loan http://www.wisebread.com/taxonomy/term/1007/all en-US The 16 Cardinal Rules of Loaning Money to Friends and Family http://www.wisebread.com/the-16-cardinal-rules-of-loaning-money-to-friends-and-family <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-16-cardinal-rules-of-loaning-money-to-friends-and-family" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_hands_open_000036850298.jpg" alt="Man learning cardinal rules of loaning money to friends and family" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Loaning money to friends and family is one of life's greatest dilemmas. On one hand, you want to help somebody you care for when they're in a financial bind. On the other, you know it probably won't go off without a hitch. Ultimately, the decision is yours on whether to extend that cash-filled helping hand, and if you choose the Good Samaritan route, it's important to remember these dos and don'ts.</p> <h2>1. Carefully Consider Who You're Helping</h2> <p>If it's your brother who's in need of a quick loan, and you know he'll pay you back on time with interest, your decision to lend money is a no-brainer. But if it's your deadbeat cousin Steven who has never had two nickels to rub together, but always somehow has pocketful of cash to buy rounds of shots for his lady friends at the bar because he wants to look like a baller, you should probably sleep on it.</p> <p>When there's not a snowball's chance in hell that you'll see your money again, resolve to help without the expectation of being paid back, or just say no.</p> <h2>2. Don't Be Afraid to Say NO</h2> <p>You're under no obligation to give anyone &mdash; besides the government and your own creditors, of course &mdash; a dime of your hard-earned money. If you don't feel comfortable lending money to a friend or family member, just say no. They'll get over it. Or they won't, and you'll be better off for it.</p> <h2>3. Only Loan an Amount You Can Afford</h2> <p>If you have the disposable income to offer a loan without feeling the pinch, then okay. Only lend what you can afford without compromising your own financial situation.</p> <h2>4. Don't Expect Favors in Return</h2> <p>If you want to pay the person in need of money for completing tasks around the house or office, that's quite acceptable. There's no harm in earning the cash you need. But if that's not part of the original deal, don't expect the borrower to go out of their way to help you with anything. Sure, it's the decent thing to do &mdash; helping someone in other ways when they lend you money &mdash; but not everyone thinks that way, and it's not fair to place those expectations on unsuspecting people.</p> <h2>5. Keep it Strictly Business</h2> <p>Lending money is a business deal, not a friendly transaction. And when you treat it like the former, the experience is likelier to go much smoother than when it's positioned as the latter. Draw up a written contract, establish repayment terms &mdash; including interest (doesn't have to be bank-rate interest, but at least something minimal to provide motivation to pay on time) &mdash; and have both parties sign. Each of you should keep a copy, and post it on the fridge, as a reminder of what one of you is owed and what the other owes.</p> <h2>6. Never Berate Them About Their Poor Personal Finance Skills</h2> <p>If you've decided to help with loan, keep your opinion about their poor personal finance skills to yourself. There's no reason to kick somebody while they're down just to make yourself feel better. You can offer productive solutions to their consistent finance problems, but never in a way that makes them feel bad about themselves.</p> <h2>7. Establish Firmly That This Is a One-Time-Only Situation</h2> <p>Unless you want to operate as a 24-hour ATM, it's important to let the borrower know that this loan is a one-time gesture. Let them know that you don't want to be asked again under any circumstances. That might sound harsh, but you're not a bank, and people have a funny way of taking advantage of pushovers.</p> <h2>8. Avoid Giving Into Emotional Bullying</h2> <p>People who need money will sometimes pull out all the stops when trying to convince you to subsidize their life. Stay strong. Don't let those sad excuses and crocodile tears drag you down, especially when the dramatics are from someone you know better than to trust with a loan.</p> <h2>9. Suggest Sending Money Directly to Overdue Bills</h2> <p>If you're not completely comfortable handing over cash or a check to the borrower &mdash; like to your deadbeat cousin Steven &mdash; suggest sending money directly to the overdue bills in question. Even just proposing this solution is a good way to gauge where the priorities of the borrower lie, especially where your money is concerned. (See also: <a href="http://www.wisebread.com/prioritize-these-5-bills-when-youre-short-on-cash">Prioritize These 5 Bills When You're Short on Cash</a>)</p> <h2>10. Don't Bring It Up Out of Context</h2> <p>This loan is between you and them; it's not between you and your sister and her husband and your hairdresser. You don't have to tell the whole world about it. Likewise, you shouldn't hold it over the borrower's head either. When a payment is missed, address it specifically in that context, not when you're out to lunch and your friend or family member orders a beer that could be used to pay you back instead.</p> <h2>11. Be Vigilant About Payback</h2> <p>Hopefully, since you have created a contract and repayment terms with interest, you won't have to hunt down your money and it'll make its way to you on time. But if that's not the case, stay vigilant about payback. It might seem like you're hounding the borrower every time you ask &mdash; because you are. Don't feel bad about it, either. They asked for money, and you let them borrow it, and now you expect to be paid back according to the loan terms. Anything less is unacceptable.</p> <h2>12. Never Co-Sign for a Loan or Add Them to Your Credit Cards</h2> <p>Lending cash is one thing, but co-signing for loans and adding them as an authorized user on your credit card is a whole other ballgame, and you absolutely don't want any part of it. It is almost guaranteed to be a disaster. If that discussion is on the table, swiftly shut it down. You're not the person for the job.</p> <h2>13. Offer to Help Get Them Back on Track in Other Ways</h2> <p>In addition to the loan, offer suggestions on how they can improve their financial situation. Do you have tasks around the house or office they can be paid to do? Can you teach them how to spend and save smarter? Do you have certain money-saving shopping techniques you can employ? Think of how you can impart wisdom to the borrow so they can help themselves more often. (See also: <a href="http://www.wisebread.com/20-money-mistakes-everyone-makes-but-no-one-talks-about">20 Money Mistakes Everyone Makes But No One Talks About</a>)</p> <h2>14. Don't Dip Into Your Own Savings</h2> <p>If you can't afford to fund a personal loan from your own disposable income, you can't afford it. Your savings are just that &mdash; savings for emergencies, a new investment, or, frankly, whatever you want. That's money that you've worked hard to build up, and you shouldn't let anyone take away from that. Politely explain the situation, and close the case.</p> <h2>15. Plan for the Worst</h2> <p>Lending money to family and friends doesn't always go as planned, which is why it's important to have a Plan B.</p> <p>&quot;Discuss the worst-case scenario and put a conflict resolution plan in place that you both agree on,&quot; suggests personal finance expert Chantel Chapman. &quot;Things can get awkward when it comes to money, so planning out how you will handle a conflict if one does happen when you are cool-headed versus acting on hot-headed emotion will protect your relationship in the future.&quot;</p> <h2>16. Avoid Going Into Debt Yourself</h2> <p>What's the point of helping someone out financially if it compromises your own financial integrity? The only answer is that misery loves company, and miserable is all you'll be if you let someone start bleeding you dry with loan requests. Their problems are not your problems, and it's not your responsibility to fix them. If you're in danger of going into debt by doling out loans to friends and family, put a stop to it immediately. They'll find another way; moochers always do.</p> <p><em>Have you ever lent money to family or friends? What are some of your dos and don'ts? Let me know in the comments below.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/the-16-cardinal-rules-of-loaning-money-to-friends-and-family">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/borrowing-from-friends-the-friendship-killer">Borrowing from Friends: The Friendship Killer</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-surprising-way-birth-order-decides-your-money-habits">The Surprising Way Birth Order Decides Your Money Habits</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-money-moves-to-make-the-moment-you-decide-to-get-divorced">5 Money Moves to Make the Moment You Decide to Get Divorced</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/when-should-you-say-no-to-those-who-want-to-borrow-money-from-you">When Should You Say No to Those Who Want to Borrow Money from You?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/can-you-afford-to-have-a-baby">Can You Afford to Have a Baby?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Family borrowing money lending money loan loaning money Fri, 08 Jan 2016 16:00:03 +0000 Mikey Rox 1634307 at http://www.wisebread.com 6 Times You Should Never Take a Loan http://www.wisebread.com/6-times-you-should-never-take-a-loan <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-times-you-should-never-take-a-loan" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple_finances_000054083718.jpg" alt="Couple considering whether or not to take a loan" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Banks create loans everyday, but this doesn't mean you should apply for one without fully weighing the risks. Sure, a loan can help build your credit history, and makes it easier to purchase high-ticket items, such as a home and an automobile. If you can afford a loan and you're able to manage it responsibly, getting approved for financing can be a godsend. But, there are clearly times when you should avoid taking out a loan at all costs. These are six of them.</p> <h2>1. The Bank Requires a Cosigner</h2> <p>A bank may not approve your loan unless there's a cosigner. But even if a parent or sibling agrees to cosign, the fact that you even need a cosigner is a sign you shouldn't get the loan. Seriously, dude, stop and think about this for a bit. You're not qualified &mdash; harsh reality, I know &mdash; so this loan probably isn't the best decision.</p> <p>If a lender says you don't qualify on your own merit, rather than get a cosigner and put a Band-Aid on the situation, get to the root of the rejection and fix your credit in order to qualify on your own. Besides, a cosigner is a joint applicant, and the way you manage this account affects their credit history. Unless you want to risk damaging a relationship, leave friends and relatives out of your financial matters.</p> <h2>2. You Have a Low Credit Score</h2> <p>A low credit score doesn't mean you can't get a loan, but you'll certainly pay more for it than someone with good credit. Since you're a risky applicant, the bank will charge a higher interest rate, which also increases your monthly payments. Depending on how much you pay, getting a loan with bad credit can be a very costly decision in the long run. You're better off postponing the loan, <a href="http://www.wisebread.com/how-to-rebuild-your-credit-in-8-simple-steps">fixing your credit</a>, and then applying once you can qualify for prime rates.</p> <h2>3. To Pay for an Upcoming Vacation</h2> <p>If you're burnt out and need a break, it might be time for a vacation. Holla! But if you don't have cash to afford a vacation, getting a loan isn't the answer. Vacations are a time to relax and spend time with your family &mdash; not complicate your life. Unless you're in a position to pay off a loan immediately after you return home, think twice before financing your vacay. Yeah, it might be a trip of a lifetime and create memories for years to come, but it's not worth coming home to added financial stress, especially if you have to work more to pay off this loan. As an alternative, look into shorter getaways closer to home that won't cost a lot of money.</p> <h2>4. To Pay for a Wedding</h2> <p>Some people think the bigger the wedding, the better the wedding. These same people also think weddings are a once-in-a-lifetime event (and let's hope it is), so it's okay to splurge and go deep into debt. But given that 50% of all marriaged&nbsp;<a href="http://www.apa.org/topics/divorce/">end in divorce</a>, there's a solid chance that the wedding debt will last longer than the vows. A real kick in the you-know-whats, isn't it? I don't have firsthand experience (my husband and I are still holding our marriage together, but we also didn't spend a fortune on a wedding), but I'm guessing it's pretty frustrating to make payments on a wedding loan years after you and an ex-spouse break up. Anger-inducing, even. Some people have the fairy tale and enjoy happily ever after, but there are no guarantees. If you can't afford a lavish wedding with your own money, don't have one. You will regret it later.</p> <h2>5. When You're Borrowing Against Your Retirement</h2> <p>The decision to take a loan against your retirement account is ultimately your decision, but there are many factors to take into consideration. This money can be useful during a hardship or if you're buying a house and need a down payment. But a recent study shows that approximately $6 billion is lost to&nbsp;<a href="http://www.asppa.org/Portals/2/PDFs/White%20Papers/WP2014-01.pdf">401(k) loan defaults</a> annually. That's a lot of well-intentioned people failing to repay their 401(k) loans.</p> <p>If you're committed to paying back your retirement account, and if retirement is several years into the future, borrowing from your account isn't the end of the world. But if you don't think you'll be able to replenish an IRA or a 401(k) account, or if retirement is right around the corner, this isn't the time to gamble with your future.</p> <h2>6. You Can't Get Traditional Financing</h2> <p>If you can't get traditional financing from a bank, you might be tempted to get a payday or title loan. These loans can put fast cash in your pocket, and they don't typically require a credit check. But these are two of the riskiest loans available. Title loans have to be paid in full within two weeks and you'll pay high fees &mdash; as much as $25 per every $100 you borrow. A car title loan isn't any better. These loans require a paid off car and your title acts as collateral &mdash; but there's a catch: If you can't pay back a title loan, you lose your car. Steep sentence, for sure. Here's another catch: Nobody's wants to drive your broke butt around town because you can't manage your money, so don't make foolhardy financial mistakes.</p> <p><em>Did you take out a loan when you shouldn't have? What happened?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/6-times-you-should-never-take-a-loan">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-smart-ways-to-get-a-small-business-loan">10+ Smart Ways to Get a Small Business Loan</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-countries-where-banks-pay-crazy-interest-rates">10 Countries Where Banks Pay Crazy Interest Rates</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-7-debt-payoffs-that-boost-your-credit-score-the-most">The 7 Debt Payoffs That Boost Your Credit Score the Most</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-times-when-its-okay-to-take-a-loan">6 Times When It&#039;s Okay to Take a Loan</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/money-to-start-your-business-without-banks-or-saving">Money to start your business--without banks or saving</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking borrowing credit score loan Tue, 03 Mar 2015 18:00:06 +0000 Mikey Rox 1316744 at http://www.wisebread.com Best Money Tips: Ways to Deal With Student Loan Debt http://www.wisebread.com/best-money-tips-ways-to-deal-with-student-loan-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-ways-to-deal-with-student-loan-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/sad-graduate-student-177704055-small.jpg" alt="sad graduate student" title="sad graduate student" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today we found some awesome articles on dealing with student loan debt, feeling less stress, and money moves for the fall.</p> <h2>Top 5 Articles</h2> <p><a href="http://www.thesimpledollar.com/15-ways-to-deal-with-student-loan-debt/">15 Ways to Deal with Student Loan Debt</a> &mdash; To deal with student loan debt, take advantage of your grace period and understand your loans.[The Simple Dollar]</p> <p><a href="http://www.marcandangel.com/2014/10/05/11-ways-to-let-go-and-feel-less-stress/">11 Ways to Let Go and Feel Less Stress</a> &mdash; Saying less and breathing more when you are angry can help you feel less stress. [Marc and Angel Hack Life]</p> <p><a href="https://www.mint.com/blog/planning/5-money-moves-for-fall-100714/">5 Money Moves for Fall</a> &mdash; Now that fall is here, start saving for the holidays and shopping strategically. [MintLife Blog]</p> <p><a href="http://timemanagementninja.com/2014/10/the-4-key-components-of-every-time-management-system/">The 4 Key Components of Every Time Management System</a> &mdash; Every time management system has a todo list and calendar.[Time Management Ninja]</p> <p><a href="http://moneyplansos.com/why-getting-out-of-debt-is-so-hard/">Why Getting Out of Debt Is So Hard (and What to Do About It)</a> &mdash; The secret to getting out of debt is to not quit, keep trying! [MoneyPlan SOS]</p> <h2>Other Essential Reading</h2> <p><a href="http://outofyourrut.com/need-approach-life-mindset-student/">Why We Need to Approach Life With the Mindset of a Student</a> &mdash; Students have the mindset to learn new disciplines and ideas. [Out Of Your Rut]</p> <p><a href="http://www.lifehack.org/articles/communication/the-top-10-things-that-could-make-wedding-disaster.html">The Top 10 Things That Could Make a Wedding a Disaster</a> &mdash; Running out of food and having your guest list become out of control can make your wedding a disaster. [Lifehack]</p> <p><a href="http://www.dumblittleman.com/2014/10/5-things-complicates-lives.html">5 Things We All Do That Over Complicates Our Lives</a> &mdash; Taking pride in working hard may be over complicating your life. [Dumb Little Man]</p> <p><a href="http://www.popsugar.com/smart-living/Uses-Club-Soda-30394321">11 Extraordinary Uses for Ordinary Club Soda</a> &mdash; Did you know the minerals in club soda makes it better for plants than actual water? [PopSugar Smart Living]</p> <p><a href="http://parentingsquad.com/5-books-to-help-prepare-your-preschooler-for-her-education">5 Books to Help Prepare Your Preschooler for Her Education</a> &mdash; To help your preschooler prepare for their education, read the &quot;I Am&quot; series with him or her. [Parenting Squad]</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ashley-jacobs">Ashley Jacobs</a> of <a href="http://www.wisebread.com/best-money-tips-ways-to-deal-with-student-loan-debt">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-refinance-your-student-loan">Should You Refinance Your Student Loan?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-one-college-graduate-paid-off-28000-in-three-years-on-a-30k-salary">How One College Graduate Paid Off $28,000 in Three Years on a $30K Salary</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/can-you-talk-to-your-friends-about-debt">Can you talk to your friends about debt?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-interest-rates-are-about-to-go-up">Your Interest Rates Are About to Go Up</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-money-moves-to-make-when-you-move-back-home-with-your-parents">6 Money Moves to Make When You Move Back Home With Your Parents</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management best money tips debt loan student loans Thu, 09 Oct 2014 19:00:04 +0000 Ashley Jacobs 1230391 at http://www.wisebread.com Understand Capital Costs http://www.wisebread.com/understand-capital-costs <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/understand-capital-costs" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/Reichstag.jpg" alt="Reichstag in Berlin" title="Reichstag in Berlin" class="imagecache imagecache-250w" width="250" height="143" /></a> </div> </div> </div> <p>Especially for things people often buy on credit, like a car or a house, there's a tendency to divide the ownership into two periods--while the loan is being paid off, where the item is expensive, and after the loan has been paid off, where the item is free. This is a fundamental misunderstanding of capital costs.</p> <p>Ordinary items are an extreme case of this. A new t-shirt or coffee mug costs a few dollars one time and then lasts for a year or twenty. Once you pay for it the &quot;expensive&quot; phase is already over, and now the item is &quot;free&quot; for however long it lasts. Items bought on credit only seem different because the &quot;expensive&quot; phase lasts longer than a moment.</p> <p>Economists and accountants long ago figured out that this is the wrong way to think about capital costs. Each field came up with a slightly different path toward a correct understanding--accountants talk about depreciation while economists talk about present value--but it's the same idea.</p> <p>Imagine that you pay $20,000 for a car that's going to last 10 years. If you pay cash, one way to think about it is that the car costs $20,000 in the first year and then is &quot;free&quot; for the next nine years. That's not an insane way to think about it--that's what your actual cash flow looks like--but it doesn't lead to smart decision making. It's somewhat better to think of it as costing $2,000 a year for 10 years--that'd be pretty accurate in a world where interest rates were zero and you always knew exactly how long the car would last. Since interest rates aren't zero and you don't know in advance exactly how long the car will last, you need to make some adjustments. (Accounting is all about the rules for making those adjustments, so that one company's accounts can be compared to another's. The tax man has a certain interest as well.)</p> <p>The insight that the economists had is that <strong>what really matters is the interest rate</strong>. If you buy a car you might borrow the money--but then you have to pay interest on the loan.&nbsp; Alternatively, might pay cash--but then your cash is tied up in your car and can't be invested in something else. If the interest rates were the same, it wouldn't matter to you which one you did. (At least, it wouldn't matter to an economist.)</p> <p>In simple cases, like deciding whether or not to take out a car loan, people's intuition serves them well enough--you know that the interest rate on the loan will be several percentage points higher than what you can earn on your savings, so paying cash makes sense if you have the cash. You also know that making the car last as long as possible is a win however you pay for the car. But in more subtle cases, simple intuition can lead you astray.</p> <p>For example, suppose the location of your current home means that need to have two cars so that two adults in the household can both get to work. If you moved someplace where one person could get to work some other way (on foot, by bicycle, via public transit), you could get rid of one car. The economic analysis involves comparing the costs of the second car to the difference in rent. But--and this is the key point--<strong>it doesn't matter whether the car is paid for or not</strong>.</p> <p>In a situation like that, the simple-minded analysis is to add up just the cash costs of the car--fuel, insurance, registration, maintenance, etc. This leads you badly astray if you imagine that having a paid-off car is different from having one where you're still making payments. The capital cost of your car is completely independent of whether you're currently making car payments. If you adjust your household situation so that you can get by on one fewer car you reduce your expense profile by the entire cost of maintaining that second car--including the capital cost. (One way to think about it is that you no longer need to be saving up to pay for its replacement.)</p> <p>From a purely economic perspective, the only difference between buying something on credit and paying cash comes from the difference in interest rates. In the real world, of course, there are other differences--a debt constrains your future freedom, while cash in the bank expands it. But the purely economic perspective is worth understanding so that you don't make this kind of mistake.</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/understand-capital-costs">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-ive-been-trying-to-say">What I&#039;ve been trying to say</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/can-a-little-inflation-be-good">Can a Little Inflation Be Good?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/peak-debt">Peak Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/another-path-to-recovery-higher-incomes">Another path to recovery: higher incomes</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/recession-depression">Recession Depression</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Financial News capital economics loan Mon, 10 Aug 2009 20:00:01 +0000 Philip Brewer 3482 at http://www.wisebread.com New Home Loan Rules Will Take Effect on July 30, 2009 http://www.wisebread.com/be-aware-of-new-home-loan-application-rules-taking-effect-on-july-30-2009 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/be-aware-of-new-home-loan-application-rules-taking-effect-on-july-30-2009" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/federalreserve.jpg" alt="Federal Reserve Building" title="Federal Reserve Building" class="imagecache imagecache-250w" width="250" height="313" /></a> </div> </div> </div> <p>If you are in the process of buying a new primary residence or second home, or considering refinancing a loan, a new set of federal consumer protection rules taking effect on July 30th, 2009 may affect you.&nbsp; These rules are a part of the Mortgage Disclosure Improvement Act of 2008, and they are designed to give consumers more disclosure of the cost of a loan and also more time to make a decision.&nbsp; The<a href="http://www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm"> final rules from the Federal Reserve</a> were modified recently and here is a quick summary.</p> <p><strong>Early disclosures are required within three business days</strong> - Good faith estimates of mortgage loan costs must be given to a consumer within three business days of a consumer's loan application.&nbsp; Also, no fees may be collected besides a reasonable credit check fee.&nbsp; This means that the good faith estimate needs to be given before the lender collects an application or appraisal fee. In the past it was common for lenders to collect&nbsp; hundreds of dollars in fees before providing any cost estimates.&nbsp;</p> <p><strong>Creditors must wait seven business days to close a loan after early disclosures</strong> - This gives the consumer at least seven days to decide whether to close or not upon receiving the initial estimate.&nbsp; Currently it is common for disclosures to be provided less than 24 hours before closing.</p> <p><strong>Revised disclosures must be provided if loan interest terms change</strong> - The new rule states that if the final annual percentage rate of the loan differs from the original disclosure by more than 1/8th of a percent, a new disclosure must be provided and the lender has to wait another three days until closing.&nbsp; Once again this will give the consumer more time to decide whether or not to take the loan.&nbsp; The rules do permit a consumer to voluntarily close the loan sooner if there is a financial emergency, but the lender cannot force the consumer to close sooner.</p> <p><strong>Appraisal reports must be delivered to consumer three business days before closing</strong> - Currently consumers have the right to request a copy of the appraisal report, but many do not and many lenders tend to skip this step.&nbsp; Now appraisal reports are required to be delivered to the consumer.&nbsp; The consumer could waive the three day waiting period if they opt not to receive the appraisal.</p> <p>As a consumer it is important to get as much information as you can about a home loan before you pull the trigger.&nbsp; These new rules also help by providing more time to review the information and think things over.&nbsp; Now it is up to lenders to implement these rules, but consumers should definitely be aware of what information they are entitled to starting this month.</p> <p>For more infromation, go to <a href="http://www.federalreserve.gov/bankinforeg/reglisting.htm#Z">Truth in Lending Regulation Z from the Federal Reserve </a></p> <p><strong>What do you think?&nbsp; Will these rules make the home loan process more transparent and less stressful for consumers?</strong></p> <p> <a href="http://www.federalreserve.gov/bankinforeg/reglisting.htm#Z"><br /> </a><br /> &nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/xin-lu">Xin Lu</a> of <a href="http://www.wisebread.com/be-aware-of-new-home-loan-application-rules-taking-effect-on-july-30-2009">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/details-of-obamas-mortgage-plan-released-will-you-benefit">Details of Obama&#039;s mortgage plan released - Will you benefit?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-the-banks-were-fleeced-a-primer-to-mortgage-fraud">How the Banks Were Fleeced -- A Primer to Mortgage Fraud</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-your-city-go-bankrupt">Could Your City Go Bankrupt?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8000-housing-tax-credit-can-now-be-turned-into-cash-at-closing-according-to-fha">$8000 housing tax credit can now be turned into cash at closing according to FHA</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-skip-a-mortgage-payment-to-get-a-banks-attention">Should you skip a mortgage payment to get a bank&#039;s attention?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Consumer Affairs Real Estate and Housing loan money mortgage real estate Tue, 21 Jul 2009 16:25:34 +0000 Xin Lu 3410 at http://www.wisebread.com Your Interest Rates Are About to Go Up http://www.wisebread.com/your-interest-rates-are-about-to-go-up <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/your-interest-rates-are-about-to-go-up" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/visavisavisa.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>The thing about financial crises is that they never fail to affect everyone. Just because your entire investment portfolio didn't implode when the dotcom bubble burst doesn't mean that you weren't <a title="Tips and resources for the recently laid off" href="http://www.wisebread.com/lost-my-job-tips-for-the-recently-laid-off">laid off</a> like thousands of other people. Didn't get sucked into a subprime mortgage? Lucky you. You still need to watch your back, because your fiscal responsibility <a href="http://www.twincities.com/ci_9727875">doesn't mean that you're safe from the crisis fallout</a>.</p> <p>Our economy is in the midst of a serious slide (bordering on a full-fledged recession). The causes for it are numerous, but the subprime mortgage crisis is causing some of the most accute problems.</p> <p>One of these problems is that your credit card company might decide to raise your interest rates. How is this different from the way credit card companies usually behave? The problem is that now, credit card companies are going to start raising interest rates for customers with an excellent credit history.</p> <p>Why? Because banks are hurting financially. Their problems are two-fold <strong>and</strong> causal:</p> <ul> <li>Banks are losing millions on defaulted subprime mortgages.</li> <p></p> <li>Americans have been running up huge credit card bills in the past few years, with the assumption that a home equity loan could be secured to pay off the personal debt. Now that home equity loans are difficult to get, credit card delinquencies are on the rise.</li> </ul> <p>This means that banks need to make some money, stat. How do they plan on doing this? They're going to raise interest rates on new and existing lines of credit and charge you even more in junk fees.</p> <p>It doesn't matter to banks that you're a good customer with a good credit standing. What matters to banks is their bottom line, and the only way they can think of to prevent more massive financial losses this year is to rip off their remaining customers. The result is that banks are looking for reasons to consider you an &quot;at-risk&quot; customer.</p> <p>Traditionally, at-risk customers are usually customers who run up a huge debt, pay late, only make minimum payments (although this is a tough one, as banks also LOVE you for only making minimum payments), or who have delinquent accounts. But now that banks and credit card companies are faltering, they're willing to look for all kinds of other at-risk factors, such as:</p> <ul> <li>Paying for necessities, like food, gas, or your mortgage, using credit.</li> <p></p> <li>Buying items that aren't considered high-quality, like retread tires (that's right - according to Robert Manning, your credit card company is monitoring your purchases and will raise your rates if they think your purchases indicate that you are entering a time of financial difficulty).</li> <p></p> <li>Paying your bill too close to the deadline.</li> </ul> <p>This is bad news for people who buy everything on credit in order to earn air miles or other bonus rewards. It's also drastically unfair and an incredible invasion of privacy. It's also another example of how we all end up paying for the collective financial stupidity of a few rogue investment bankers and mortgage lenders (yeah, I'm looking at <em>you</em>, Countrywide).</p> <p>Although you are always supposed to keep an eye on your credit rates, be especially vigilant in the comings months - check every statement for bogus fees and unnecessary rate hikes. You may consider not purchasing items like groceries&nbsp;with a credit card&nbsp;for the&nbsp;considerable future.&nbsp;Be sure to call and harangue your credit card company if they try to peg you as at-risk despite a clean payment record. Try to pay your credit card bill at least three days in advance of the due date, if not significantly sooner.</p> <p>Tedious though it may be, close monitoring of your statements can save you hundreds of dollars in the long run.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/andrea-karim">Andrea Karim</a> of <a href="http://www.wisebread.com/your-interest-rates-are-about-to-go-up">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-dirty-secrets-of-credit-cards">The Dirty Secrets of Credit Cards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/i-dont-love-capital-one-how-to-get-a-lower-apr-or-possibly-not">How to Get a Lower APR, or Possibly Not</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-fastest-method-to-eliminate-credit-card-debt">The Fastest Method to Eliminate Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-a-balance-transfer-offer-a-good-deal">Is a Balance Transfer Offer a Good Deal?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-people-with-good-credit-never-do">8 Things People With Good Credit Never Do</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards Debt Management APR bank fees credit card debt housing bubble loan subprime mortgage Wed, 02 Jul 2008 20:38:52 +0000 Andrea Karim 2215 at http://www.wisebread.com This Post Really Suk-kuks: Examining Islamic Finance http://www.wisebread.com/this-post-really-suk-kuks-examining-islamic-finance <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-post-really-suk-kuks-examining-islamic-finance" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/Islamic Finance.jpg" alt="" title="" class="imagecache imagecache-250w" width="117" height="78" /></a> </div> </div> </div> <p>Before you read on, know that this one of those listen-to-me-now-believe-me-later on posts.</p> <p>Enter the <a href="http://en.wikipedia.org/wiki/Sukuk"><u>Sukuk</u></a>: the interest-free loan, based on Muslim principals and before you laugh, understand this: Citigroup, Morgan Stanley, HSBC, Standard Chartered and others are getting into the Sukuk issuance business in force. <p>Moreover, while we grunt and grimace at the fact that it took 50 bucks to &quot;fill-er up&quot; or that 40 bucks only got us to three quarters of a tank or in some cases, only half a tank -- the sheer quantity of cash from petrodollars is creating a financial boom in the Middle East as well as Asian Tiger economies such as Malaysia and Indonesia -- all seats of Islam, the dominant religion among that region&#39;s populations.</p> <p>Mohammed Mahmud Awan, a scholar at Malaysia-based International Center for Education in Islamic Finance, said recently in a speech that the mortgage crisis is &quot;unthinkable&quot; under Islamic principles regarding debt. Awan said that it was &quot;time&quot; for the Islamic banking industry to present solutions to the global economic community in the wake of the crisis. </p> <p>Huh?</p> <p>Well, Islamic finance assets are growing at an annual pace of 20% and are set to hit $2 trillion in 2010 from the current $900 billion, literally fuelled by us who create flood in the desert of petrodollars, which by extension folks, means the import -- forced through business conditions or voluntarily - of some of these principles and philosophies to western banking circles.</p> <p>In the Gulf and Asia, Standard &amp; Poor&#39;s estimates that 2 out of every 10 banking customers would without thinking about it, choose an Islamic loan package for housing and business financing over a conventional one even if it had a similar risk-return profile.</p> <p>Yeah, Yeah, Yeah you say, &quot;what does this have to do with me?&quot;</p> <p>Nothing much right now. However, there is a coorelation between the growth of Islamic finance and high oil prices. Where do you think they get their money? Date farming? Sand? Manufacturing? I think not. </p> <p>And you should know that Oil-rich Middle Eastern and Central Asian sovereign wealth funds are large shareholders of many foundering Western banks who are in dire need of capital because of exposure to the interest-bearing and complex loan packages that created the subprime meltdown. This could mean that one day soon, some of these large shareholders will demand an entry into profitable and growing markets. Again enter the Sukuk. </p> <p>Not withstanding events that are beyond our control, at present, the equation is simple -- albeit with many variables.</p> <p>Oil Prices = High Gas Prices = Mega Petrodollars = Expansion X More Petrodollars + More Money in Islamic Banks = Growth of Islamic Finance + Stakes Acquired in Non-Islamic Banks+Islamic-Style Banks Having a Say in the Expansion of Western Banks which will one day offer yes: Islamic Sukuks.</p> <p>Whew.</p> <p><strong>An &quot;Interest-ing&quot; History</strong></p> <p>Charging a vig on a loan (interest on credit) has its roots in the Roman Empire&#39;s coin-based economy that was backed by vast amounts of resources in the treasury. The concept of interest became a staple during the rise of mercantilism during the Italian and European renaissance. Merchant of Venice anyone?</p> <p>And before any xenophobia sets in, it&#39;s important to note that speaking out against the concept of interest-based financing is not solely a Muslim thing. In fact, St. Thomas Aquinas of Catholic fame was said to have espoused that the charging of interest was morally wrong because it amounts to usury, i.e., charging for both the amount and the use of the amount. But the concept still took shape during the industrial revolution and has been trucking along ever since and remains a matter of life and debt for our country.</p> <p>So now the equation is this: Our paper money, for their black gold, means we have to borrow more paper money from them to buy more black gold, while they use the proceeds of our black gold purchases to build their own infrastructure, capitalize their own banks, buy shares in our banks and the rest is history or our potential future at the very least.</p> <p>Hence it&#39;s not inconceivable that some of us -- especially of the international traveler persuasion -- will be taking out interest-free loans sometime in the future and on a larger level this is a subset of the clash of civilizations. Credit isn&#39;t going anywhere mind you, as it goes so do we but the thing question is: Will we some day be at an economic disadvantage because of credit-tinged opulence when other white-hot economies are playing it straight up? Or is it straight up? Is the concept as it is with the sukuk, of renting your loan amount instead of essentially paying down a principal amount plus interest more viable? </p> <p>One Islamic finance scholar, a Rice University Prof. Mahmoud El-Gamal ,has famously suggested that there has been no major test case for the sukuk yet to ensure that Shariah-compliant loans can work, or for that matter be deemed as anything other than a way to market to religious sensibilities.</p> <p>In an August 2007 blog posting, he wrote: </p> <p>&quot;Unless and until we have a high-visibilty case of bankruptcy, we will not know with any certainty who owns what in the maze of SPVs that lawyers and structured financiers love to use. Until then, many will continue to line their pockets with legal, structuring, and advisory fees, as they congratulate themselves on &quot;innovative Islamic products.&quot; What a shame!&quot;</p> <p>Given that, what are your thoughts on a world where you have to buy what you can buy with legal tender and not be able to get by on credit? Do we have a moral obligation to fix our financial system and change our attitudes about spending and consumption while recognizing the bubbling competition?</p> <p> What do you think? </p> <p>Interest or no interest? </p> <p>What do you believe in? </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jabulani-leffall">Jabulani Leffall</a> of <a href="http://www.wisebread.com/this-post-really-suk-kuks-examining-islamic-finance">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/will-a-dental-discount-plan-save-you-money">Will A Dental Discount Plan Save You Money?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/behind-the-times-i-learn-about-keep-the-change">Behind the Times - I learn about Keep the Change</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-smart-ways-to-use-old-savings-bonds">6 Smart Ways to Use Old Savings Bonds</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/optimize-your-ira-and-401k">Optimize Your IRA and 401(k)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-sleek-marketing-ploys-aimed-at-getting-more-of-your-grocery-money">5 Sleek Marketing Ploys Aimed at Getting More of Your Grocery Money</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Banking Consumer Affairs Investment finance investments Islam loan Muslim savings Shariah Sukuk Sun, 11 May 2008 22:04:23 +0000 Jabulani Leffall 2085 at http://www.wisebread.com My car payments are too much! What should I do? http://www.wisebread.com/my-car-payments-are-too-much-what-should-i-do <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/my-car-payments-are-too-much-what-should-i-do" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/wheel_0.jpg" alt="tire wheel" title="tire wheel" class="imagecache imagecache-250w" width="224" height="168" /></a> </div> </div> </div> <p>I&#39;ve been struggling with a big financial dilemma for the past few months: whether or not to sell my car. I decided to take my question to three of my favotire personal finance bloggers.</p> <p>Last August, I decided to purchase my first new car ever. I had only ever owned used (and entirely paid-for) vehicles prior to this. I researched the type of car that I wanted and settled on a 2007 Mazda3. It&#39;s a sexy little hatchback. It&#39;s sporty, zippy, and has all the trimmings. Problem is, it&#39;s busting my budget.</p> <p>I got a decent base price on the car, but I fell for all the extras that the salesmen throw in at the end. You know, the extended warranty, the LoJack system. They kept showing me my monthly total (and not the grand total), and before I realized it, I was paying $3000 more for my car than I should have. I should note that this is pre-Wise Bread, so I wasn&#39;t nearly as wise as I am now. Ahem.</p> <p>My payments aren&#39;t horrendous, and I have an excellent interest rate on the loan. But all together (insurance, gas, payments, upkeep), the car cfosts me about $600 per month. Everyone keeps telling me that $600 a month in transportation costs isn&#39;t that bad. But I can&#39;t stop thinking about how I could use that money every month to pay down my debt or contribute to my IRA. </p> <p>Also, my car contributes to my laziness. It&#39;s an enabler. Having a car allows me to go anywhere, any time. While flexibility is nice, it&#39;s rarely necessary. I drive to the supermarket instead of walking. Hell, I drive to the closest mailbox instead of walking. I go to Target on a whim, buying stuff I don&#39;t need. </p> <p>I&#39;m thinking that if I didn&#39;t have a car, I wouldn&#39;t be so prone to spur-of-the-moment shopping, or runs to Safeway for blueberry sorbet in the middle of the night. I&#39;d have to bike and bus to work. I have a motorcycle, so I can use that to get around if I need to go farther than a couple of miles, or go somewhere that Metro Transit doesn&#39;t cover. Also, the Flexcar program is increasingly popular in my area, and there&#39;s a pick-up location not too far from where I live. </p> <p>Now, I know that I would still have to pay for that transportation, so the full $600 won&#39;t be going directly into a new money market account. I figure that, without the car, I could spend about $150 a month in transportation costs, max (I have a free bus pass, and my motorcycle gets great gas mileage). So I&#39;d really only be putting away $450 per month. </p> <p>My remaining balance on my car loan is just under 19K. My car is valued at about 19.5K. I decided to put the car up for sale to see if anyone wanted it. So far, I&#39;ve had three people try to lowball me (&quot;Yo, man, I&#39;ll give you 15K cash – here&#39;s my digits&quot;) and sales people try to help me list it on eBay. But I&#39;m not getting a lot of bites. I tried lowering the price to 1K below the Kelly Blue Book value, but I&#39;m still not getting much in the way of responses.</p> <p><strong>My questions to my favorite PF bloggers:</strong></p> <p>Should I just suck it up and continue making the payments? At the end of five years, I&#39;d have my own car and not have to make payments anymore, so that&#39;s good. But on the other hand, I&#39;d be paying well over 25K for something that I don&#39;t technically NEED. </p> <p>Which is worse? To sell the car for less than it&#39;s worth, and thereby losing a couple of grand in payments that I&#39;d still have to make to pay off the loan? Or keeping the car and paying all this money that could otherwise be going to shore up my finances? </p> <p><strong>Below is the advice that some very busy bloggers graciously offered me in response.</strong></p> <p><strong>Leo Babuta, </strong><a href="http://zenhabits.net/"><strong>Zen Habits</strong></a></p> <p>&quot;It sounds to me like you definitely want to get rid of the car ... so I would do it, assuming you can afford to pay for the difference between the loan principal and the selling price. You might be losing a few thousand dollars, but you will lose even more than that in interest over the course of the loan. The important factor here isn&#39;t financial, though, it&#39;s psychological: you want to be free of this<br />debt, and using the $450 per month on improving your financial situation, rather than spending it on something you don&#39;t need. And that is perfectly legitimate, and admirable in my opinion. As for surviving without a car ... many people have done it, it&#39;s better for your health, and better for the environment. Positives all around!&quot;</p> <p><strong>Nina Smith, </strong><a href="http://www.queercents.com"><strong>Queercents</strong></a></p> <p>Six hundred dollars per month is a boatload of money. How much money do you make each month? How much do you pay in rent? I’m not expecting an answer… I only ask to emphasize that your car expense is probably more than half of what you’re spending on housing per month. If you really love the car, then you could consider living in it like this <a href="http://www.queercents.com/2007/02/21/sleep-in-truck-student-pays-off-credit-card-debt/" target="_blank">college kid</a> did to recover from his financial sins. His vehicle is a truck and a bit more suitable for sleeping. So even though most of us have found frugal uses for the backseat at some point in our cash-strapped lives, it’s probably not an option for you.</p> <p>So by all means, sell the car! A car is a <a href="http://biz.yahoo.com/special/mmcarguide.html" target="_blank">depreciating asset</a> so it should be treated as a liability (which means the money spent on it isn’t working for you – it’s working for someone else). Liabilities bad! I <a href="http://www.queercents.com/2007/01/15/leasing-vs-buying-the-car-debate-continues/" target="_blank">drive a Volvo</a> that’s paid for and seven years old. I certainly think (at my age and income) that I deserve to be driving an E class Mercedes, but it’s tricky to build wealth and buy assets, when you’re paying for the privilege of driving a fancy car.</p> <p>By selling the sporty Mazda and taking a loss, you’ll lose on the front-end but you’ll be better off in the long run. Plus, you’ll be uber cool by going car-free. </p> <p><strong>Trent Hamm, </strong><a href="http://www.thesimpledollar.com/"><strong>The Simple Dollar</strong></a></p> <p>I&#39;d continue making the payments and sell it later when you can get closer to book value. You&#39;ve already made payments through the period where the car really depreciates - selling now is the equivalent of selling a stock at its low point.</p> <p>--------------------------------------------</p> <p>So, what do you readers think about this predicament? Should I just deal? Should I sell the car at a loss, because I&#39;ll come out ahead in the long run? </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/andrea-karim">Andrea Karim</a> of <a href="http://www.wisebread.com/my-car-payments-are-too-much-what-should-i-do">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-wasting-68000-on-gas">Are You Wasting $68,000 on Gas?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-you-should-always-buy-used">8 Things You Should Always Buy Used</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-how-the-high-cost-of-cheap-gas-hurts-you">This Is How the High Cost of Cheap Gas Hurts You</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-new-car-costs-the-dealer-is-hiding-from-you">10 New Car Costs the Dealer Is Hiding From You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-this-the-best-search-engine-ever-for-new-used-cars">Is This the Best Search Engine Ever for New &amp; Used Cars?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Cars and Transportation interest loan loss new car sell used Mon, 30 Jul 2007 01:22:06 +0000 Andrea Karim 925 at http://www.wisebread.com Business Plan Basics http://www.wisebread.com/business-plan-basics <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/business-plan-basics" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/failedbusinessmodel.jpg" alt="failed business model t-shirt" title="failed business model t-shirt" class="imagecache imagecache-250w" width="250" height="205" /></a> </div> </div> </div> <p>I have a business and offer writing services so, on occasion, I have been asked to write business plans. Those making such requests are generally very eager, convinced of their no-fail ideas, and are being held back only by a lack of funding. Their bank accounts are typically not filled with the cash needed to support their soon-to-be highly profitable, cash-producing enterprises so they go to where they think the money is for them: the bank. Bankers do want to make loans but they also want to avoid loan defaults, so the would-be lenders ask for a business plan.</p> <p>Apparently, the business-plan request surprises the otherwise hopeful entrepreneurs who then knock on my door. Although I am a writer and can create a financial statement, I am not an inventor, marketing researcher, mind-reader, or a magician. I quickly advise these clients to learn just a bit about business perhaps through business start-up classes offered through the community college or chamber of commerce. Such a process, which would take perhaps a month or two, would certainly delay the start of the business and result in not capturing the sure, hot market that is available today. So, again, the clients look to me, though, honestly, I have never requested or received a business loan.</p> <p>I have learned, over the years, that it is best to give the start-up clients a list of items <em>they need to give me</em> in order to prepare a business plan. To date, I have never actually prepared said business plans (promises of giving me the information in a few days have never been fulfilled) but it has saved me quite a bit of time that I would have otherwise spent trying to convince clients that they are unprepared.</p> <p>I developed the list based on <a title="http://www.amazon.com/dp/0764554816/ref=nosim/?tag=wwwwisebreadc-20" href="http://www.amazon.com/dp/0764554816/ref=nosim/?tag=wwwwisebreadc-20">Small Business for Dummies</a> (by Eric Tyson and Jim Schell), which is available through amazon.com or the public library. My list is not comprehensive but is enough to get them started...</p> <p><strong>Business Description</strong></p> <ul> <li>Mission statement (business purpose, values, and/or motto)</li> <li>Summary (brief description)</li> <li>Legal/tax structure (a sole proprietorship, partnership, C Corporation, S Corporation, or Limited Liability Corporation-LLC)</li> <li>Niche (how you will differentiate your company from the competition)</li> </ul> <p><strong>Management</strong></p> <ul> <li>education, experience, and accomplishments</li> </ul> <p><strong>Marketing Plan</strong></p> <ul> <li>Industry (overview, market conditions, industry leaders, and opportunities)</li> <li>Potential customers (who they are and why they will choose your product or service)</li> <li>Benefits of the product or service</li> <li>Geography and distribution (where your customers are and how you will deliver products or services to them)</li> <li>Marketing (how you will reach your target audience, how you will retain customers, and how you will build referrals)</li> <li>Pricing (pricing structure, how your prices compare with competitors' prices)</li> <li>Payment terms (how will customers pay you and if/how you will extend credit)</li> </ul> <p><strong>Operations</strong></p> <ul> <li>Employees (positions needed, job descriptions and skill sets, human resources policies, and compensation plans)</li> <li>Vendors (products or services you will need and vendors you will use)</li> </ul> <p><strong>Financial Management Plan</strong></p> <ul> <li>Budget / profit and loss statement (expected income less expected expenses)</li> <li>Balance sheet projections (assets such as equipment and liabilities such as loans)</li> <li>Cash-flow projections (timing of income and expenses to determine if you will have cash in your account to cover your bank loan, payroll, etc.)</li> </ul> <p>...or scare them away.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/business-plan-basics">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/to-start-or-not-the-entrepreneurial-debate">To Start or Not: The Entrepreneurial Debate</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/16-ways-to-get-money-for-your-business">16 Ways To Get Money For Your Business</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-reasons-your-great-startup-business-is-doomed">6 Reasons Your Great Startup Business Is Doomed</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-etsy-can-help-start-your-small-business">5 Ways Etsy Can Help Start Your Small Business</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/going-freelance-the-top-10-tips">Going Freelance: The Top 10 Tips</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Entrepreneurship business banker business plan entrepreneur loan start-up Thu, 14 Jun 2007 21:48:59 +0000 Julie Rains 735 at http://www.wisebread.com How to Avoid Foreclosure http://www.wisebread.com/how-to-avoid-foreclosure <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/smallhome.jpg" alt=" " width="268" height="194" /></p> <p>What would you do if you were about to lose your home? What would you be willing to do to keep it? Is it even possible to keep it once you&#39;ve missed a few payments?</p> <p>The recent rash of stories about subprime lending, housing market crashes, and the subsequent stock market fluctuations has made me a touch nervous. If you think that only the poor, old, and <a href="http://www.timesrecordnews.com/trn/bu_personal_finance/article/0,1891,TRN_5637_5428427,00.html">mentally disabled</a> have been targeted by subprime predatory lending, then you&#39;d be wise to note that <a href="http://www.sdbj.com/article.asp?aID=103735&amp;link=perm">that&#39;s not true</a> (thanks, Consumerist, for the link).</p> <p>If you haven&#39;t been following the story, American Public Media&#39;s radio show Marketplace has an excellent summary of the situation <a href="http://marketplace.publicradio.org/shows/2007/03/20/PM200703206.html">here</a>. Especially tragic is how the practice of selling chunks of mortgages to investors (rather than having a bank back them entirely) was started to help more people buy homes.</p> <p>At least 4 properties (all rentals, all owned by the same person) on my street alone are being auctioned off within the next month, and that kind of activity is going to affect my property values (which are probably never going to be as high as they were when I bought the house anyway). </p> <p>How can you avoid foreclosure, if you&#39;ve been recently hit by high interest rates or financial disaster? For people who bought homes for the purpose of reselling them (otherwise known as &#39;flipping&#39;), it might be difficult to avoid foreclosure. However, there are a few things you can do to try to keep your home. </p> <p>1. <strong>Don&#39;t ignore the problem!</strong> Are you getting letters from your lender? Don&#39;t ignore them! The worst thing you can do is hope that this problem is going to go away. All lenders have a Loss Mitigation Department - call them immediately if you think you are going to fall behind on your payments. And make sure that you get to the Loss Mitigation department, and not just the collections department. Loss Mitigation departments will often work with borrowers to work out a payment plan. </p> <p>2. <strong>Don&#39;t take any more loans!</strong> You&#39;re in deep enough trouble as it is with banks, and the only institutions who will want to loan you money now are the scammers who will do everything in their power to take away all of your assets, including the shirt off your back. That includes the loan sharks who are probably publishing the ads that are popping up all over this blog post right now (&quot;Avoid foreclosure??? Low interest loans, fast, over-the-phone!&quot;). Stay away from these bastards.</p> <p>3. <strong>Rent!</strong> If you own more than one property that&#39;s languishing on the housing market, and the mortgage is not astronomically high quite yet [but still too high for you to pay along with your other mortgage(s)], you may consider renting it. There are costs and benefits to renting a property. Smart Money <a href="http://www.smartmoney.com/home/selling/index.cfm?story=rentorsell">lists some here</a>. For instance, you can deduct out-of-pocket expenses, such as mortgage interest, repairs, advertising fees for listing the rental, cleaning services, utilities and more.</p> <p class="blockquote">Then there&#39;s the &quot;phantom deduction&quot; called depreciation. Just divide the fair market value of the property at the time you start renting it out (excluding the cost of land) by its recovery period — which is 27.5 years for residential rental property. Bingo! There&#39;s your annual depreciation. For example, if the home is worth $550,000, you divide that by 27.5 and get a $20,000 annual deduction. &quot;The depreciation deduction will cover a lot of the [rental] income you&#39;re receiving, so it&#39;s a nice tax shelter,&quot; says Jeff Callahan, a CPA with Bederson &amp; Co. in West Orange, N.J. &quot;If you have another $10,000 in out-of-pocket expenses, which are also deductible, you can get $30,000 in rent tax-free,&quot; he says. </p> <p>There are other things to consider when renting a property, too. The rental market matters, as does your area, the home&#39;s potential appreciation all factor in to the equation, as well as your ability to be a no-nonsense landlord to possibly unreasonable people.</p> <p>In application to the home you live in, roommates (although incredibly annoying) are a great way to supplement your mortgage.</p> <p>4. <strong>Call an HUD-approved </strong><a href="http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm"><strong>housing counseling agency</strong></a>. They might be able to point you in the direction of government and community programs that can help you. </p> <p>5. <strong>Additional Options:</strong> There are some other options that you may qualify for, that will help you <a href="http://www.cccsoc.org/pages/foreclosure/foreclosure_02.phtml">avoid actual foreclosure</a>. They&#39;re not ideal, but they are less damaging to your credit in the long run than actual foreclosure.</p> <ul> <li><strong>Special Forbearance:</strong> Payment plan that may even allow a temporary suspension of payments.</li> <li><strong>Refinancing:</strong> This is unlikely given today&#39;s market, but might be a possibility for people who have built up their credit score since they purchased their home.</li> <li><strong>Partial Claim:</strong> U.S. Department of Housing and Urban Development (HUD) will pay your lender to bring your mortgage up to date, but a <a href="http://en.wikipedia.org/wiki/Lien">lien</a> is placed on your property.</li> <li><strong>Pre-foreclosure sale:</strong> Sell your house for less than it is worth in order to avoid a full foreclosure - pay off part of the loan. There are obvious downsides to this, and you will still owe some money to the bank, but it&#39;s probably preferable to foreclosure, too.</li> <li><strong>Deed-in-lieu of Foreclosure:</strong> This is where you give your property to your lender before it is foreclosed on. It may seem as hideous as losing your home to foreclosure, but it won&#39;t hit your credit as hard. </li> </ul> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/andrea-karim">Andrea Karim</a> of <a href="http://www.wisebread.com/how-to-avoid-foreclosure">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-times-a-refinance-is-the-wrong-move">3 Times a Refinance Is the Wrong Move</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-the-subprime-lending-boom-hurt-everybody">How the subprime lending boom hurt everybody</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/choosing-the-right-mortgage-loan-15-or-30-years">Choosing the Right Mortgage Loan: 15 or 30 Years?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/be-aware-of-new-home-loan-application-rules-taking-effect-on-july-30-2009">New Home Loan Rules Will Take Effect on July 30, 2009</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-keep-the-low-teaser-rate-for-your-mortgage">How to keep the low teaser rate for your mortgage</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing ARM balloon fixed-rate foreclose interest rates lien loan mortgage predatory lending subprime Thu, 22 Mar 2007 20:46:15 +0000 Andrea Karim 380 at http://www.wisebread.com Share the love! http://www.wisebread.com/share-the-love <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/share-the-love" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000055385506_Large.jpg" alt="Hand full of hearts" title="Hand full of hearts" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>This Valentine's Day, share the love around the world!</p> <p><a href="http://www.kiva.org" title="Kiva">Kiva</a>&nbsp;allows anyone with at least $25 dollars to spare to provide a loan to an entrepreneur in the developing world. These entrepreneurs are pre-screened by organizations in the country of origin, which means that the recipients of the loans are known to be hard-working, honest people who need (what seems to us) a little extra money to improve their business.</p> <p>What seems to us to be a small amount of money can dramatically change the life of a poor person and their family. Many people around the world have the knowledge and ability to work, but don't have the start-up capital for a business. Kiva's loans most often (from what I read) cover that capital, and so allow a person to see the fruits of their labor instead of being paid a pittance for what they do, and to support their family where they could not before.</p> <p>And the best thing about Kiva? Almost anyone can afford it! The smallest amount you can invest is $25, as your loan will add with the loans of others to total a full loan for one of the entrepreneurs. With Kiva's help, you (yes YOU) can do something to change someone's life.</p> <p>If you invest in an entrpreneur, you not only get the benefit of knowing you helped somebody out of a tight spot, but you also get to follow their journey. You will receive journal updates about your entrpreneur and their business, in which someone from the in-country orgnaization will write about what they're able to do now that they have more money to work with. Eventually (usually within a year, according to the site), your money will be repaid and you'll have the option of reinvesting or cashing out.</p> <p>While Kiva loans don't earn interest, they do earn you the knowledge that you've helped someone, and they allow you to make someone's life just a little better. What better way is there to show that you care about the world than investing in the future of individuals and their families?</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/sarah-winfrey">Sarah Winfrey</a> of <a href="http://www.wisebread.com/share-the-love">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-post-really-suk-kuks-examining-islamic-finance">This Post Really Suk-kuks: Examining Islamic Finance</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-youve-crossed-from-healthy-debt-to-problem-debt">8 Signs You&#039;ve Crossed From &quot;Healthy&quot; Debt to &quot;Problem&quot; Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-investing-questions-youre-too-embarrassed-to-ask">9 Investing Questions You&#039;re Too Embarrassed to Ask</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/does-your-kid-need-an-ira">Does Your Kid Need an IRA?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-financial-moves-you-will-always-regret">9 Financial Moves You Will Always Regret</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment kiva loan loans microlending Fri, 09 Feb 2007 23:31:43 +0000 Sarah Winfrey 264 at http://www.wisebread.com