will Benefit the Most From an American Business Lending Loan?

SBA Loans open the door to financing for small business owners who can’t qualify for traditional financing. So, an American Business Lending SBA Loan could be a good choice if you need to borrow a large sum with a low-rate.

Instead of a percentage package fee like SmartBiz, American Business Lending has a flat $1,500 fee, which can save you money and gives it an edge. One the other hand, SmartBiz has a quick and streamlined application process that is more convenient for smaller loans.

One question you should ask a loan officer at American Business Lending and SmartBiz before borrowing is how much the closing costs will be beyond the packaging and guarantee fees for the loan you choose.

The post Review: American Business Lending Small Business Loan appeared first on MagnifyMoney.