7/1 ARM vs. 30-Year Fixed Mortgage: Pros and Cons

When shopping for a mortgage, it’s very important to pick a suitable loan product for your unique situation. Today, we’ll compare two popular loan programs, the “30-year fixed mortgage vs. the 7-year ARM.” We all know about the traditional 30-year fixed – it’s a home loan with a 30-year duration and an interest rate that [&hellip

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Locking vs. Floating Your Mortgage Rate

To mortgage folk across the country, it’s an age-old question: “Lock or float?” It’s a question loan officers and mortgage brokers get asked on a daily basis, often over and over again by panicked borrowers and first-time home buyers. And it might just be the most important answer a homeowner will come up with during [&hellip

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21 Things That Can Drive Your Mortgage Rate Higher

Wondering why you didn’t receive the low mortgage rate you saw advertised on TV or the Internet? Well, there are a ton of reasons why the quote you obtained was higher than anticipated. Let’s explore a lot of them so you can actually get your paws on that low rate. 1. Low credit score This [&hellip

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You Can Now Request COVID-Related Mortgage Forbearance for Up to 18 Months

Some good news for homeowners struggling to make ends meet thanks to COVID-19, which as the name implies has been going on for a while now. The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, has just announced an extension to the COVID forbearance period, which was previously capped at 360 [&hellip

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What Are Treasury Inflation-Protected Securities (TIPS)?

What Are Treasury Inflation Protected Securities (TIPS)?

Inflation, or a sustained period of rising consumer prices, can take a bite out of investor portfolios and reduce purchasing power as the prices of goods and services increase.

Treasury Inflation-Protected Securities, or TIPS, are one way to hedge against inflation in a portfolio. These government-issued securities are inflation-protected bonds that adjust in tandem with shifts in consumer prices to maintain value.

Investing in TIPS bonds could make sense for investors who are seeking protection against inflation or who want to increase their conservative asset allocation. But what are TIPS and how exactly do they help to minimize inflationary impacts? This primer answers those questions and more.

Recommended: Smart Ways to Hedge Against Inflation

What Are TIPS?

Understanding Treasury Inflation-Protected Securities starts with understanding a little about how bonds work. When you invest in a bond, whether it’s issued by a government, corporation or municipality, you’re essentially lending the issuer your money. In return, the bond issuer agrees to pay that money back to you at a specified date, along with interest. For that reason, bonds are often a popular option for those seeking fixed income investments.

TIPS are inflation-protected bonds that pay interest out to investors twice annually, at a fixed rate applied to the adjusted principal of the bond. This principal can increase with inflation or decrease with deflation, which is a sustained period of falling prices. When the bond matures, you’re paid out the original principal or the adjusted principal—whichever is greater.

Here are some key TIPS basics to know:

•  TIPS bonds are issued in terms of 5, 10 and 30 years

•  Interest rates are determined at auction

•  Minimum investment is $100

•  TIPS are issued electronically

•  You can hold TIPS bonds until maturity or sell them ahead of the maturity date on the secondary market

Treasury Inflation-Protected Securities are different from other types of government-issued bonds. With I Bonds, for example, interest accrues over the life of the bond and is paid out when the bond is redeemed. Interest earned is not based on any adjustments to the bond principal—hence, no inflationary protection.

How Treasury Inflation Protected Securities (TIPS) Work

Understanding how TIPS work is really about understanding the relationship they have with inflation and deflation.

Inflation refers to an increase in the price of goods and services over time. The federal government measures inflation using price indexes, including the Consumer Price Index. The federal government measures inflation using the Consumer Price Index, which measures the average change in prices over time for a basket of consumer goods and services. That includes things like food, gas, and energy or utility services.

Deflation is essentially the opposite of inflation, in which consumer prices for goods and services drop over time. This can happen in a recession, but deflation can also be triggered when there’s a significant imbalance between supply and demand for goods and services. Both inflation and deflation can be detrimental to investors if they have trickle-down effects that impact the way consumers spend and borrow money.

When inflation or deflation occurs, inflation-protected bonds can provide a measure of stability with regard to investment returns. Here’s how it works:

•  You purchase one or more Treasury Inflation-Protected Securities

•  You then earn a fixed interest rate on the TIPS bond you own

•  When inflation increases, the bond principal increases

•  When deflation occurs, the bond principal decreases

•  Once the bond matures, you receive the greater of the adjusted principal or the original principal

This last part is what protects you from negative impacts associated with either inflation or deflation. You’ll never receive less than the face value of the bond, since the principal adjusts to counteract changes in consumer prices.

Are TIPS a Good Investment?

Investing in inflation-protected bonds could make sense if you’re interested in creating some insulation against the impacts of inflation in your portfolio. For example, say you invest $1,000 into a 10-year TIPS bond that offers a 2% coupon rate. The coupon rate represents the yield or income you can expect to receive from the bond while you hold it.

Now, assume that inflation rises to 3% over the next year. This would put the bond’s face value at $1,030, with an annual interest payment of $20.60. If you were looking at a period of deflation instead, then the bond’s face value and interest payments would decline. But the principal would adjust to reflect that to minimize the risk of a negative return.

Recommended: Understanding Deflation and How it Impacts Investors

Pros of Investing in TIPS

What TIPS offer that more traditional bonds don’t is a real rate of return versus a nominal rate of return. In other words, the interest you earn with Treasury Inflation Protected Securities reflects the bond’s actual return once inflation is factored in. As mentioned, I Bonds don’t offer that; you’re just getting whatever interest is earned on the bond over time.

Since these are government bonds, there’s virtually zero credit risk to worry about. (Credit risk means the possibility that a bond issuer might default and not pay anything back to investors.) With TIPS bonds, you’re going to at least get the face value of the bond back if nothing else. And compared to stocks, bonds are generally a far less risky investment.

If the adjusted principal is higher than the original principal, then you benefit from an increase in inflation. Since it’s typically more common for an economy to experience periods of inflation rather than deflation, TIPS can be an attractive diversification option if you’re looking for a more conservative investment.

Recommended: The Importance of Portfolio Diversification

Cons of Investing in TIPS

There are some potential downsides to keep in mind when investing with TIPS. For example, they’re more sensitive to interest rate fluctuations than other types of bonds. If you were to sell a Treasury Inflation-Protected Security before it matures, you could risk losing money, depending on the interest rate environment.

You may also find less value from holding TIPS in your portfolio if inflation doesn’t materialize. When you redeem your bonds at maturity you will get back the original principal and you’ll still benefit from interest earned. But the subsequent increases in principal that TIPS can offer during periods of inflation is a large part of their appeal.

It’s also important to consider where taxes fit in. Both interest payments and increases in principal from inflation are subject to federal tax, though they are exempt from state and local tax. The better your TIPS bonds perform, the more you might owe in taxes at the end of the year.

How to Invest in Treasury Inflation Protected Securities

If you’re interested in adding TIPS to your portfolio, there are three ways you can do it.

1.   Purchase TIPS bonds directly from the U.S. Treasury. You can do this online through the TreasuryDirect website. You’d need to open an account first but once you do so, you can submit a noncompetitive bid for inflation protected bonds. The TreasuryDirect system will prompt you on how to do this.

2.   Purchase TIPS through a banker, broker or dealer. With this type of arrangement, the banker, broker or dealer submits a bid for you. You can either specify what type of yield you’re looking for, which is a competitive bid, or accept whatever is available, which is a noncompetitive bid.

3.   Invest in securities that hold TIPS, i.e. exchange-traded funds or mutual funds. There’s no such thing as a TIP stock but you could purchase a TIPS ETF if you’d like to own a basket of Treasury Inflation-Protected Securities. You might choose this option if you don’t want to purchase individual bonds and hold them until maturity.

When comparing different types of investments that are available with ETFs or mutual funds, pay attention to:

•  Underlying holdings

•  Fund turnover ratio

•  Expense ratios

Also consider the fund’s overall performance, particularly during periods of inflation or deflation. Past history is not an exact predictor of future performance but it may shed some light on how a TIPS ETF has reacted to rising or falling prices previously.

The Takeaway

Treasury Inflation-Protected Securities may help shield your portfolio against some of the negative impacts of inflation. Investors who are worried about their purchasing power shrinking over time may find TIPS appealing.
But don’t discount the value of investing in stocks and other securities as well. Building a diversified portfolio that takes into consideration an investor’s personal risk tolerance, as well as financial goals and time horizons, is a popular strategy.

With a SoFi Invest® online investing account, members can choose from stocks, ETFs, and cryptocurrency options in one place. You can start investing with as little as $1, and manage your account from the convenient mobile app.

Find out how to get started with SoFi Invest.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at investsupport@sofi.com. Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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All About Car Loan Amortization

All About Auto Loan Amortization

These days, it can take a long time to pay off a car loan. On average, car loans come with terms lasting for more than five years. Paying down a car loan isn’t that different from paying down a mortgage. In both cases, a large percentage of your initial payments go toward paying interest. If you don’t understand why, you might need a crash course on a concept called amortization.

Find out now: How much house can I afford?

Car Loan Amortization: The Basics

Amortization is just a fancy way of saying that you’re in the process of paying back the money you borrowed from your lender. In order to do that, you’re required to make a payment every month by a certain due date. With each payment, your money is split between paying off interest and paying off your principal balance (or the amount that your lender agreed to lend you).

What you’ll soon discover is that your car payments – at least in the beginning – cover quite a bit of interest. That’s how amortization works. Over time, your lender will use a greater share of your car payments to reduce your principal loan balance (and a smaller percentage to pay for interest) until you’ve completely paid off the vehicle you purchased.

Not all loans amortize. For example, applying for a credit card is akin to applying for a loan. While your credit card statement will include a minimum payment amount, there’s no date set in advance for when that credit card debt has to be paid off.

With amortizing loans – like car loans and home loans – you’re expected to make payments on a regular basis according to something called an amortization schedule. Your lender determines in advance when your loan must be paid off, whether that’s in five years or 30 years.

The Interest on Your Car Loan

All About Auto Loan Amortization

Now let’s talk about interest. You’re not going to be able to borrow money to finance a car purchase without paying a fee (interest). But there’s a key difference between simple interest and compound interest.

When it comes to taking out a loan, simple interest is the amount of money that’s charged on top of your principal. Compound interest, however, accounts for the fee that accrues on top of your principal balance and on any unpaid interest.

Related Article: How to Make Your First Car Purchase Happen

As of April 2016, 60-month new car loans have rates that are just above 3%, on average. Rates for used cars with 36-month terms are closer to 4%.

The majority of car loans have simple interest rates. As a borrower, that’s good news. If your interest doesn’t compound, you won’t have to turn as much money over to your lender. And the sooner you pay off your car loan, the less interest you’ll pay overall. You can also speed up the process of eliminating your debt by making extra car payments (if that’s affordable) and refinancing to a shorter loan term.

Car Loan Amortization Schedules 

An amortization schedule is a table that specifies just how much of each loan payment will cover the interest owed and how much will cover the principal balance. If you agreed to pay back the money you borrowed to buy a car in five years, your auto loan amortization schedule will include all 60 payments that you’ll need to make. Beside each payment, you’ll likely see the total amount of paid interest and what’s left of your car loan’s principal balance.

While the ratio of what’s applied towards interest versus the principal will change as your final payment deadline draws nearer, your car payments will probably stay the same from month to month. To view your amortization schedule, you can use an online calculator that’ll do the math for you. But if you’re feeling ambitious, you can easily make an auto loan amortization schedule by creating an Excel spreadsheet.

To determine the percentage of your initial car payment that’ll pay for your interest, just multiply the principal balance by the periodic interest rate (your annual interest rate divided by 12). Then you’ll calculate what’s going toward the principal by subtracting the interest amount from the total payment amount.

For example, if you have a $25,000 five-year car loan with an annual interest rate of 3%, your first payment might be $449. Out of that payment, you’ll pay $62.50 in interest and reduce your principal balance by $386.50 ($449 – $62.50). Now you only have a remaining balance of $24,613.50 to pay off, and you can continue your calculations until you get to the point where you don’t owe your lender anything.

Related Article: The Best Cities for Electric Cars

Final Word

All About Auto Loan Amortization

Auto loan amortization isn’t nearly as complicated as it might sound. It requires car owners to make regular payments until their loans are paid off. Since lenders aren’t required to hand out auto amortization schedules, it might be a good idea to ask for one or use a calculator before taking out a loan. That way, you’ll know how your lender will break down your payments.

Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: Â©iStock.com/OSORIOartist, ©iStock.com/studio-pure, ©iStock.com/Wavebreakmedia

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What You Should Know About the Right of Redemption

If you are a homeowner with a mortgage, you might have heard about your right to redemption. For those who have been struggling to make their house payments, this is one route that can be taken to avoid foreclosure.  

What is the Right of Redemption?

If you own real estate, making mortgage payments can be hard, but foreclosure is something that most people want to avoid. The right of redemption is basically a last chance to reclaim your property in order to prevent a foreclosure from happening. If mortgagors can manage to pay off their back taxes or any liens on their property, they can save their property. Usually, real estate owners will have to pay the total amount that they owe plus any additional costs that may have accrued during the foreclosure process. 

In some states, you can exercise your right to redemption after a foreclosure sale or auction on the property has already taken place, but it can end up being more expensive. If you wait until after the foreclosure sale, you will need to come up with the full amount that you already owe as well as the purchase price.  

How the right of redemption works

In contrast to the right of redemption, exists the right of foreclosure, which is a lender’s ability to legally possess a property when a mortgager defaults on their payments. Generally, when you are in the process of purchasing a home, the terms of agreement will discuss the circumstances in which a foreclosure may take place. The foreclosure process can mean something different depending on what state you are in, as state laws do regulate the right of foreclosure. Before taking ownership of the property through this process, lenders must notify real estate owner and go through a specific process. 

Typically, they have to provide the homeowner with a default notice, letting them know that their mortgage loan is in default due to a lack of payments. At this point, the homeowner then has an amount of time, known as a redemption period, to try to get their home back. The homeowner may have reason to believe that the lender does not have the right to a foreclosure process, in which case they have a right to fight it. 

The right of redemption can be carried out in two different ways:

  • You can redeem your home by paying off the full amount of the debt along with interest rates and costs related to the foreclosure before the foreclosure sale OR
  • You can reimburse the new owner of the property in the full amount of the purchase price if you are redeeming after the sale date. 

No matter what state you live in, you always have the right to redemption before a foreclosure sale, however there are only certain states that allow a redemption period after a foreclosure sale has already taken place. 

Redemption before the foreclosure sale 

It’s easy to get behind on mortgage payments, so it’s a good thing that our government believes in second chances. All homeowners have redemption rights precluding a foreclosure sale. When you exercise your right of redemption before a foreclosure sale, you will have to come up with enough money to pay off the mortgage debt. It’s important that you ask for a payoff statement from your loan servicer that will inform you of the exact amount you will need to pay in order save your property. 

Redemption laws allow the debtor to redeem their property within the timeframe where the notice begins and the foreclosure sale ends. Redemption occurring before a foreclosure sale is rare, since it’s usually difficult for people to come up with such a large amount of money in such a short period of time. 

The Statutory Right of Redemption after a foreclosure sale 

While all states have redemption rights that allow homeowners to buy back their home before a foreclosure sale, only some states allow you to get your home back following a foreclosure sale. Known as a “statutory” right of redemption, this right as well as the amount of time given to exercise it, has come directly from statutes of individual states. 

In the case of a statutory right of redemption, real estate owners have a certain amount of time following a foreclosure in which they are able to redeem their property. In order to do this, the former owner must pay the full amount of the foreclosure sale price or the full amount that is owed to the bank on top of additional charges. Statutory redemption laws allow for the homeowners to have more time to get their homes back. 

Depending on what state you live in, the fees and costs of what it takes to exercise redemption may vary. In many cases during a foreclosure sale, real estate will actually sell for a price lower than the fair market value. When this happens, the former owner has a slightly higher chance of being able to redeem the home. 

What You Should Know About the Right of Redemption is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

The Best Student Loan Companies For Refinancing

Refinancing your student loans can make good financial sense, and that’s especially true if your current loans are stuck at a high-interest rate. With a new loan at a lower APR, you could save a bundle of money on interest each month and ultimately pay your student debt off faster. Consolidating several loans into one new one can also simplify your financial life and make keeping up with bills a lot easier.

College Ave and Earnest topped our list, but since student loan refinancing is an incredibly competitive space, you’ll also want to spend time comparing student loan companies to see who offers the best deal. Many lenders in this space offer incredibly low APRs, flexible payment options, borrower incentives, and more. This means it’s more important than ever to shop around so you wind up with the best student loan for your needs.

What You Should Know About Refinancing Federal Student Loans with a Private Lender

The lenders on this list can help you consolidate and refinance both federal student loans and private student loans. However, there are a few details to be aware of before you refinance federal loans with a private lender.

Switching federal loans to private means giving up federal protections like deferment and forbearance. You also give up your chance to qualify for income-driven repayment plans like Pay As You Earn (PAYE) or Income Based Repayment (IBR). Income-driven repayment plans let you pay a percentage of your discretionary income for 20 to 25 years before ultimately forgiving your remaining loan balances, so this perk isn’t one you should give up without careful thought and consideration.

Best Student Loan Refinancing Companies of 2021

As you start your search to find the best student loan for your lifestyle, take the time to compare lenders and all they offer their customers. While there are a ton of reputable companies offering high-quality student loan refinancing products on the market today, there are also companies you should probably steer clear of.

To make your search easier, we took the time to compare most of the top lenders in this space in terms of interest rates offered, fees, borrower benefits, and more. The following student loan companies are the cream of the crop, so you should start your search here.

Our Top Picks:

  1. Splash Financial
  2. College Ave
  3. Earnest
  4. SoFi
  5. CommonBond
  6. LendKey
  7. Wells Fargo
  8. PenFed Credit Union

Student Loan Refinancing Company Reviews

1. Splash Financial

Splash Financial may be a newer company in the student loan refinancing space, but their offerings are competitive. This company lets you check your rate online without a hard inquiry on your credit report, and their variable rates currently start at just 2.25% APR.

Not only are interest rates offered by Splash Financial industry-leading, but the company has a 95% customer satisfaction rate so far. Their cutting-edge technology also lets you apply for your loan and complete the loan process online, meaning less hassle and stress for you as the borrower.

Check Out Splash Financial’s Low Rates

2. College Ave

College Ave offers student loan refinancing products that can be tailored to your needs. They offer low fixed and variable interest rates, for example, and you’ll never pay an application fee or an origination fee. You can even qualify for a discount if you set your loan up on autopay, and a wide range of repayment schedules are available.

College Ave also offers a wide range of online calculators and tools that can help you figure out how much student loan refinancing could help you save and whether the move would be worth it in the end. Considering their low variable rates start at just 2.74% APR, there’s a good chance you could save money by refinancing if you have excellent credit or a cosigner with great credit.

Get Started with College Ave

3. Earnest

Earnest is another online lender that focuses most of its efforts on offering high-quality student loans. This company lets you consolidate debt at a lower interest rate than you might find elsewhere, and you get the option to pick a monthly payment and repayment period that works with your budget and your lifestyle.

While you’ll need excellent credit to qualify for the lowest interest rates, loans from Earnest come with variable APRs starting at 1.81% and low fixed rates starting at just 3.45%. To qualify for student loan refinancing with Earnest, you’ll need a minimum credit score of 650 and a strong employment and income history. You also need to be current on all your bills and cannot have a bankruptcy on your credit profile.

Refinance and Save with Earnest

4. SoFi

Also make sure to check out student loan refinancing company SoFi as you continue your search. This online lender offers some of the best student loan refinancing products available today, including loans with no application fee, origination fee, or hidden fees.

SoFi lets you apply for and complete the entire loan process online, and they offer live customer support 7 days a week. You can also check your rate online without a hard inquiry on your credit report, which makes it easier to see how much you could save before you commit.

Get Pre-Approved with SoFi in Less than 2 Minutes

5. Commonbond

Commonbond is another online student lender who lets you check your rate online without a hard inquiry on your credit report. With student loan refinancing from Commonbond, you could easily save thousands of dollars on interest with a new fixed interest rate as low as 3.21%. Repayment terms are offered for 5 to 20 years as well, letting you choose a new monthly payment and repayment timeline that works for your needs.

You can apply for your new loan online and note that these loans don’t come with an origination fee or any prepayment penalties. Your loan could also qualify for forbearance, which means having up to 24 months without payments during times of financial hardship.

Apply Online with Commonbond

6. LendKey

LendKey offers private student loans and flexible student loan refinancing options to serve a variety of needs. You can repay your loan between 5 and 20 years, and their refinance loans don’t charge an origination fee.

You can use this company’s online interface to check your rate without a hard inquiry on your credit report, and variable APRs start at just 2.01% for graduates with excellent credit. LendKey loans also receive 9.3 out of 10 possible stars in recent reviews, meaning their customers are mostly happy with their decision to go with this company.

Save Thousands by Refinancing with LendKey

7. Wells Fargo

While Wells Fargo is mostly popular for their banking products, home mortgage products, and personal loans, this bank also offers student loan refinancing products. These loans let you consolidate student debts into a new loan with a low variable or fixed interest rate, and you can even score a discount for setting your loan up on autopay.

Terms for Wells Fargo loans are available anywhere from 5 to 20 years, meaning you can choose a repayment schedule and monthly payment that suits your needs. Wells Fargo also lets you check your rate online without a hard inquiry on your credit report.

Get Started with Wells Fargo

8. PenFed Credit Union

PenFed Credit Union offers unique student loan products powered by Purefy. You might be able to qualify for a lower interest rate that could lead to enormous interest savings over time, and PenFed lets you choose a repayment term and monthly payment that fits with your budget and lifestyle.

You can apply for student loan refinancing on your own, but PenFed Credit Union also allows cosigners. Low fixed interest rates start at just 3.48% APR, and you can check your rate online without a hard inquiry on your credit report.

Learn More about PenFed Credit Union

What To Look For When Refinancing

If you decide you want to refinance your student loans, you’ll be happy to know the refinancing market is more robust than ever. A variety of lenders offer insanely attractive loan options for those who can qualify, although you should know that student loan companies tend to be very finicky about your credit score. Some also won’t let you refinance if you didn’t graduate from college, or even if you graduated from an “unapproved” school.

While you should be aware of any lender-specific eligibility requirements before you apply with any student loan company, there are plenty of other factors to look out for. Here’s everything you should look for in a student loan refinancing company before you decide to trust them with your loans.

Low Interest Rate

Obviously, the main reason you’re probably thinking of refinancing your loans is the potential to save money on interest. Lenders who offer the lowest rates available today can potentially help you save more, although it’s important to consider that you may not qualify for the lowest rates available if you don’t have excellent credit.

Cosigner Requirements

Also consider that most lenders will offer better rates and loan terms if you have a cosigner with better credit than you have. This is especially true if your credit isn’t great, so make sure to ask family members if they’re willing to cosign on your new student loan if you hope to get the best rate. Just remember that your cosigner will be jointly liable for repayment, meaning you could quickly damage your relationship if you default on your loan and leave them holding the bag.

Low Fees or No Fees

Student loans are like any other loan in the fact that some charge higher fees or more fees than others. Since many student loans come with an application fee or an origination fee, you’ll want to look for lenders that don’t charge these fees. Also check for hidden fees like prepayment penalties.

Discounts Available

Some student loan companies let you qualify for discounts, the most popular of which is a discount for using autopay. If you’re able and willing to set up automatic payments on your credit card, you could save .25% or .50% off your interest rate depending on the lender you go with.

Rate Check Option

Many of the top student loan refinancing companies on this list make it possible to check your interest rate online without a hard inquiry on your credit report. This is a huge benefit since knowing your rate can help you figure out if refinancing is even worth it before you take the time to fill out a full loan application.

Flexible Repayment Plan

Also make sure any lender you go with offers some flexibility in your repayment plan and your monthly payment. You’ll want to make sure refinancing aligns with your long-term financial goals and your monthly budget, and it’s crucial to choose a new loan with a monthly payment you can live with.

Most lenders in this space offer repayment timelines of up to 20 years, which means you could spread your payments over several decades to get a monthly payment that makes sense with your income. Keep in mind, however, that you’ll pay more interest over the life of your loan when you take a long time to pay it off, so you may want to consider prioritizing a faster payment plan.

The Bottom Line

Student loan refinancing may not sound like a lot of fun. However, taking the time to consider all your loan options could easily save you thousands of dollars. This is especially true if you have a lot of debt at a high interest rate. By consolidating all your student loans into a new one with a lower APR, you could make loan repayment easier with a single payment and save a ton of money that would otherwise go to straight to interest without helping you pay off your loans.

The first step of the loan process is the hardest, however, and that’s choosing a student loan refinancing company that you trust. The lenders on this list are highly rated, but they also offer some of the best loan products on the market today.

  • Work with College Ave, our top pick, to refinance your student loan.

Start your search here and you’re bound to wind up with a student loan you can live with. At the very least, you’ll have a better idea of the loans that are available and how much you might save if you decide to refinance later on.

The post The Best Student Loan Companies For Refinancing appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Repossession Credit Scores: What You Need to Know

One of the harsh truths of secured loans is that your asset can be repossessed if you fail to make the payments. In the words of the FTC, “your consumer rights may be limited” if you miss your monthly payments, and when that happens, both your financial situation and your bank balance will take a hit.

On this guide, we’ll look at what can happen when you fall behind on your car payments, and how much damage it can do to your credit score.

What is a Car Repossession?

An auto loan is a loan acquired for the sole purpose of purchasing a car. The lender covers the cost of the car, you get the vehicle you want, and in return you pay a fixed monthly sum until the loan balance is repaid.

If you fail to make to make a payment or you’re late, the lender may assume possession of your car and sell it to offset the losses. At the same time, they will report your missed and late payments to the main credit bureaus, and your credit score will take a hit. What’s more, if the sale is not enough to cover the remainder of the debt, you may be asked to pay the residual balance.

The same process applies to a title loan, whereby your car is used as collateral for a loan but isn’t actually the purpose of the loan.

To avoid repossession, you need to make your car payments on time every month. If you are late or make a partial payment, you may incur penalties and it’s possible that your credit score will suffer as well. If you continue to delay payment, the lender will seek to cover their costs as quickly and painlessly as possible.

How a Repossession Can Impact Your Credit Score

Car repossession can impact your credit history and credit score in several ways. Firstly, all missed and late car payments will be reported to the credit bureaus and will remain on your account for up to 7 years. They can also reduce your credit score. 

Secondly, if your car is repossessed on top of late payments, you could lose up to 100 points from your credit score, significantly reducing your chances of being accepted for a credit card, loan or mortgage in the future. 

And that’s not the end of it. If you have had your car for less than a couple of years, there’s a good chance the sale price will be much less than the loan balance. Car repossession doesn’t wipe the slate clean and could still leave you with a sizable issue. If you have a $10,000 balance and the car is sold for $5,000, you will owe $5,000 on the loan and the lender may also hit you with towing charges.

Don’t assume that the car is worth more than the value of the loan and that everything will be okay. The lender isn’t selling it direct; they won’t get the best price. Repossessed vehicles are sold cheaply, often for much less than their value, and in most cases, a balance remains. 

Lenders may be lenient with this balance as it’s not secured, so their options are limited. However, they can also file a judgment or sell it to a collection agency, at which point your problems increase and your credit score drops even further.

How Does a Repo Take Place?

If you have a substantial credit card debt and miss a payment, your creditor will typically take it easy on you. They can’t legally report the missed payment until at least 30-days have passed and most creditors won’t sell the account to a collection agency until it is at least 180-days overdue.

This leads many borrowers into a false sense of security, believing that an auto loan lender will be just as forgiving. But this is simply not true. Some lenders will repo your car just 90-days after your last payment, others will do it after 60 days. They don’t make as many allowances because they don’t need to—they can simply seize your asset, get most of the money back, and then chase the rest as needed.

Most repossessions happen quickly and with little warning. The lender will contact you beforehand and request that you pay what you owe, but the actual repo process doesn’t work quite like what you may have seen on TV. 

They’re not allowed to break down your door or threaten you; they’re not allowed to use force. And, most of the time, they don’t need to. If they see your car, they will load it onto their truck and disappear. They’re so used to this process that they can typically do it in less than 60-seconds.

It doesn’t matter whether you’re at home or at work—you just lost your ride.

What Can You Do Before a Repo Hits Your Credit Score?

Fortunately, there are ways to avoid the repo process and escape the damage. You just need to act quickly and don’t bury your head in the sand, as many borrowers do.

Request a Deferment

An auto loan lender won’t waste as much time as a creditor, simply because they don’t need to. However, they still understand that they won’t get top dollar for the car and are generally happy to make a few allowances if it means you have more chance of meeting your payments.

If you sense that your financial situation is on the decline, contact your lender and request a deferment. This should be done as soon as possible, preferably before you miss a payment.

A deferment buys you a little extra time, allowing you to take the next month or two off and adding these payments onto the end of the term. The FTC recommends that you get any agreement in writing, just in case they renege on their promise.

Refinance

One of the best ways to avoid car repossession, is to refinance your loan and secure more favorable terms. The balance may increase, and you’ll likely find yourself paying more interest over the long-term, but in the short-term, you’ll have smaller monthly payments to contend with and this makes the loan more manageable.

You will need a good credit score for this to work (although there are some bad credit lenders) but it will allow you to tweak the terms in your favor and potentially improve your credit situation.

Sell the Car Yourself

Desperate times call for desperate measures; if you’re on the brink of facing repossession, you should consider selling the car yourself. You’ll likely get more than your lender would and you can use this to clear the balance. 

Before you sell, calculate how much is left and make sure the sale will cover it. If not, you will need to find the additional funds yourself, preferably without acquiring additional debt. Ask friends or family members if they can help you out.

How Long a Repo Can Affect Your Credit Score

The damage caused by a repossession can remain on your credit score for 7 years, causing some financial difficulty. However, the damage will lessen over time and within three or four years it will be negligible at best.

Derogatory marks cease to have an impact on your credit score a long time before it disappears off your credit report, and it’s the same for late payments and repossessions.

Still, that doesn’t mean you should take things lightly. The lender can make life very difficult for you if you don’t meet your payments every month and don’t work with them to find a solution.

What About Voluntary Repossession?

If you’re missing payments because you’ve lost your job or suffered a major change in your financial circumstances, it may be time to consider voluntary repossession, in which case there are no missed payments and you don’t need to worry about repo men knocking on your door or coming to your workplace.

With voluntary repossession, the borrower contacts the lender, informs them they can no longer afford the payments, and arranges a time and a place to return the car. However, while this is a better option, it can do similar damage to the borrower’s credit score as a voluntary repossession, like a traditional repossession, is still a defaulted loan.

Missed payments aside, the only difference concerns how the repossession shows on the borrower’s credit report. Voluntary repossession will look better to a creditor who manually scans the report, but the majority of lenders run automatic checks and won’t notice a difference.

Summary: Act Quickly

If you have student loan, credit card, and other unsecured debt, a repo could reduce your chances of a successful debt payoff and potentially prevent you from getting a mortgage. But it’s not the end of the world. You can get a deferment, refinance or reinstate the loan, and even if the worst does happen, it may only take a year or so to get back on track after you fix your financial woes.

Repossession Credit Scores: What You Need to Know is a post from Pocket Your Dollars.

Source: pocketyourdollars.com