Tens of thousands of students struggling with insurmountable student loan debt are about to get a little breathing room.
The National Collegiate Student Loan Trusts, a creditor that holds billions in private student loans, reached a settlement Sept. 18 with the Consumer Financial Protection Bureau (CFPB) in which the trusts were ordered to refund at least $21.6 million toward refunds and penalty fees for affected borrowers.
As MagnifyMoney’s Kelly Clay reported in August, National Collegiate sued dozens of former students who had defaulted on their private student loans. But in court National Collegiate failed to prove they owned the loans. This happens often when loans are sold to another lender or otherwise handed to another account manager and paperwork gets lost. Ultimately, the courts dismissed the lawsuits, citing the fact that National Collegiate had no way of proving they owned the debts in the first place.
In the settlement with the CFPB, the trusts agreed to set aside $3.5 million for reimbursements to borrowers who had already made payments after being sued for loans unlawfully. If a student loan lender can’t prove it owns a debt — for example, if it lacks the proper documentation to prove ownership — it can’t legally collect on it. Likewise, if the statute of limitations has passed, the lender can continue to try to collect on the debt, but it can no longer take legal action against the borrower.
Although there are usually limited circumstances under which student loans are forgiven, this ruling may result in many borrowers eventually having their debts wiped out. The CFPB ordered National Collegiate to have each of its 800,000 loans reviewed by an independent auditor, and the trusts will not be allowed to go forward with collection actions on any loans that they can’t prove they own.
“The National Collegiate Student Loan Trusts and their debt collector sued consumers for student loans they couldn’t prove were owed and filed false and misleading affidavits in courts across the country,” CFPB Director Richard Cordray said in a statement.
What does this mean for you?
If you borrowed educational funds from a private lender who sold your debt to the National Collegiate Student Loan Trusts, and you were sued between November 2012 and April 2016, it’s possible you’re due a refund. According to The New York Times, Bank of America and JPMorgan Chase are among the private lenders who sold private student loan debt to the trusts.
StudentDebtCrisis.org, a nonprofit dedicated to higher education funding reform, tweeted: “Thousands of Americans with student debt could see their loans cut under a @CFPB agreement with Wall Street trusts.”
If you’re owed restitution, the company will reach out to you. No action is required on your part. However, if you’d like to make a formal complaint, you can contact the CFPB.
What you can do if you’ve fallen behind on your loan
It can be tough to keep up with your student loan payments. If you’re behind, it doesn’t have to be the end of the world. It takes about nine months (270 days) of nonpayment for a federal student loan to go into default.
But many private student loans default when you are only 120 days late. Sometimes missing one or two payments can send you into default.
So make sure you carefully read your loan contract to better understand what constitutes a default and to know your rights, if you happen to default on your loan.
If you default, don’t panic. While it’s your responsibility to pay what you owe, you have rights, and it is against the law for the debt collector to harass you.
The student loan creditor must provide a written “validation notice” indicating how much you owe, the name of the creditor, what rights you have if you think you don’t owe the debt, and how to obtain information about the original creditor.
You may have options for setting up a repayment plan. Familiarize yourself with the terms of your loan and contact the CFPB if you have concerns about the practices of your lender.
‘I defaulted, and I’ve been sued. Now what?’
If you default on your loan and you’ve been sued, it can be stressful, but don’t give up. You’ve not automatically lost just because the creditor has taken legal action.
Here are four steps to take if you receive a summons.
Stick to the deadlines.
If you ignore the summons or don’t show up in court, this may result in a default judgment against you.
Verify your debt.
Is the amount correct? Is the debt valid? If there’s any discrepancy between what your records show and what the credit agency is alleging, you need to document that.
One way to do that is to send your lender or debt collector a debt verification letter. This is a formal way to ask them to verify the amount, that you are the owner of the debt, and that it’s valid. If they don’t respond to the letter within 30 to 60 days, they must cease attempting to collect the debt.
Know your rights.
Unlike federal student loans, private loans are bound to a statute of limitations. Once that statute of limitations has run out, the lender can no longer take legal action. But that doesn’t mean they’ll stop trying to collect on that debt. And that’s where you should be careful. If you pay even $1 toward an old debt after the statute of limitations is up, it automatically restarts the clock, and the lender can once again take legal action. Find out what the statute of limitations is in your state.
Hopefully you won’t need one, but every situation is different. If you don’t have the money to pay your student loans, chances are you don’t have the money to pay a lawyer.
But if you find yourself in a situation where you really need someone to simplify the complexity of your case and speak to a creditor on your behalf, you may consider consulting a student loan attorney. Private loans are subject to state law, and a licensed attorney may be the best person to help you navigate those waters. The CFPB has a tool that can help you find an affordable lawyer in your state.
Less than a week after the Equifax data breach was made public, it seems scammers are already looking for opportunities to prey on concerned consumers.
The Federal Trade Commission posted a scam alert Thursday warning consumers to not give their personal information to anyone who calls and claims to be an Equifax representative. Over the summer, hackers breached the Atlanta-based credit bureau’s database and accessed the personal information of about 143 million consumers, including sensitive information like Social Security numbers.
But Equifax is not calling those affected by the breach, so if you get a phone call from someone saying they represent Equifax and want to verify your account information, the FTC advises you hang up. It’s ironic, in a way, to target victims by posing as a concerned Equifax representative. The company has been criticized widely for its sluggish response to the breach, which occurred sometime between mid-May and July but wasn’t discovered until July 29 and wasn’t announced until more than a month later.
In response to the security failure, the House Committee on Energy and Commerce has demanded Equifax answer several questions about the breach, including why the company put off announcing the breach for so long. Equifax has until Sept. 22 to respond to the committee’s questions, and the committee plans to hold hearings on the breach in September or October.
In a company statement, Equifax CEO Richard Smith said the breach was a “disappointing event.”
“Confronting cybersecurity risks is a daily fight,” he added. “While we’ve made significant investments in data security, we recognize we must do more. And we will.”
In the breach, people’s Social Security numbers, dates of birth, addresses, and other personally identifiable information (PII) were compromised, so it’s understandable you’d be worried and are looking for help.
Here’s what you can do to take control of protecting your identity.
Assume you’re affected
While you can go to Equifax’s website and go through a multistep process to see if your information has been compromised, you can also just assume someone has their hands on your personal information. (It’s also worth noting the Equifax site reportedly isn’t reliable for telling you if you’re affected, and many consumers have reported the site is slow to load or doesn’t load at all.) Even if you weren’t among the 143 million whose personal information was compromised in this breach (and the odds aren’t in your favor), chances are it has been or will be in a breach at a different company or organization. With that in mind, you’ll want to focus on how to detect signs of identity theft and how to respond to them.
Monitor your credit
Equifax responded to the breach by offering free credit and identity monitoring to everyone — not just those affected — for a year through TrustedID Premier. You must go to equifaxsecurity2017.com to enroll, which requires entering your last name and the last six digits of your Social Security number. You’ll then be given an enrollment date, which may be several days after you start the enrollment process, at which point you can return to the site to continue enrollment. You’ll need to set a reminder to continue the process, as Equifax won’t send you a notification when it’s time.
You have many other ways to find out if someone has misused your personal information. Several companies offer free credit scores — Credit Karma, Discover, Capital One, Mint, LendingTree (our parent company), etc. — either to everyone or to their customers. To help you choose, we put together this guide to getting your free credit score. Credit Karma also offers a free credit monitoring service, and Discover cardmembers can sign up for alerts when their Social Security numbers are detected on suspicious websites. You can also pay for credit monitoring services from a number of providers, including the three major credit bureaus Equifax, Experian and TransUnion, as well as credit scoring giant FICO.
Consider a credit freeze
You can also freeze your credit so no one, not even you, can apply for new credit using your information. If you do this, you have to initiate a freeze with each of three major credit bureaus, as well as “thaw” each report when you want to apply for a new credit account. Every time you freeze and thaw your credit you may be charged a fee, which varies by state. This only protects you from credit fraud and does not prevent things like taxpayer identity theft, criminal identity theft, medical identity theft, and insurance identity theft.
On Sept. 15, Equifax announced it is waiving the fee for removing and placing credit freezes on Equifax credit reports through Nov. 21, 2017. Anyone who paid for an Equifax freeze at or after 5 p.m. EDT on Sept. 7 will receive a refund, the company said.
Have a plan for responding to identity theft
One of the best ways you can prepare for identity theft is to detect it early. After that, you need to know how to resolve it. You can do this yourself by filing a police report, disputing fraudulent accounts on your credit reports, and making the phone calls necessary to correct any problems stemming from the fraud. Or you could pay someone to help you with this time-consuming task. Check with your employer to see if they offer identity theft insurance or identity theft resolution services as an employee benefit, and if not, consider paying for it.
More than anything, remain calm as you sort through the fallout of this breach. Focus on making a plan for protecting yourself from and responding to identity theft and making sure you only deal with trustworthy service providers.
Refinancing your auto loan can be a wise decision, especially if you do the math and realize you have something to gain. You may find more attractive interest rates, have improved credit, or be struggling to afford your payments and want a way to ease your monthly auto bill. The real issue is whether a new loan and its attendant fees will result in savings during the time it takes to own the car outright.
But what happens if you’ve refinanced before and you’re looking to refinance your auto loan yet again?
How long to wait before refinancing your auto loan
Good news: Consumers can refinance their car as many times as they want and as often as they can find a lender willing to approve them for a new loan.
You can even refinance your car loan the moment you get it home from the dealership if you realize you can land a better loan. There are no legal restrictions on financing a car later on, although it may be harder to find a willing lender as the years and miles accrue on the vehicle. Each lender has its own set of requirements. At Bank of America, for example, the car must be less than 10 years old and have fewer than 125,000 miles on it to qualify for refinancing.
Just because you can refinance doesn’t necessarily mean it’ll be easy.
Look at your original loan contract to see if you have to jump through any hoops first. The Federal Trade Commission (FTC) warns that finance companies and banks can impose “prepayment penalties” on their contracts, which are fees they charge if you decide to pay off your loan earlier than planned. And, of course, by refinancing with a new lender, you are doing exactly that.
According to online auto retailer Cars Direct, prepayment penalties are allowed by the government in the District of Columbia and 36 states.
7 Reasons It Makes Sense to Refinance an Auto Loan
There are many cases in which it might be a good idea to refinance your auto loan.
Perhaps you need a lower monthly payment to offset a tight budget, or you need to save the total amount the car financing will ultimately cost. We’ll break down a few factors that can make it profitable to refinance now.
1. You qualify for a loan with a lower interest rate
Many car shoppers never shop around or compare auto loan offers, and that can be a costly mistake. If you’re in that group, then you may walk off the lot with a terrible rate and realize late that you could have gotten a much better deal. That’s a good reason to refinance.
In another scenario, if interest rates have dropped a few percentage points since the car was originally financed, there’s a chance auto rates might be lower as well. You may save money on refinancing the vehicle. Consumers can search for auto refinancing rates at competitive lending sites like LendingTree, the parent company of MagnifyMoney, which may offer interest rates as low as 1.99% APR on terms of two, three, four and five years. Lenders may offer the best rates to consumers with good-to-excellent credit scores (700-800).
2. You want a lower monthly payment
Even consumers with clear credit histories and top scores may not like the cost of their current monthly payments. You might find that you can get a longer term loan (and, thus, a lower payment) by getting pre-approved financing from a bank, credit union or private lender. You should compare a new loan with the terms and rates of your existing financing. LendingTree’s Auto Refinance Calculator crunches monthly payment figures, allowing buyers to type in different interest rates and loan terms to find the sweet spot.
Just beware of choosing a loan with a longer term. It may save you money on your monthly payment, but you will ultimately pay more interest over time.
Here’s an example to show you how much more you’ll pay with a longer-term loan.
For those who can increase their monthly payment without too much stress, shortening the term may be a good strategy. Monthly payments will be higher, but the car will be paid off sooner, lowering the total amount of paid interest. The bottom line: If you’re considering changing the term in refinancing, be sure the interest rate and refinancing charges are low enough to make it worthwhile.
3. You want to remove or add a co-signer
There may be business or personal reasons to add or remove a co-signer from the original auto financing. In a divorce, the primary owner may want to remove the ex-spouse co-signer from the loan and title. Or someone may want to add a co-borrower with better credit to qualify for a lower refinancing rate. Either way, those modifications are going to require refinancing.
Unfortunately, it’s going to be difficult to remove yourself as a co-signer if the person who financed the car stops making payments. So if that’s your case, check out our guide on how to get out of a bad car loan.
4. Your credit score has improved and you can qualify for a lower rate
Congrats on improving your score! According to our parent company, LendingTree, if you raise your credit into the next tier in the FICO Score range you may see appreciable savings. Auto lenders rank consumer credit into Tiers A, B, C, D and F. Financing to applicants with D- and F-tier scores may only be offered as subprime or bad credit loans:
5. You earn a lot less or a lot more than you used to
There may be two key financial reasons supporting car refinancing:
You earn more than you did when you bought the vehicle and want to pay it off sooner
You earn less than you did and cannot meet the monthly payments
Those who have improved finances may choose to refinance to shorten the loan term, increasing their monthly payments but slashing the amount of total required payments to pay off the car. Owners who have experienced a financial setback (change or loss of income) can refinance their vehicles to a longer term, lowering the amount of their monthly payments. Refinancing your loan to a lower rate with the same or more favorable interest rate will lower the total cost of the car.
6. Your car is worth less than what you owe
If a consumer owes more money on their car than it’s worth, they have an “upside-down” loan. This can happen if you buy a car with a very low down payment and finance the rest. Your car simply loses value over time and you wind up paying on a loan that was determined based on its value months or even years earlier. If your car loan is underwater, you don’t have a good chance of getting refinanced since the lender will take a hit on the collateral if you default. A way to stave off disaster is to make extra payments on the original loan or take out a home equity or personal loan to pay off the vehicle.
7. Your car is getting older
If you want to refinance before your car gets too old to qualify, you should.
Lenders set their own limits on how many miles and years on the road qualify cars for refinancing. For example, Nationwide Bank will not refinance vehicles that are 20 years or older, or 150,000 miles on the odometer. Bank of America will not refinance cars 10 years or older and won’t touch vehicles with 125,000 miles or more.
Risks To Consider Before You Refinance
Impact on credit
When you apply for refinancing, a “hard inquiry” is reported to the credit agencies. Multiple hard inquiries on refinancing (and other loan requests) can drop credit scores by a few points, but the impact can be offset if you make consistent payments on time, which will help boost your score.
Also, you won’t get dinged if you shop for an auto loan over a short period of time — say two weeks or so. In that case, credit bureaus should treat all those hard inquiries as just one inquiry.
Long-term loans can cost more in the long run
Today, you can get auto loans for as long as 84 months. Extending terms through a refinance may look good when the monthly payment comes due. But the added interest over the term can cost you more in the end. Term and APR sit on opposite sides of the seesaw.
Doing the math, compare these costs when the terms are extended:
A $30,000 car financed at 6% for five years: $34,799
Financing the same car and rate for seven years: $36,813
If you drag out your loan term, you could wind up upside down on the loan
During the first years of ownership, financing on a new car is already upside down. That’s because the monthly payments are largely paid on interest rather than on the principal. Meanwhile, the new car is losing value. If the consumer has a downward turn in finances, the loan can go off the deep end. With an older vehicle, there’s still a risk with a long extension. By the time the refinancing is paid off, the car will have amassed high mileage that can diminish its use as a trade-in.
Each state charges a titling fee when a new loan is made on the vehicle. Check your state’s Department of Motor Vehicles (DMV) to find out the fees. In New York, for example, the titling fee is $50. It’s unlawful for the dealership to make a profit on the titling. Remember, frequent refinancing customers pay for titling each time.
There are no requirements or charges for an appraisal when refinancing, but the borrower may be assessed lender fees for loan originations and processing. Get all charges — in writing — in your contract. Some lenders may be open to negotiations on some fees. Be wary of upfront fees that may be charged with any loan application at the bank, credit union or finance company.
How To Compare Auto Refi Offers
Always shop around for the best auto loan deal before you head to the dealership. If you walk in the dealership with an offer in hand, they will have to negotiate with you if they want your business — and they will, because they do.
Here’s what to compare when you’re looking at different loans:
Down payment requirement
Annual percentage rate
Term length in months
Number of payments
Monthly payment amount
Try comparing loans with the same term to find the best APR. Or view the same APR across multiple terms to see the financial impact on monthly payments. Take your comparative checklist when visiting lenders or bank and credit union websites. Our parent company LendingTree serves up free offers on auto refinancing in a comparative format.
Pre-approvals on a car loan are good from 30 to 90 days, depending on the lender.
What if I can’t get approved for an auto refi?
The first step in responding to a loan denial is to learn why you were turned down. The Equal Credit Opportunity Act requires lenders to notify borrowers in writing the reasons the application was denied. Reasons for denial may involve the credit score or red flags in your credit history. Too many hard credit inquiries might indicate that you’re desperate for a loan. Turn-down letters provide an opportunity to view the credit report that the loan underwriters evaluated.
You may have to wait awhile before applying for refinancing again, since it will result in another ding on your credit. Or, if you’re in the subprime and bad credit tiers, look at options of getting financing from banks, credit unions or financing companies that specialize in loans for Tier D and F categories. Learn more about the subprime options at MagnifyMoney.
Finally, you could take time out from refinancing while you report errors on your credit report and set about improving your credit score. MagnifyMoney has sound advice on building the highest credit scores. Steps include:
Get a line of credit
Keep a low credit utilization rate
Pay your creditors in full and on time with each monthly statement
Avoid or reduce credit card debt
Protect your score
The following links offer a wealth of financing information that can keep you out of trouble:
This collection of LendingTree articles on car loans covers a range of issues, including financing options, bad credit, financing a classic car, bankruptcy, car ownership, certified pre-owned cars, and more.
The FTC’s Consumer Information division has published an extensive guide to repairing credit, including information on credit report disputes, finding legitimate credit counselors, and consumer rights.
Last year, a study by MagnifyMoney and Google Consumer Surveys found that seven-year terms can be a ticket to the horror upside-down loans, especially for subprime borrowers. Read the rest of the findings.
The American Financial Services Association Education Foundation (AFSAEF), the National Automobile Dealers Association (NADA), and the Federal Trade Commission (FTC) have prepared this 16-page brochure to help consumers understand financing terms, laws regulating dealership financing, and strategies for visiting dealerships.
Just a few weeks into their college education, many students receive funds totaling hundreds or possibly thousands of dollars — the “extra” money from the student’s financial aid package. Usually, the money comes with little to no information on how students should spend it, or how to return any funds they may not immediately need.What many students may not realize immediately is, the majority of the time, taking any extra money not truly needed to pay for educational expenses results in them owing even more student loan money and making payments over a longer period of time after graduation.
Simply learning about the money and creating a budget could prevent many students from adding to the average $34,144 student loan balance they are already expected to pay back.
Your refund is the amount of money left over after all of your scholarships, grants, and federal and private student loans are applied toward tuition, fees and other direct educational expenses for the semester. The refund could come as a lump-sum direct deposit to your bank account, as cash or as a check.
The school legally has to disburse any leftover Federal Student Aid money you are awarded. “[Schools] cannot hold onto that credit balance unless the student gives written consent,” says Karen McCarthy, Director of Policy Analysis at National Association of Student Financial Aid Administrators (NASFAA). In the case of a PLUS loan, the parent must give consent for the school to hold the credit balance.
Most refunds most likely come from leftover federal student loans, but recipients of some grants may receive a refund for unused funds as well.
In fall 2009, Brooklyn, N.Y., resident Crystal Chery, was just beginning an associate’s degree program at Kingsborough Community College. She qualified for the Pell Grant, which covered $5,350 of her tuition and expenses for the school year. After tuition and fees totaling $1,550 were paid, Chery received a credit for about $1,125 to her bank account each semester.
While there is no official record of exactly how many college students end up with a positive balance on their account after all of their financial aid package is applied, each semester possibly thousands of U.S. college students in the United States find themselves in a similar position as Chery did her freshman year.
The total amount of financial aid that a student is able to receive is up to the institution’s calculated cost of attendance, which is a big part of the math that goes into calculating a student’s financial aid award. Sometimes colleges pad their total cost of attendance estimates to include things that aren’t directly paid to the school, like books, housing, transportation or child care. The idea is that the student will use any leftover funds for other things they need in order to go to school.
“Kids going to a $4,000 community college can walk away with about $5,000 of refunded money,” says college aid expert Joe Orsolini, especially if they find ways to save on expenses like housing. In Chery’s case, she lived at home, which meant she didn’t need any funds for housing.
If you received a refund from a mix of loans, scholarships and grants, carefully examine your refund to understand where it came from and if you’ll have to pay back that money.
Grant and Scholarship refunds
Grants and scholarships — truly “free money” — are usually applied to your institutional bills first. There may be restrictions on how you can use money from these sources, as rules vary widely by state, institution and scholarship program regarding how students are allowed to spend the funds they receive.
Usually the amount of “free money” a student gets is smaller compared to loans they receive and is depleted by direct institutional bills, so most students don’t get that money refunded to them. However, it’s possible for some students who received a large amount of scholarships to be refunded “free” money.
Chery isn’t required to repay the leftover Pell grant money she received for her education, as she doesn’t fall under any special circumstances like students who may have withdrawn early from their program, or dropped to part-time enrollment during the payment period. In addition, the school was legally required to issue her a refund credit for the excess federal funds.
If you receive a refund from unused federal student loan money, you’re free to keep it, but remember you’re still borrowing that money. You will need to pay any federal loan money refunded to you, with interest, starting six to nine months after you graduate.
Generally speaking, you should return any unused loan money that you don’t need right away to avoid taking out more in loans than you really need. But if you need to keep it, make sure you spend the money wisely.
Whatever you do, “don’t go buy a car or go on spring break with [your student loan refund],” says Orsolini. If you’re spending federal loan money, a $10 pizza today at 6.5% APR will cost close to $20 to pay off in 20 years.
Do that math for thousands of dollars in student loans. Make your best effort to limit any flexible, frivolous or impulsive spending to money you don’t have to pay back with interest.
How you handle your student loan refund may also depend on what kind of loan it is — unsubsidized or subsidized.
Subsidized student loans
Interest won’t begin to accrue on subsidized student loan money until six months after you have graduated. So, if you keep your refund, you don’t have to worry about racking up interest charges on the debt you owe while you’re in school.
For that reason Orsolini argues students shouldn’t give back any “extra” subsidized loan money until they are in their last semester of college.
“Until you know for sure that you’ve made it to the finish line, hang on to that money because you never know what is going to happen,” says Orsolini. He recommends placing excess financial aid funds into a 529 college savings account, where it can grow, and you can use the money if you plan to attend graduate school.
If students don’t want to open a 529 account, Orsolini recommends they stash unused subsidized loan money in an emergency savings fund, to help maintain as much flexibility as possible in paying for college.
Orsolini says this method provides a financial safety net for students, as you never know what can happen to your income. If you choose to do this, you should pay back any unused subsidized loan money the month before your graduation to avoid paying interest.
Warning: Orsolini’s method takes a lot of self-restraint.
Unsubsidized student loans
Students shouldn’t pocket any unsubsidized student loan money, as interest will begin to accrue immediately, and keeping the money won’t be worth it.
“Even if you put it in a savings account for a few months, it’s going to accrue more interest as a loan than it would in the savings account,” says Ashley Norwood, Consumer and Regulatory Adviser at American Student Assistance (ASA), a nonprofit student loan advocacy group that helps students finance and repay their student loans.
Avoid keeping unneeded unsubsidized loan money at all costs if you can.
If you find yourself keeping the loan because you need to live off of it, Betsy Mayotte, Director of Consumer Outreach and Compliance at ASA, suggests you do your best to reduce your cost of attendance.
You could make up some or all of the maximum $2,000 a student can receive in unsubsidized loans by getting a part-time job or a work-study job, for example. If cost of living is too high at the school you’re attending, look at a cheaper school or consider moving home if the school is close enough
Should You Spend Your Refund — or Return It?
Unless you have restrictions on how you can use it, what you decide to do with your refund money as a college student is really up to you.
“The assumption is that the student is using that credit balance to pay for those [indirectly billed] expenses,” says McCarthy.
But students don’t always do that.
“When I was in college, I remember all of my friends getting True Religions and all of this stuff [with their refund money] … I did not,” says Chery. “I was focused on other things.”
Chery used her fall semester “refund” to buy equipment to launch a DJ career, starting with a $1,350 MacBook, which she used to create her own mixes and to use at gigs she booked while in school. With the following semester’s refund, Chery purchased a Canon 60D DSLR camera for another $1,200 because she wanted to “dabble in photography and promote [her business].”
Chery says the investment paid off. After booking larger, professional gigs and gaining some experience, she was able to present work that helped her land an internship with Hollywood, Calif.-based media company, REVOLT TV, where she got to work with big-name music artists like Sean “Diddy” Combs and Damon Dash.
“When I started making these investments, I didn’t know that they were going to alter my career like that,” says Chery, who now hosts and books events with hundreds or thousands in attendance throughout the northeast United States.
After you’ve allocated funds to different areas of your budget, you need to figure out what to do with any extra funds. If the money is “free,” meaning you don’t have to pay it back later, you can keep it, but you may need to look into what you are allowed to spend it on, says McCarthy, as there may be restrictions on how you can use scholarship or grant money.
If you think you have enough money for your needs, the experts at ASA and NASFAA agree students should immediately send back any money they don’t think they need, since students can always ask for that disbursement again later on.
Giving money back or canceling a federal student loan won’t affect how much financial aid you are offered the following semester and if you need the money later on in the current semester, Mayotte tells Magnify Money.
“Let’s say you refused all of the loans. You can go back to the financial aid office and ask for part or all of that loan money up to 180 days after the last day of classes,” adds Mayotte.
As long as you were eligible to receive the student loan funds during that pay period, you can receive a federal loan for a prior or the current payment period without penalty if you ask for it within the 180-day period.
For example, you can technically still receive loan money you denied during the fall semester if you request a late disbursement for that money during your spring semester as long as it’s within 180 days after the end of the payment period.
Ask Yourself These 3 Questions Before Spending (Or Returning) Your Refund
Have you paid for all of your non-negotiable expenses for the semester?
Certain non-negotiable expenses (read: tuition and fees) are usually billed at the beginning of the semester, but the school won’t send you a bill for everything you can’t succeed without, like technology for classes, a working laptop, or sheets for your dorm bed. Here are a few possible spending categories you may or may not include in your budget:
Living expenses not billed by the institution
Books and other educational supplies you’re going to need over the course of the whole term
Transportation (gas, on- and off-campus parking)
Child care, if you need this so that you can attend school
Miscellaneous personal expenses
Do you need the money to cover other college-related expenses?
There are a host of hidden college costs college-bound families fail to consider for one reason or another, and they can dry an unsuspecting student’s checking account. They are all the little things families don’t think about during move-in, like organization membership fees and paying for food outside of a prepaid student meal plan. If you can’t cover those things with part-time income during the school year, tally up an estimate and keep what loan money you need.
Do you have an emergency fund?
You should have every reason to have savings, especially if you’re paying for school on your own. You won’t get many opportunities to stash away $1,000 in cash working for minimum wage as a barista in school. Pocketing some of the money now will help you steer clear of rainy days and expensive borrowing options in the future when those hidden costs creep up on you. Set one up ASAP.
How to return your refund to the Department of Education
The rule is simple: Return the loan within 120 days of disbursement, and it will be like you never took it out in the first place.
The rule is found in the text of the Master Promissory Note, which all FSA borrowers are required to sign promising to pay the loans back before they can receive any federal aid funds. The following information is found under “Canceling Your Loan”:
You may return all or part of your loan to us. Within 120 days of the date your school disbursed your loan money (by crediting the loan money to your account at the school, by paying it directly to you, or both), you may cancel all or part of your loan by returning all or part of the loan money to us. Contact your servicer for guidance on how and where to return your loan money.
You do not have to pay interest or the loan fee on the part of your loan that is cancelled or returned within the timeframes described above. We will adjust your loan amount to eliminate any interest and loan fee that applies to the amount of the loan that is cancelled or returned.
If you make the 120-day deadline, you’re in the clear. You won’t be required to pay loan fees or any interest already accrued on unsubsidized loans in that time. Sometimes, your university can send it back on your behalf, so your first point of contact should be the financial aid office at your institution. Check with them to see if they can send the unused federal student loan funds back on your behalf, or if you will need to send the money back to your loan servicer on your own.
After the deadline, you’ll need to simply make a loan payment back to your loan servicer. You can begin to pay your loans back while still in college. If you do, you won’t pay any interest on subsidized student loan money (it doesn’t begin to accrue until six months after you graduate), but you will pay any loan fees charged to your account.
When will I get my financial aid refund?
If you’re expecting a refund, you aren’t likely to see that money until after the add/drop period for classes — the grace period during which you can change your choices without penalty — ends. That can be about three to four weeks into the semester, although some schools may disburse funds earlier. According to the Department of Education, schools must pay a credit balance directly to a student or parent no more than 14 days after the first day of class or when the balance occurred if it occurred after the first day of class.
Until then, you’ll have to cover your costs out of pocket.
“Students who are expecting refunds are very anxious for them,” says Norwood.
Norwood adds the anxiety may be because many students who see a refund check are lower income — they may see the money because they qualified for more aid. They may depend on the funds from the refund to pay for important costs related to their education such as rent for off-campus housing or educational supplies for classes.
If you missed something on your financial checklist — like signing the Master Promissory Note or completing Loan Entrance Counseling — over the summer, you may see funds even later than four weeks. Overall, if you’re hoping to use refund money to cover your rent or other school expenses, you may need to come up with the cash by other means.
“If [students] don’t budget well for the whole year, it’ll be the same thing in January,” says Mayotte.
There is a silver lining for you if you received Federal Student Aid (FSA). As of July 1, 2016, Title IV schools are required to provide a way for FSA recipients to purchase books and supplies required for the semester by the seventh day of the semester if:
The school was able to disburse FSA funds 10 days before the semester began, or
The student would have a credit balance after all FSA funds are applied.
The school doesn’t have to write you a check outright for books. Institutions can award the funds in school credit or bookstore credit, too, but must grant you the amount you are expected to spend on educational supplies according to the institution’s calculated cost of attendance by the end of the first week of classes.
Balance transfer offers on credit cards can be an excellent way to reduce the cost of expensive credit card debt, helping you can get out of debt faster. Capital One only offers one card with a balance transfer intro period. Balance transfers are usually offered only to people with excellent credit, however you may qualify if you have good credit. It’s always a good idea to check if you’re prequalified before submitting an application.
In this article, we will:
Review the balance transfer offer from Capital One
Provide details on who can be approved for the offer
Decode the fine print, so that you know how to avoid tricks and traps that could cost you
Note: If you are looking to get out of debt, you should consider downloading our free Debt Free Guide. It will show you how to slash your interest rates, boost your credit score, negotiate hard with creditors and become debt-free fast and forever. Balance transfers can be a great tool in your debt-free strategy, but everyone should have a strategy. And this guide can help you build one.
Capital One® Quicksilver® Cash Rewards Credit Card
The Capital One® Quicksilver® Cash Rewards Credit Card is best known for having no annual fee, and providing unlimited 1.5% cash back on all of your spend. Unlike many cash back credit cards, there are no rotating categories, no caps, and no minimums for getting your cash back. They really raised the bar on cash back credit cards, until Citibank created the Citi® Double Cash Card which does the same thing, except you earn unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases.
Capital One® Quicksilver® Cash Rewards Credit Card offers 0% intro APR for 9 months on balance transfers, with a 3% fee. When compared to the rest of the market, this is a mediocre intro period. You can find cards with intro periods of 15, 21 and 24 months. We list all of the balance transfer options here.
Capital One markets this card for people with excellent credit. On their website, excellent credit is defined as someone who:
Has never declared bankruptcy or defaulted on a loan
Hasn’t been more than 60 days late on any credit card, medical bill, or loan in the last year
Has had a loan or credit card for 3 years or more with a credit limit above $5,000
If your credit score isn’t excellent, your options are much more limited. In fact, we recommend considering a personal loan to get a lower rate on your debt, where you will have a better chance of getting a higher loan amount.
Fine Print Alert
Balance transfers can save you a lot of money. However, there are certain traps out there, and if you fall for those traps it could end up costing you a lot of money. Make sure you do the following:
If you are approved for your balance transfer credit card, complete the balance transfer right away. The 0% promotional offer begins the day your account is open.
Set up automatic payments so that you are never late. Even being late by one day can result in a steep late fee. And, if you are late by 60 days or more, you can see a big spike in your interest rate.
Don’t spend on the credit card. Although Capital One does offer 0% on purchases, they do that as a temptation. They want you to spend, so that you don’t use the promotional period to pay down your debt. If you are using a balance transfer, you should be doing it to get out of debt faster.
Balance transfers, when used properly, can take years off your debt repayment. With proper credit behavior, the Capital One® Quicksilver® Cash Rewards Credit Card can save you money and help rid you of debt.
As you may know if you’ve done a search for BB&T CD rates, their website is not a helpful place to turn for information. Beyond a basic overview of their CDs on their website stating that they have CDs with terms ranging from seven days to five years, they do not give details on their current rates. BB&T did not respond to email and phone inquiries from MagnifyMoney asking why the bank does not publish its CD rates online.
When we called their customer service number, a representative said BB&T’s CD rates change on a daily basis and said the best way to learn about CD rates is to call or visit a local branch.
So that’s what we did.
We called BB&T branches on Sept. 5 and, on the same day, compared their CD rates to other banks and the national averages. After conducting this research, it’s not surprising BB&T makes their CD rates hard to find — they’re terrible.
BB&T CD rates and products
BB&T offers CD terms ranging from as short as seven days to as long as five years. They have eight CD options, each with different investment goals.
7-day to 60-month
For short-term investments, BB&T offers CDs ranging from seven days to 60 months. These personal CDs offer a fixed rate of return along with the flexibility to focus on developing either a short- or long-term investment.
BB&T CD Term
Minimum Deposit Amount
Rates as of Sept. 5, 2017
Not only can you find better CD rates at other banks and credit unions for each of the terms BB&T offers, you can get those better rates with smaller minimum deposits. BB&T’s offerings are far from the best in every term length above — you can see some of the top options in our monthly roundup of the best CD rates.
With the seven-day to 60-month BB&T CDs, there are no penalty-free options for withdrawing your funds prior to the CD reaching maturity. The early withdrawal penalty is the lesser of $25 or 12 months of interest for longer-term CDs. So with smaller initial deposits, early withdrawal penalties will negate any interest you may have earned.
As the name of this CD implies, whether rates go up or down, you can’t lose. Well, actually, you can: The APY is so low, you’re almost certainly going to lose money to inflation.
At the 12-month mark of the CD’s term, you may make one withdrawal without paying any fees. So if the market rate is higher than what you’re currently getting, simply withdraw the money and reinvest at the higher rate.
If, however, the interest rate you’re receiving is better than what’s currently available, you also have the option of making a second deposit into the Can’t Lose CD, up to $10,000. This locks in the rate for the new investment amount for the remainder of the term. So whether rates go up or down, you’ll lock in the higher rate.
30-month "Can't Lose"
No penalty for one
withdrawal after 12 months
As of Sept. 5, 2017
Still, you can find many CDs with better APYs than BB&T’s Can’t Lose, whether you’re looking for a 12-month investment or longer.
Laddering is a way to stagger your CD investments so you’re able to take advantage of increasing rates. With the Stepped Rate option from BB&T, laddering is built into the CD product. The initial CD starts out at a lower rate and increases each year. For example:
As of Sept. 5, 2017
This product also allows you to make an additional deposit each year (up to $10,000). So if the interest rate you’re receiving is better than the market, you can invest more money into your existing CD to make a higher return. But if the current CD market is offering better rates than your existing CD, you can simply take advantage of that offer and still make a higher return.
In addition, you may make a withdrawal from what you initially deposited into your Stepped Rate CD after two years. So, again, if the market changes dramatically, you may withdraw your money with no penalty and reinvest in a better option.
Or you could create a CD ladder on your own, choosing CDs with better rates than BB&T’s — higher rates are certainly available.
The Add-on CD option from BB&T offers a 12-month CD at 0.10% and an opening deposit of $100. You’ll need a BB&T checking account and a $50/month automatic deposit from your checking account into the CD. To get a personal account, you’ll just need to set up direct deposit or maintain a $1,500 balance.
Greater of $25 or
6 months’ interest
As of Sept. 5, 2017
If you’re in the market for a new home, and you want to earn a little more interest on the money you’re saving, consider the Home Saver CD. Starting with as little as $100, you’ll be able to deposit money earmarked for your new home every month and earn 0.40% APY. With this CD, as long as you’re withdrawing the money for use toward the purchase of your new home, you won’t pay any penalties for the withdrawal. But you will need a BB&T checking account set up for a monthly deposit of $50 into your Home Saver CD.
36-month Home Saver
No penalty for
As of Sept. 5, 2017
Similar to the Home Saver CD, the College Saver CD is meant for parents or students saving for college. It offers the benefit of starting at a higher APY (0.40%) with the flexibility of withdrawing the money up to four times per year to pay for the cost of attending school. As with the Home Saver, you’ll need to have a BB&T checking account with an automatic monthly deposit of $50. The College Saver offers terms of 36, 48, and 60 months.
36-month College Saver
No penalty for
48-month College Saver
No penalty for
60-month College Saver
No penalty for
As of Sept. 5, 2017
This CD offers the ability to make additional deposits of at least $100 into your CD at any time and one monthly withdrawal without penalty. The CD has a six-month term with a variable interest rate tied to the U.S. Treasury Bill — if the rate goes up, you’ll make more money, but if the rate declines, you’ll make less. Right now, rates start at 0.05% and adjust quarterly. Throughout 2016, Treasury Bill rates increased almost every month and have continued to rise in 2017, reaching 1.035% in August. So this is a great option if you have the $5,000 minimum deposit amount and want a short-term investment with the option to add or remove funds from the CD.
CDARS stands for Certificate of Deposit Account Registry Service and protects your principal and interest by making sure your money is placed into multiple CDs across a network of banks to keep your CDs insured by the FDIC (maximum limit for each CD is $250,000).
Other things to know about BB&T CDs
Does BB&T allow customers to take advantage of rising rates once they’ve opened a CD?
BB&T has two CD options that allow you to take advantage of rising rates: the 30-month Can’t Lose CD and the 48-month Stepped Rate CD. Both allow you to make a withdrawal before the CD comes to maturity in case rates increase (terms apply). They also allow additional deposits in case rates drop and you want to invest more at the existing rate of your CD. However, the current rates on those products are very low, negating the value of their flexibility.
BB&T (Branch Banking and Trust Co.) is a North Carolina-based bank with locations in 16 states and the District of Columbia, including Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, New Jersey, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington and West Virginia.
BB&T offers a mobile app for both iOS and Android. While their website is easy enough to use, finding specific information, particularly about rates, is impossible. Their customer service number isn’t much help in that regard either, with most questions answered with a suggestion to visit a branch location. As a result, if you don’t live in an area with a branch, we don’t recommend using BB&T’s CDs. To find the BB&T branch closest to you, use their branch locator.
Pros and cons of CDs
A certificate of deposit (CD) may offer a higher return than you’ll get with your savings accounts, without the risk of loss that accompanies other investment options with higher return rates. The drawbacks associated with CDs are the inability to access your funds during the term of the investment without suffering a penalty and the risk of interest rates increasing while your money is locked into a CD for a specified term.
The bottom line: Are BB&T CDs right for you?
BB&T does offer some flexible deals to its customers, but in general, better CD rates can be found at both banks and credit unions with comparable terms. You can find them on our list of the best CD rates, which we update every month.
More pet owners are buying insurance to cover the cost of accidents, illness and routine checkups, but that hasn’t made it any easier to decide if it’s really worth the extra expense or not.
Nearly 1.8 million pets were insured in the United States and Canada in 2016, which is an 11.5 percent increase from 2015, according to the North American Pet Health Insurance Association (NAPHIA).
Still, that represents a mere fraction of the estimated 400 million pets living in U.S. households today.
One factor holding pet owners back from investing in an insurance plan for their pet could be cost. Annual premiums for coverage can range from $163 (accident-only coverage) to $496 per pet (for a plan that covers both accidents and illnesses), according to the NAPHIA. Those costs can become much higher depending on the age of your pet, type of animal and where you live.
It’s also common for pet insurance plans to come with deductibles, so pet owners could easily still face hefty medical bills even with insurance.
With the increase in how much Americans spend on their pets — from $60.28 billion in 2015 to $66.75 billion in 2016 to an expected $69.36 billion in 2017 — as well as insurers offering coverage, it’s important to determine if insurance is a smart financial option for your furry friends.
What Pet Insurance Covers — and What It Doesn’t
Depending on the insurer and how much you’re willing to pay, you can get several different tiers of coverage for a pet.
The most basic plans offer one or the other: wellness visits or accident-only coverage (similar to a catastrophic health care plan for us humans). At a more comprehensive level, plans can cover illnesses and wellness visits as well as routine checkups. Prices also vary based on what type of pet you have.
For example, Nationwide offers a comprehensive dog insurance plan that covers wellness exams and visits, accidents, hereditary conditions, chronic conditions, and pay back up to 90 percent on some veterinary bills. The price starts at $65 per month or $780 per year. You can pay less and get less coverage.
Their so-called “major medical plan” covers accidents and illnesses but doesn’t offer coverage for wellness exams. The plan starts at $35 per month.
And at the bottom rung of coverage is a wellness plan starting at $18 per month and offering basic coverage for things like flea and heartworm prevention and vaccinations.
It make take time, but it’s important to comparison shop between different pet insurers before you decide on a plan. Sites like petinsurancequotes.com offer ways to compare insurers and plans.
What pet insurance doesn’t cover
While pet insurance can cover many emergencies, the type of plan you purchase will determine if the insurance pays for medical care beyond accidents. Wellness visits and vaccines are not covered by Trupanion, for example, which insures only cats and dogs. Grooming and nail trimming are not included in Nationwide’s wellness package.
While it’s now law that insurers can’t deny humans insurance based on pre-existing conditions, the same perk isn’t enjoyed by pets. Pet insurers such as Trupanion and Nationwide do not cover pre-existing conditions that the pet had before coverage began. Nationwide limits coverage for hereditary disorders by breed — such as cardiac arrhythmia in Boxers — in some plans, but offers full coverage for those conditions in its comprehensive Whole Pet with Wellness plan.
For this reason, the best time to purchase pet insurance is when the pet is young because there is little chance of pre-existing conditions. The average age of insured cats and dogs was 4.86 years in 2016, according to NAPHIA.
“Now people are demanding more for their pets,” says Dr. Simon Platt, a veterinary neurologist and professor at the University of Georgia College of Veterinary Medicine.
Insurance appeals to pet owners who prefer to pay a monthly cost for future health expenses instead of doling out hundreds, or even thousands, of dollars when care is needed.
When Destin Miller’s mixed border collie, Ozil, had gastric problems, her pet insurance from Trupanion covered $320 of the $350 bill for medication, fluids, blood work, and 24 cans of special dog food. The $30 that Trupanion did not cover were the dog’s two exams.
“They were all approved … extremely quickly,” says Miller, 23, a graduate student at the University of Georgia in Athens, Ga.
Miller says it is easier for her and her fiancé to pay about $80 per month in pet insurance because she knows it could help cover greater expenses when her dogs are sick.
When deciding whether or not to purchase pet insurance for your animal, there are several factors to consider other than cost:
Breed:Know the risks and medical conditions associated with your breed, such as if your dog is likely to have diabetes, to determine if it will be covered or if the level of coverage will be enough for your pet’s care now or in the future. Also, if you have a purebred or pedigree dog or cat, it may have inherited medical conditions that could be considered high risk and too expensive to treat.
Age: Typically, your pet needs to be at least eight weeks old to be covered, according to NAPHIA. But you also don’t want to wait too long to get coverage because your pet may be too old for a company to insure because of the potential for high costs of care with age.
Number of pets: Some insurers may limit the number of pets you can insure, particularly if they are considered “high risk,” according to the American Veterinary Medical Association (AVMA). But others may give you a discount if you are insuring more than one pet.
How much should I pay for pet insurance?
Insurance companies provide a variety of plans. Pet insurance can vary due to different factors such as species, geographic location, age and gender.
Don’t simply purchase the plan with the cheapest premium. Look at the deductible as well, because that’s how much you’ll have to pay out of pocket before your insurance kicks in. You should also consider how much you are paying for your pet’s care today and how much care you anticipate your pet will need in the future. Paying for a more expensive plan may be worth the money if you make several visits to the vet each year.
Trupanion allows its customers to choose their own deductible from $0 to $1,000, which allows pet owners to choose a premium that works with their budget, says Emily Coté, director of customer marketing for Trupanion, a Seattle-based pet insurer.
For example, Nationwide offers these examples: Coverage for a small mixed-breed puppy, under the age of one and located in San Diego, Calif., could cost $17.75 a month for a Wellness Basic plan from Nationwide or $49.94 per month with Nationwide’s Whole Pet with Wellness plan. Nationwide, after an annual $250 deductible, will pay up to 90 percent of all accidents.
For a kitten under the age of one, the Wellness Basic plan would cost $12 a month, and Nationwide’s Whole Pet with Wellness plan would be $35.25.
“People want that peace of mind,” Coté says. “It’s easier to budget that monthly amount and not have to make medical decisions due to finances.”
Where to shop for pet insurance
While pet insurance has been in the United States for about 35 years, the awareness and interest is much smaller than their European — most specifically British — counterparts, say insurers and veterinarians.
Platt says when he worked in the United Kingdom, he would fill out three to four insurance claim forms a day. Platt says he has filled out only three to four claims while living and working in the United States the past 11 years.
“I now see some major household insurance names offering it,” he says.
Shop around and compare rates. More than a dozen companies offer pet insurance, with some under brands and entities with names like Pet Protect and Nuzzle, based on a list of NAPHIA members and a list of companies compiled by the AVMA. Providers include major home, auto and life insurers, such as Nationwide and Geico, while some companies, such as Trupanion, PetFirst, and Healthy Paws, specialize in insuring animals. It’s important to get quotes from insurers and compare coverage yourself to make sure you’re getting the best rate.
Free trials from pet shelters. Pet shelters also sign up owners for insurance, typically by offering a free trial for the first 30 days. However, after the trial, you could be charged unless you cancel the policy. Discount membership clubs, such as Sam’s Club with PetFirst Pet Insurance, also offer pet insurance.
Scraping together the down payment on their mortgage is the biggest challenge facing many would-be homebuyers. And lots of those would probably like to use a personal loan to top up their savings so they reach their lender’s threshold. But can they do that?
The short answer is that few lenders would give their consent to a borrower looking to use a personal loan for their down payment. You would be taking on new debt and then taking on even more debt on top of that…not exactly the greatest solution.
The good news is that there are lots of different options out there for low down payment mortgages and even assistance programs that can help you get together funds for a down payment.
We’ll explore some of these options in this story.
Let’s make sure you know how big your down payment needs to be. Because, if you are a bit fuzzy on that, you are not alone. And you could be in for some good news.
A survey of professionals at a 2017 conference hosted by the Mortgage Bankers Association revealed a persistent myth: Twenty-eight percent of respondents thought “consumers still mistakenly believe that a 20 percent down payment is a requirement for purchasing a home.” And another four in 10 respondents thought that even those who knew 20 percent isn’t necessary still believed they’d find it difficult to buy a home with less.
Those consumers couldn’t be more wrong. Creditworthy buyers can usually get approved for a mortgage with a down payment as small as 3 or 3.5 percent. And some (more than you may think) who qualify for specialist mortgage programs need put down nothing. Discover more about all those options below.
Requires both upfront and annual mortgage insurance for all borrowers, regardless of down payment
500 and up
No mortgage insurance required
Typically 700 or higher
No down payment required for eligible borrowers (military service members, veterans, or eligible surviving spouses)
No mortgage insurance required; however, there may be a funding fee, which can run from 1.25% to 2.4% of the loan amount
No minimum score
3% and up
Mortgage insurance required when homebuyers put down
< 20%; no longer required once the loan-to-value ratio reaches 78% or less
No down payment required
Ongoing mortgage insurance not required, but borrowers pay an upfront fee of 2% of the purchase price
Conventional loans (one not backed by a government program)
A conventional loan is simply a type of mortgage loan that isn’t backed by a government program. Usually these loans require a 5 to 20 percent down payment, though that can be as low as 3 percent using offerings such as Fannie Mae’s HomeReady or Freddie Mac’s Home Possible mortgages. You will need to be reasonably creditworthy.
SoFI offers mortgage loans for minimum down payments of 10 percent. You can borrow between $100,000 and $3 million. And you will not have to pay for private mortgage insurance (we’ll talk more about PMI below), even though you have not reached the usual 20 percent down payment threshold. But you will need to have good-to-great credit and sound finances.
Federal Housing Administration mortgage (FHA loan)
FHA mortgages require a 3.5 percent down payment if your credit score is 580 or higher. This can be good if your credit score is less than stellar, but it may be more costly than other options. That is because you will be liable for mortgage insurance premiums (MIPs), which will be added to your monthly mortgage payments.
USDA loans require no down payment, unless you have significant assets. There are various eligibility criteria, including your having a low to moderate income. And you must purchase in an eligible area, although those areas make up 97 percent of the nation’s land mass. You can check if you and your area qualify using a tool on the USDA website.
VA loans also require no down payment. These are for veterans, those still serving in the military and related groups. You can check your eligibility on the VA website. If you qualify, it is highly likely this will be the best mortgage you can get.
Before exploring ways of borrowing to top up your down payment funds, you should definitely check out your eligibility under various assistance programs. These are typically targeted at middle- and low-income buyers, and you may have to use a lender that participates in the program.
Some programs provide outright grants or gifts that do not have to be repaid. And they are often available to both first-time buyers and existing homeowners.
Many of these down payment assistance (DPA) programs are state-based. You can click through to your local offering, if any, from the U.S. Department of Housing and Urban Development (HUD) website, which has a link for each state. You should also call your city or county to see if it operates a similar, parallel program.
Finally, do not forget to check with your human resources department. Some employers offer help.
Using a gift from family or friends
Suppose you cannot get help from a mainstream DPA or your employer. Perhaps your parents or another close relative, fiancé, fiancée or domestic partner may be willing to give you a gift toward your down payment. Your lender should normally have no problems with this arrangement. But it is very likely to apply a couple of industry-standard rules:
You must meticulously document the gift process and provide copies of the donor’s withdrawal slip or check, and the recipient’s deposit slip. If appropriate, a copy of the donor’s check to the closing agent is fine.
You must provide a letter or form signed by the donor declaring that the payment is a gift and not a loan. This must include certain information and statements, and you can download a sample gift letter from the NOLO legal website.
Many lenders will allow this gift to cover 100 percent of the down payment. However, some may prefer you to provide some of the funds yourself.
Expect your loan officer to be mildly suspicious of large gifts. Some applicants try to sneak through money that is actually a loan in disguise, risking jail time or fines for mortgage fraud. If you raise any red flags, your loan officer can investigate the funds in great detail, including their ultimate source.
It is generally fine to borrow money from friends or relations for part of your down payment, providing you declare the loan(s) to your lender. It can then include your repayments when it assesses your ability to afford your mortgage.
Central to that assessment is your debt-to-income (DTI) ratio. As the name suggests, that is the proportion of your monthly income that goes out in debt payments, including minimum payments on credit cards and standard payments on instalment loans, such as auto, student and personal loans, as well as your new mortgage. You should also include any regular commitments for alimony or child support.
LendingTree has a DTI calculator that can help you determine yours. If you plan on borrowing for your down payment, include the payments on the loan(s) from your family or friends when you use it. It is unlikely a lender will allow your DTI to be higher than 50 percent. Some types of mortgage require 43 percent, and many lenders prefer it to be in the 30s.
Borrowing from yourself
One way to keep your DTI low is to borrow from yourself because not all lenders countrepayments of such loans in your DTI, even if you have to make them. But you need to check your lender’s policy before you proceed, and either rule out this option or find a more sympathetic source for your mortgage.
How do you borrow from yourself? By raiding your retirement pot. You may be able to make a withdrawal or take a loan from your 401(k), IRA or Roth IRA to fund your down payment.
But, unless you are a tax accountant, you should take professional advice before doing so. No, really. This is a big step with lots of potential implications.
Potential implications of raiding your retirement funds
Whatever you do, there is a high chance your retirement fund will take a big hit.
As previously suggested, take advice from a trusted, reputable professional.
Advantages of making a 20 percent down payment
There’s a reason that 20 percent down payment myth survives. It may well be that, decades ago, your parents or grandparents had to find that much as a minimum.
And 20 percent remains an important threshold for borrowers. Put down that much or more, and you won’t have to pay for private mortgage insurance (PMI).
You have to pay the premiums for PMI (they are mostly wrapped up in your monthly mortgage payment, but you may have to make an upfront payment too), but the only benefit you get from them is an ability to borrow with a smaller down payment. If any claim is made on the policy, probably because you have defaulted on your loan, the payout will go directly to the lender.
The biggest downside to a low down payment: PMI
Like we mentioned, most mortgage loans that come with a low down payment requirement have a big caveat — the added cost of private mortgage insurance.
The amount you pay for PMI will depend on the type of mortgage you choose and maybe your personal circumstances:
Conventional loan — You will get a quote from your lender. Monthly payments are typically lower than on some other types of mortgage and will depend on your credit score and the size of your down payment. Your upfront payment is likely to be small or sometimes zero.
SoFi loan — There is no PMI and so no MIPs on these loans with a down payment equal to or higher than 10 percent.
FHA loan — This is often the most expensive type of PMI. But its costs are not affected by your credit score, and the size of your down payment tends to have less impact. So this is a good bet if your credit is iffy and you don’t have substantial savings. At the time of writing, in 2017, you can expect to pay 1.75 percent of the loan value as an upfront charge, and then anything between 0.45 percent and 1.05 percent annually, depending on how much you borrowed and the sizes of your original loan and down payment. Although calculated on an annual basis, ongoing premiums are spread evenly through the year and collected through your monthly payments. If you cannot afford the upfront payment, it may be possible to wrap it up in your overall loan.
USDA loan — This is similar to the FHA loan’s PMI model, but typically has lower upfront and monthly payments. As with FHA loans, if you cannot afford the upfront payment, it may be possible to wrap it up in your overall loan.
VA loan — You do not pay ongoing monthly premiums with one of these. However, you do pay an upfront cost, called a “funding fee.” For first-time buyers in 2017, these range from 1.25 percent to 2.4 percent, depending on your type of service and the size of your down payment. For regular military with a zero down payment, it is 2.15 percent. If you cannot afford that funding fee, you may be able to wrap it up in your overall loan.
Most sorts of PMI terminate (either automatically or on request) when your mortgage balance reaches 80 percent of the contract price or the property’s appraised value when you bought your home. However, that does not apply to FHA loans. You will likely be on the hook for PMI premiums for those until you move or refinance.
Should you wait to get a mortgage until you can avoid PMI?
By now you may be pondering a dilemma: Should you jump into the market now and swallow those PMI costs? Or might you be better off holding back until you have the whole 20 percent down payment, thus avoiding PMI altogether?
Your smart choice largely depends on the real estate market where you want to buy. It might also depend on the market where you are selling, if you are not a first-time buyer. And it is mostly down to math.
A matter of math
Research home-price trends in your target neighborhood to see whether they are rising (they are in most places) and, if so, how quickly. Bear in mind that some forecasting companies expect growth to continue, but more slowly. For example, CoreLogic calculated home prices grew 6.7 percent nationwide in the year ending July 2017, but expects that to slow to 5 percent by July 2018.
It makes sense to go ahead and jump into the housing market if you anticipate that the value of your home will increase sufficiently year after year to offset the added cost of PMI.
Once you have a feel for those price trends, use a calculator like MagnifyMoney parent company LendingTree’s mortgage calculator to model your options. It will itemize your PMI as part of your total monthly payment. Work out how much you could save by avoiding PMI, and compare that with how much you stand to lose in home-price inflation if you wait to save that 20 percent.
You are now in a position to make an informed decision over whether to buy now or carry on saving. Of course, if in the meantime you find the home of your dreams, you can always choose to go with your heart rather than your head.
There are lots of things to like about personal loans. They are easy, quick and relatively cheap (or often free) to set up. They almost always have lower interest rates than credit cards for equivalent borrowers. And they make budgeting simple, because you know how much you will pay each month, subject to rate hikes.
However, typically their rates are noticeably higher than secured loans, such as mortgages and home equity products. And you need good credit to get a low interest rate.
Some lenders advertise personal loans for as much as $100,000. Others have more modest caps. How much you will be able to borrow will depend on many factors, including how easily you can afford to repay it and your credit score.
Where do America’s biggest savers live? Using IRS and U.S. Census data, MagnifyMoney created a City Saving Score for over 2,000 U.S. cities to explore which cities have the most savers and which cities have the biggest savings accounts.
On average, 29 percent of Americans who filed tax returns in 2016 earned interest income on their savings. Average interest income was $530 per return, representing 0.8 percent of total reported income. But regional, demographic and economic forces drive some cities to become super savers while others languish behind. Residents of Greenwich, Conn., earned an average of more than $25,000 in interest income per resident, while in Camden, N.J., just 4 percent of the residents had enough savings to require reporting to the IRS.
Why is there so much variation?
In this report, MagnifyMoney reveals America’s super saving cities, and the forces driving their success as savers.
Scarsdale and Garden City, N.Y., are tied for #1 as the cities with the biggest savers overall, with a City Saving Score of 99.6 out of 100.
Los Altos, Calif., has the highest concentration of savers — 71 percent of residents reported interest income on their tax returns.
Greenwich, Conn., residents earned the most from interest on savings — over $25,000 per filer.
Among cities with incomes under $150,000 a year, The Villages, Fla., had the biggest savers with a City Saving Score of 98.5.
Camden, N.J., had the lowest activity among savers — only 4 percent of residents reported interest income and an average $8 a year in interest.
Communities in the New York, Washington, D.C., Los Angeles, San Francisco and Chicago metros represented over 75 percent of the top 5 percent of city saving rankings.
Behind the rankings: The ‘City Saving Score’
There is no comprehensive data that shows the average amount Americans are saving at a metro or city level, so we had to get a bit creative to determine where the biggest savers live.
To rank cities, MagnifyMoney created a “City Saving Score.” Using data for over 2,000 cities, MagnifyMoney ranked cities based on three factors:
Breadth of community savings (measured by the percentage of all tax returns that declared interest income, ranked by percentile).
Dedication to savings relative to income levels (measured by the percentage of total income that came from interest, ranked by percentile).
Magnitude of savings in the community (measured by the average interest income per tax return, ranked by percentile).
Top cities for big savers: Scarsdale and Garden City, New York
Scarsdale, N.Y., and Garden City, N.Y., scored the highest marks on our City Saving Score, with scores of 99.6 out of a possible 100.
They have an obvious advantage on the savings front — Scarsdale residents report an average income of more than $450,000 per tax return, putting them in the top 1 percent of earners in the U.S. today.
On average, savers in Scarsdale declared $9,258 in interest income — 17.5 times as much as the average American saver, who declared $530 in 2016.
Scarsdale savers are also enjoying a higher savings rate than many others. According to the IRS data, 2 percent of their income came from interest earned from savings accounts, which is 2.5 times the national rate of 0.8 percent.
It’s not just the savings volume driving Scarsdale’s place at the top. Two-thirds of Scarsdale residents reported interest income on their tax returns in 2016. That’s more than twice the national rate of 29 percent.
In Garden City, N.Y., residents earned just over $247,000 on average, putting the average household in the top 5 percent of American earners. Just under two-thirds (64 percent) of Garden City residents report income from interest.
However, with the average Garden City resident declaring $5,520 in interest, that represents 2.2 percent of overall income (10 percent more than their peers in Scarsdale, and almost three times the national rate).
The city where (almost) everyone saves: Los Altos, California
In addition to focusing on the amount people earn from their savings, we wanted to look at the share of savers in each city, which gives us an idea of a community’s total commitment to saving. The IRS requires anyone who earns more than $10 in interest income to declare interest income on their tax return. Even in the current low-interest environment, many middle-income savers could have qualified to declare interest income in 2016.
Among the top 10 cities with the most savers, two (The Villages, Fla., and Sun City West, Ariz.) had average incomes below $100,000 in 2016. Both cities feature large retirement communities, and these residents may have a higher propensity to keep their investments liquid compared with younger residents.
However the city with the most savers was Los Altos, Calif., where the average reported income is $476,000 annually. In Los Altos, nearly three-quarters (71 percent) of residents were savers. This is more than double the national average of 29 percent. The average interest income in Los Altos, Calif., was $5,299 — 10 times the national average.
Sky-high interest income in Greenwich, Connecticut
Greenwich, Conn., may not have the highest share of savers in the country (just over half (52 percent) of the city’s residents declared interest income on their tax returns in 2016). But their savers are making a bundle on earned interest.
Average interest income per return for the 2016 tax year was $25,451 — more than 48 times the national average of $530. If savers in Greenwich earned an average of 2% interest on their savings, the average saver would have held nearly $1.3 million in savings. The more than $25,000 in interest income constitutes 3.8 percent of the average reported Greenwich income, which is $664,000 annually thanks to a large number of hedge fund managers and other finance executives living in the area.
In terms of absolute interest income, Greenwich savers lead the pack by a wide margin. Second place Beverly Hills earns $16,638 in interest, just two-thirds of the Greenwich rate. In third place, Scarsdale earns $9,258.
Where do the biggest savers live?
Over three-quarters (77 percent) of the cities with scores of 95 or above came from just five major metro areas. These include the New York Tri-State area, the Washington, D.C., metropolitan area, San Francisco Bay Area, Southern California, and Chicago. Retirement communities in Arizona and Florida also feature prominently in the top saving communities, while just 15 percent of all major savings hubs are outside one of the areas mentioned above.
High saving doesn’t require high income
All cities with average incomes in excess of $250,000 earned a savings score of 90. However, some cities with lower incomes made surprise appearances near the top of the savings ranking.
In fact, 14 cities with incomes under $150,000 a year had scores of 95 or above in our study. Many of these “thrifty cities” have large retiree populations like The Villages, Fla., and Sun City West, Ariz. However, other thrifty cities included family-oriented suburbs where average households earned an upper-middle-class income.
Agoura Hills, Calif. (96.6 score), a Los Angeles suburb where a quarter of all residents are under the age of 19. Average income among tax filers in the city is $137,000, 60 percent of the average income of other top saving cities. Despite having more children and lower incomes than most other big saving cities, half of Agoura Hills households reported interest income. The average saver in Agoura Hills earned $1,913 per year in interest, 3.6 times the national average of $530.
Arcadia, Calif. (95.7 score) is another Los Angeles suburb with an average reported income of $101,000. In addition to modest average incomes (by Southern California standards), nearly 1 in 4 residents in Arcadia is under the age of 19. This means that plenty of households have to pay the high costs of raising kids. In spite of this, 48 percent of taxpayers report interest income, with the average return boasting $1,420 in interest income.
Towson, Md. (95.1 score), home of Towson University. In the Baltimore suburb, half (49 percent) of filers report interest income from savings. Despite an average reported income of $125,558, savers earned an average of $1,464 in interest income in 2014.
Where saving isn’t happening
Although rising interest rates are a boon for savers, plenty of communities will struggle as consumer debt rates rise, and income prospects remain middling. The cities with the lowest savings scores are spread throughout the country, but they have a few things in common. The average reported income in the bottom 5 percent was $35,000. That’s 41 percent less than the median income household in the United States today.
Most of the worst saving cities lost job-heavy industries over the course of the last 20 to 50 years. Rust Belt cities like Detroit, Mich., and East St. Louis, Ill., over-represent the bottom 5 percent in savings ranks. Likewise, former industrial towns in the Northeast like Camden, N.J., and Chester, Pa., also fell into the bottom 5 percent of saving cities. Many of the worst saving cities suffer from declining populations as younger generations seek economic opportunities elsewhere.
METHODOLOGY: How we ranked cities with the biggest savers
To rank cities, MagnifyMoney created a “City Saving Score” on a scale of 0 to 100 that included three equally weighted components:
How broadly members of the community saved (measured by the percentage of all tax returns that declared interest income, ranked by percentile).
The community’s dedication to saving regardless of their income (measured by the percentage of total income that came from interest, ranked by percentile).
The absolute magnitude of savings in the community (measured by the average interest income per tax return, ranked by percentile).
MagnifyMoney measured these factors using anonymized data from tax returns filed with the IRS from January 1 to December 31, 2016. ZIP code level data was translated to a city level using the primary city assigned to each ZIP code. The study was limited to cities with a combined primary ZIP code population of 25,000 or more.
To be counted as a saving household, the taxpayer must declare interest income using a form 1099 on their 2016 tax returns. Any filers who earned over $10 on investments, including a high-yield checking or savings account, a CD, a money market account or certain types of taxable bonds, would have reported this income to the IRS.
Interest income is an imperfect way to measure a particular community’s dedication to saving. Many people keep their cash in low-yield checking accounts, and some savers will not use financial instruments declared on Form 1099. In many parts of the country, savers and investors may prefer to build wealth using stocks, real estate or other forms of investments while keeping lower cash reserves.
Despite these drawbacks, interest income from the 1099 form represents a useful proxy for overall savings. The financial instruments that require 1099 reporting include many types of liquid savings that are easily accessible with negligible risk. Most people use interest-bearing accounts to hold funds for use in the case of job loss or a related emergency, or to mitigate consumer debt by paying for larger purchases in cash.
If you’re working hard to stay disciplined and stash away a portion of your income, you’ll want to earn the highest interest rate possible on your money. Unfortunately, that’s difficult, as bank savings accounts earn an average of 0.06% in interest annually, according to Sept. 11, 2017, data from the FDIC. The American Express® Personal Savings High Yield Savings account offers nearly 20 times that rate at 1.15% annual percentage yield (APY). What’s better, the high yield savings account does not require a minimum deposit or charge annual fees, so you don’t need anything but your personal information on hand to open the account.
What you need to know about the American Express savings account
Minimum Deposit Amount
Permitted Monthly Withdrawals
Deposits will be available within five business days.
Transfers from savings to a checking account
take one to three business days.
In an American Express® Personal Savings High Yield Savings account, your money earns 1.15% variable APY. It’s not the highest APY you can currently earn from an online savings account, but it’s well above average. The account charges no monthly fee and requires no minimum deposit, making it an affordable account to open. You must fund your account within 30 days of applying for the account, and the FDIC insures your deposits up to $250,000.
Overall, the account is a great option for anyone who wants the flexibility of earning a high interest rate on a sum of money you’ve stashed away (an emergency fund, perhaps?), minus the withdrawal restrictions of a certificate of deposit.
How the American Express savings account works
The savings account compounds daily at a variable 1.15% APY, and interest earned is credited to your account on your monthly cycle date. The rate is variable, so American Express can raise or lower the interest rate at any time without notice to you before or after the savings account is opened.
Account holders must fund the account within 30 days, which you can do by setting up a bank transfer or direct deposit to the savings account, as well as by sending a check.
You can make up to six withdrawals per month from the high yield savings account without penalty.
What we like about the American Express savings account
High interest rate The 1.15% variable APY is better than what you would earn putting your money in the accounts most brick-and-mortar banks offer. While there are higher rates to be had (we’ve compiled the best online savings accounts here), American Express has a good offer.
Automatic savings It’s easy to make saving automatic when you have an online savings account. With the American Express Personal Savings account, you can easily set up a recurring deposit to pull funds from an external savings or checking account. To make it even easier to resist touching your savings, you can even have a portion of your paycheck directly deposited to the account.
Discourages spending With your money in an online account like the American Express Personal Savings account, you can only get your cash after making a transfer to an external checking account to which you have debit card access. The inconvenience makes it that much more difficult to spend your savings.
What we don’t like about the American Express savings account
No ATM card Not having card access is great when you need to prevent yourself from spending your savings, but the hassle of setting up and making an ACH transfer from your online American Express savings account can be problematic in a pinch. (American Express says transfers will take one to three business days for funds to become available in your checking account.) If you’re worried about this, you can instead turn to an online bank like Synchrony Bank that makes it easier to access your savings by issuing an ATM card tied to your high yield savings account.
Variable interest rate The annual yield rate American Express is offering on this savings account is high at 1.15%, but the bank can change that rate at any time for any reason, as the rate is variable. If you’re looking for a more predictable rate of return, consider a certificate of deposit.
Limited withdrawals Because this is a high yield savings account, banks are limited by Federal Reserve Board Regulation D to a maximum of six withdrawals and/or transfers from your online savings account per statement cycle without penalty. With that in mind, before you decide how much you’ll put away each month, make sure it’s not more than you can afford to, so you aren’t repeatedly reaching into your savings.
American Express vs. top online banks
Salem Five Direct
Minimum Deposit Amount
Permitted Monthly Withdrawals
Deposits will be made available
five to 10 business days after
the deposit is made
Deposits will be made available
after three business days
Deposits will be made available
within five business days
Deposits will be made available
within five business days
As indicated earlier, the American Express Personal Savings account offer is strong, but it’s not the best available. To see how it compares, we used our sister site DepositAccounts.com, a database of deposit products at more than 17,100 banks and credit unions, to look at national, online-only banks with a health rating of a B or better and the highest APYs on savings accounts. If there was a tie, we chose the bank with the lower required deposit. Here are a few alternatives to the Amex personal savings account.
CIT Bank Premier High Yield Savings Account – 1.30%-1.35% APY, $100 deposit to open (no ATM access)
The Commercial Investment Trust Bank, or CIT Bank, offers a 1.35% annual yield on daily balances between $1 and $100,000, and 1.30% on larger daily balances in its high yield savings account — that’s something to keep in mind if your balance approaches six figures. Interest compounds daily, and the bank also doesn’t charge any maintenance fees on the account. However, CIT Bank requires a minimum $100 deposit to open the savings account and doesn’t provide savers with an ATM card for easier access to their money
BankPurely – SavingPurely, 1.30% APY, $1 deposit to open (ATM access)
BankPurely is the new online bank division of Flushing Bank (a small bank in New York). BankPurely offers an online savings account that earns a 1.30% APY. Customers can open the account by depositing only $1, and the bank doesn’t require you to maintain a minimum balance or charge a monthly maintenance fee for having the account. The bank also gives customers the option of receiving an ATM card they can use without incurring ATM charges at more than 55,000 ATMs worldwide through the Allpoint Network. If you have a green thumb, you’d like to know the bank plants one tree for every SavingPurely account opened.
BankPurely can change the rate on the account at any time. Take note: The company is brand new, so this high rate may only be temporarily available, as a tactic to attract new customers. You can hope that’s not the case, but you should proceed with caution if you choose this high yield account.
Salem Five Direct – eOne Savings, 1.35% APY, $100 deposit to open (no ATM access)
Savers can earn 1.35% on their money with an online savings account offered through Salem Five Direct. You’ll need a minimum $100 to open the account, and the bank doesn’t charge any fees to open or maintain the savings account.
Salem Five Direct does not offer account holders an ATM card, but you can transfer money from the savings account electronically, similar to what you’d have to do to get cash out of an American Express savings account
Online banks have been having a moment not only because of the rise in mobile banking among consumers, but also because they can simply offer consumers more benefits because they don’t have to worry about as many overhead expenses as brick-and-mortar banks.
An August 2017 study by DepositAccounts.com shows the annual percentage yield internet banks offer on savings accounts is more than four times what brick-and-mortar banks or credit unions offer. The same analysis shows annual percentage yields on internet bank savings accounts have surged 29 percent since January 2016.
Simply put, the main benefit of putting your money in an online savings account is your money does more for you. To show this, DepositAccounts provided an example, based on the average APYs in those savings categories: If a saver were to put $100,000 in a savings account and leave it alone for 10 years, they would earn $8,338.79 at an online bank versus $1,747.04 in a brick-and-mortar bank and $1,895.28 in a credit union, assuming a fixed APY.
The bottom line
Overall, the American Express Personal Savings Account is a solid online savings account option, but you can do better. The interest rate Amex offers is high, but there are other online banks that offer a higher yield with a comparably small required minimum deposit, if any at all.