Tag: Loans

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Consumer Watchdog, Pay Down My Debt, Personal Loans

Should You Avoid LendUp? A Review of Its Loans

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Updated October 25, 2017
Update: On Sept. 27, 2016, the Consumer Financial Protection Bureau ordered LendUP to pay more than $3.6 million in fines for allegedly misleading customers about its online lending service. Read the full CFPB order here

In a nutshell, the CFPB claims LendUP’s parent company, Flurish, Inc., misleadingly advertised its lowest-priced loans. LendUP advertised its loans as available nationwide, yet the most attractive loans were only available to customers in California, the agency says. 

The CFPB also claims  LendUP failed to accurately market the annual percentage rates offered with its loans and in some cases understated the true APR on its loans. 

What does the CFPB’s order mean for LendUP customers?

The CFPB has ordered the company to pay about $1.83 million in refunds to over 50,000 consumers. Consumers are not required to take any action. The company will contact consumers in the coming months about their refunds, the watchdog says.

In response to the CFPB’s claims posted on its website, LendUP says the transgressions date back to the company’s early days. “When we were a seed-stage startup with limited resources and as few as five employees. In those days we didn’t have a fully built out compliance department. We should have.”

Lendup LendUp is a company offering a better alternative to the typical shady payday loan. Its aim is to disrupt the payday loan system by providing consumers with more affordable loans, more education, and transparency.

This is quite a change from storefront payday lenders, who have confusing policies that often leave customers paying more huge amounts in interest.

LendUp wants to reform the payday loan industry by helping its customers get out of debt and build credit.

However, it could come at a hefty price for consumers. Payday loans are known for outrageous APRs, and while LendUp has more reasonable APRs than typical payday loan companies, it’s still something to be aware of.

Who Should Use LendUp?

Before we get into the details of the loans offered by LendUp, it’s important to address who should avoid its loans and who should consider them.

Payday loans are typically short-term loans to tide you over if you need money in between pay periods. The term can be one week, two weeks, or one month long. That’s a big difference from other personal loans that have terms of 1 to 5 years.

It comes down to your personal situation, and what you’re looking to use the money for.

If you have damaged credit or no credit at all, then payday loans might look like the only solution. LendUp can help you, but it’s important to consider the price.

If you’re simply looking to build credit, there are much better options out there. Taking a payday loan should be one of your last resorts. You can only start to build credit via LendUp when you reach Platinum or Prime status, which requires you to take on multiple loans.

Each time you borrow money from LendUp, you’ll be paying a significant amount in interest. For example, even if you only borrowed $100 for 31 days, you’d still pay $24.40 in interest (287.29% APR), according to their calculator.

For that reason, if you have poor or no credit, it’s better to look into opening a secured credit card, or trying to get approved for a store card. There’s no reason to pay $24 in interest if you don’t have to.

If you have severely damaged credit and are unable to get approved for any other solution, or you’re in dire need of cash to afford necessities like food, then you should consider LendUp over going to a regular payday loan store. LendUp is certainly the better option.

That said, if you’re looking for a long-term loan, or looking for more cash for a big purchase, then LendUp is not the right choice. You should check out the other personal loan lenders we’ve reviewed, such as SoFi*, Payoff*, and Upstart*.

How Does LendUp Work?

LendUp Ladder APRLendUp is a completely new solution to payday loans. It has what it calls the “LendUp ladder,” which is a point-based system. When you show that you’re a reliable customer and can make timely payments, you’re rewarded points, which enable you to climb up the LendUp ladder.

Update: In a consent order issued Sept. 27, 2016 the Consumer Financial Protection Bureau claims LendUP misleadingly advertised its loans as available nationwide. However, the most attractive loans, which customers were told they could earn access to through LendUP’s “Ladder” rewards program, were only available to customers in California. 

You can also earn points by watching LendUp’s educational courses on credit and for taking loans with them.

Climbing up the ladder gives you different statuses. You start at Silver, and from there, you can advance to Gold, Platinum, or Prime status. Each status has better terms, and at Platinum and Prime status, you can report your payments to credit bureaus to build your credit.

LendUp also doesn’t allow rollovers. That means if you’re unable to pay back your loan on time, LendUp will not charge you a fee to extend it, as other payday lenders do.

Instead, it offers free 30-day extensions on loans, so if you’re unable to make a payment, all you have to do is log into your account, and choose the option to extend your loan. LendUp tries to work with its customers as much as possible to ensure they’re getting out of debt, not back into it.

According to its website, LendUp is also the “first and only licensed direct lender with a relationship to the major credit bureaus.” LendUp emphasizes that there’s no middleman involved when customers take a loan, which allows LendUp to maintain its transparency.

LendUp Loan Details

Terms vary based upon the status you have with LendUp and you can get a loan amount of $100 – $1,000 depending on your tier.

Silver starts you off with a minimum loan amount of $100 and a maximum of $250. The terms range from 7 to 31 days. The maximum loan amount offered is $1,000, accessible at Prime.

Screen Shot 2015-03-27 at 5.57.58 PMLendUp provides a helpful calculator on its front page that gives you an idea of what you can expect with different loan amounts and terms.

For example, if you want to borrow $250, the APR range is 209.75% (30 days) to 755.03% (7 days).

According to ResponsibleLending.org, the typical two week payday loan as an annual interest rate ranging from 391% to 521%. LendUp falls within that spectrum.

Unlike payday lenders, LendUp rewards customers for continuing to borrower. LendUp does offer rates as low as 29% to its Prime customers, which is great when comparing against other payday loans. However, we’d prefer you focus on building your credit score and look to establish a line of credit with a credit union or get a personal loan from lender with better terms.

LendUp payday loans are also currently offered in only the following states: Ohio, New Mexico, Washington, Maine, Oklahoma, Louisiana, Florida, Texas, Wyoming, Alabama, Idaho, Indiana, Illinois, Mississippi, Oregon, Kansas, California, Missouri, Tennessee, and Minnesota.

LendUp is working on increasing its presence throughout the United States, but since its a direct lender, its has to comply with individual state laws and policies.

LendUp Application Process

The application process is fairly straightforward. LendUp says it should take 5 minutes or less to fill out the application and you’ll get an instant decision.

LendUp offers standard next day funding, instant funding, and same-day funding (Wells Fargo customers only). It warns that if you take instant or same-day funding, you’ll have to pay a fee to cover the cost.

LendUp offers a no credit check payday loan option. To qualify, you just need an active bank account and proof of income.

It assesses applicants on much more than just their FICO scores, which comes as no surprise. Throughout its site, LendUp makes it clear it wants to lend to those with bad or nonexistent credit. Like other personal loan lenders, LendUp uses its own algorithm consisting of different data points to determine whether or not to extend a loan to an applicant.

The Fine Print

LendUp states it doesn’t have any hidden fees, but as with any payday loan, you need to read the fine print.

First, fees and rates are dependent upon the state you live in, so make sure to review state specific information here.

The only fee that’s mentioned with a dollar value attached is a non-sufficient funds fee. LendUp automatically takes money out of your bank account, and if you don’t have enough money in there to cover it, you’ll get hit with this fee, which can be between $15 and $30.

Additionally, if you want to pay before your due date, you can pay with your debit card, but you’ll incur a fee to cover the cost of the transaction.

Opting to get your money instantly or same-day also comes with a fee.

What happens if you can’t afford to pay and you used your extension? This is a common concern among those already tight on money. On its site, LendUp says to contact them at the first sign of trouble. It’s willing to work with borrowers.

However, if you don’t pay, and you don’t contact LendUp, then there are consequences. LendUp can suspend your LendUp account, send your account to outside collection agencies, take legal action, and report your account delinquent to the credit bureaus.

Commendable, but Still a Payday Loan

LendUp’s mission is a commendable one – it wants to educate its customers and provide them with a better way to get back on their feet. LendUp is certainly an improvement over traditional payday lenders, but at the end of the day, it’s still a payday loan. When taking one, you need to consider the overall costs you might face.

Look into secured lines of credit or store credit cards – don’t look to take a payday loan first. Only take one if you desperately need the cash and you’re in a rough spot. Be aware of exactly what you’re getting yourself into, and make every effort to pay off your loan on time and improve your financial situation.

If you’re interested in looking into a loan with LendUp, use its site map to get specific information related to the state you live in, as loan terms vary depending on state.

*We receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.  

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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Small Business

How to Get Approved for a Small Business Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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

Know your business credit score AND personal credit score

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

How to find your business credit score:

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

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

How to find your personal credit score:

There are numerous free credit scores available for you to access; however, not all scores are considered equal. Credit lenders will often pull specific scores, depending on the product you are applying for. Therefore, we have created a simple chart for you to see where you can get specific credit scores from the top two companies — FICO® and VantageScore.

You can order a copy of your personal credit report from each of the three credit reporting agencies once every 12 months, free of charge, by going to AnnualCreditReport.com. Once you have the reports, make sure you recognize all of the information on your credit reports, such as names, addresses, Social Security numbers, credit card accounts and loans. Make sure there aren’t any accounts belonging to another person with the same or a similar name as yours, fraudulent accounts resulting from identity theft, or the same debt listed more than once. If there are any errors, contact the credit reporting agency (Experian, Equifax, or TransUnion) that sent you the report and follow their instructions to dispute the error.

The best option: FICO® Score 8

Where to get it: Credit Scorecard by Discover or freecreditscore.com

Find the right type of lender for a small business loan

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

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

Nonprofit small business loans

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

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

Get your financial statements in order

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

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

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

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

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

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

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

Run your own background check on Google

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

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

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

The bottom line

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

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here

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Featured

3 Mistakes People Make When They Need a Car Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Car Loan

Shopping for a car loan can be a financially and mentally draining experience. More than 86% of car buyers used at least some amount of financing to purchase cars in the beginning of 2016, according to the latest data from Experian.

Unfortunately, many car buyers make crucial, yet preventable, mistakes when they take out a loan for a new car. The MagnifyMoney research team decided to find out just where shoppers are going wrong. We asked more than 600 car owners a series of questions about how they shopped for a car loan.

The answers we received were pretty troubling, to put it mildly. Read on to see where buyers are going wrong:

1. Too many people let their car dealer do the homework for them.

Nearly two-thirds of the drivers we surveyed committed the ultimate auto financing mistake: they let the dealer find their loan.
When you let the dealer decide find the loan for you, you have no way to gauge whether what’s presented to you is in fact the absolute best offer you can get. You also forfeit pretty much all of your negotiating power right off the bat. Only about one-third of the borrowers we surveyed shopped online for a loan with a lower interest rate before walking onto the dealer’s lot. Spend some time on comparison websites before you go to the dealership to get the best rate.

[Disclosure: LendingTree is the parent company of MagnifyMoney.]We recommend starting with LendingTree. There are hundreds of lenders participating on this platform. Once you complete the application, you can then see real interest rates and approval information. Some lenders will do a hard pull on your credit, which is normal within the auto lending space. Remember, with auto loans, multiple hard pulls will only count as one pull. So, in this case, the best strategy is to have all your hard pulls done at once. You can shop for the best rate on LendingTree’s website.

Once you get the rate, you can always try to make the dealer give you a better deal. But you should never walk onto the lot without a low rate in your pocket.

“Many otherwise-savvy consumers feel intimidated by the car buying experience and react by letting the dealership take control of the deal,” says Thomas Nitzsche, a credit educator at Clearpoint Credit Counseling. “Some consumers also feel their credit is barely good enough to secure an auto loan, so take whatever they are offered or buy into the dealers telling them that they are doing them a favor.”

Tips on pre-shopping for an auto loan:

Empower yourself by shopping for auto loans before you head to the dealership. When you walk into a dealership with a pre-approved auto loan rate from a bank or credit union, you can use that as leverage. Your dealer will be more inclined to match that rate or find you a better deal, explains Matt DeLorenzo, a managing editor at Kelley Blue Book.

“With the resources available on the internet, from financing to determining what your trade-in is worth, there’s no excuse for walking into a dealership not knowing the prevailing interest rates, what sorts of incentives are out there, and what sort of pricing and what others are paying,” he says.

Have your credit score in hand to ensure your credit info is accurate. A dealer can easily say that you don’t qualify for a better rate without having run a proper credit check.  You can check your credit score on a number of sites for free.
Don’t shop at the last minute. We can’t predict things like car accidents, but there are steps you can take to be sure you won’t get caught in a desperate car buying situation. Dealers will smell that desperation from a mile away and take full advantage of it. If your car is showing signs of needing repairs, take care of them right away. If you’re in a pinch, think about renting a car temporarily, taking public transit or carpooling until you’ve had time to get your ducks in a row.

2. More than half of car buyers never had their income verified.

Car dealers should verify your income when they take your loan application. But that doesn’t mean they always do. More than 52% of our survey respondents said their income wasn’t verified. When irresponsible dealers don’t verify your income, they could potentially give you a loan that you can’t actually afford. Some dealers skip this step in order to speed up the application process and increase your chances of getting approved for a loan.

To get a sense of what you can reasonably afford to buy, use a free tool like this cost calculator from Edmunds. It allows you to take into account not just your income but also the value of any car you are trading in, how much you can afford to put down on your new car, and any balances on existing car loans. If you go into a dealership knowing what you can afford, they will be less likely to sell you something you know is outside of your budget.

3. Most people agreed to a longer-term loan to make their payments more affordable.

A whopping 82.6% of drivers we surveyed said they took out a loan with a term longer than 5 years to lower their monthly payment. This may seem like a great way to save on your monthly payments. But you will wind up paying more in the long run, thanks to interest. Auto loans with longer terms usually carry a higher interest rate.  Not surprisingly, nearly one in five car buyers told us they signed up for a long-term auto loan because it was the dealer’s idea.

“The dealer is going to suggest the longest term possible, because it means selling a more expensive car—and likely [earning] a higher commission,” explains Nitzsche. Because dealers want you to focus on the monthly payment and not on the total cost of the car, it’s easier to mask the total cost of the car by stretching out the length of the loan and lowering the monthly payment.

People with poor credit are much more likely to take out these longer term loans. The fact that poor credit customers also wind up with loans with the highest interest rates, they can actually wind up really hurting themselves here.

In a worst case scenario, you could find yourself owing more on your auto loan than the car is actually worth. New cars lose up to 25% of their value every year according to Edmunds. To save the most money, get a loan with monthly payments you can afford for the shortest term possible.

Jackie Lam
Jackie Lam |

Jackie Lam is a writer at MagnifyMoney. You can email Jackie here

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Reviews, Small Business

Review: American Business Lending Small Business Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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

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

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

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

The American Business Lending Loan Process

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

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

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

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

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

Fees and Gotchas

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

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

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

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

Pros and Cons

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

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

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

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

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

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

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

Alternatives to American Business Lending

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

SmartBiz has an SBA Loan process that’s handled completely online. You can borrow $30,000 to $5,000,000 for 10-25 years. Interest ranges from variable 5.75% to 8.00%. Interest is higher at SmartBiz because the Small Business Administration sets a higher interest cap for smaller loans that have shorter loan terms.

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

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

You have between 1 and 5 years to repay your loan. If you’re taking out a six-figure loan a short repayment window could be a challenge. Interest is from 4.99% to 26.99% APR. There’s an origination fee of 0.99% to 6.99%.

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

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

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

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

Taylor Gordon
Taylor Gordon |

Taylor Gordon is a writer at MagnifyMoney. You can email Taylor at taylor@magnifymoney.com

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News

How I Changed My Lifestyle to Pay Off $26,000 in Loans More Quickly

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Pay off in Loans

When Heather Baggs graduated from Weber State University she still owed $14,000 in student loans. “That might not seem like much because I worked full-time through school and paid $200/month through the majority of my education,” she says,” but I also still owed over $12,000 on my car loan,” so debt obviously weighed heavily on her mind.

Baggs knew going into her education that she didn’t want to leave school in a ton of debt, so she worked full-time while earning her degree, which paid for a large portion of the fees for tuition. She also used a federal unsubsidized loan for the remaining amount she owed. “Interest was 6.8% on the unsubsidized loan and 3.4% on the subsidized one,” she recalls.

Despite working full-time throughout school and graduating with $14,000 in debt, Baggs kept up her determination to pay down her loans as quickly as possible. “I decided to attack my school loans and leave no survivors, so to speak,” she said. “I wanted them gone as soon as possible, so I figured out exactly what I needed monthly to get by — including fuel, food, etc. — and then sent the rest of my wages directly to my loan repayment.”

While Baggs was only required to pay $305 monthly on her loans, she ended up paying $300 from each pay period (or $600 monthly) instead. “It was nearly my whole income when I was making $8.50 an hour,” she said. “But as I got promoted and earned a raise, I had more income available so I upped my payments. Once I started making $600 payments each pay period, the amount started dropping rapidly, which helped me stay motivated.”

Baggs also helped cushion her income by cutting back on going out to lunch, expensive activities, shopping for clothes and makeup and basically spending on anything frivolous. “Also, I was living with my parents during this time so it helped remove the stress of rent, which I know is not possible for everyone, but is helpful if possible,” she said.

Baggs graduated in August of 2013 and paid her final debt payment (which was over $26,000, including her car loan), on March 27, 2015. “The trick is learning self-control and spending less on temporary things,” she said. “Packing a lunch every day instead of going out to eat with coworkers, not going to stores when you are feeling impulsive and don’t have a list of exactly what you need, and other sacrifices like that have made the biggest difference.”

In Baggs’ case, the small efforts added up quickly. For recent grads facing a similar student loan situation, she suggests admitting what your weaknesses are and facing them head on. Consolidation also helps, which she did with her car and student loans (check out this piece for the best debt consolidation personal loan options). “It makes it less stressful when you only have one payment to make, and if you do it right, the interest rates will be a ton lower,” she added.

Baggs estimates she saved about $2,375 by consolidating and making larger payments to pay her loans off more quickly than she would have otherwise (her original projected date of final payment was some time in 2018, more than five years after she graduated).

After her experience Baggs’ biggest piece of advice is to not wait to start paying off loans. “If you can send even $10/month to your lending company while you are in school, do it,” she suggests. “Work hard and do your best to have control over your money. If you don’t spend as much, there will be more available to send to your loan. The feeling of being debt free is amazing. It is like a huge weight has been lifted off your shoulders, so trust me … it’s worth it!”

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

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Home Equity Loan or Personal Loan: How to Choose the Right Fit for You

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Home Equity Loan or Personal Loan

One of the most important things you can do when making any personal finance decision is to remember that it’s called personal finance for a reason. We all have different financial circumstances, priorities, and goals, and what’s right for one person – or even what’s right for most people – may not be right for you. Such is the case with choosing between a home equity loan and a personal loan. As with most important financial decisions, especially those that involve borrowing money, there is no “right” answer, only the right answer for you.

Before determining what’s right for you, let’s first take a look at what each option entails and examine the key differences between the two.

Home equity loans

A home equity loan is fixed amount of money borrowed against the equity in your home. So, for example, if you owe $300,000 on a home valued at $500,000, a home equity loan enables you to borrow against that $200,000 in equity. Home equity loans are fixed-rate installment loans, meaning they’re repaid in equal monthly payments over a fixed period of time – usually in the neighborhood of 15 years. While they’re commonly used to finance home improvement projects, borrowers are free to spend the money on whatever they choose, including education costs and debt consolidation.

In many ways, a home equity loan functions similarly to your original mortgage loan, and is often referred to as a second mortgage. Like a mortgage, home equity loans are secured against the borrower’s home. You can apply for and receive a home equity loan from most banks, mortgage companies and credit unions. Many apply for a home equity loan from the same lender that provided their mortgage, but you’re free to shop around for the best offer.

Remember, too, that a home equity loan is not to be confused with a home equity line of credit, or HELOC. Though a HELOC is likewise money borrowed against the equity in your home, it functions as a revolving line of credit, much the way a credit card does. Your lender sets a credit limit based on the equity in your home, and you can borrow against that limit at any point while the line of credit it still open. Because it’s a revolving line of credit and not an installment loan like home equity and personal loans, let’s set HELOCs aside for this comparison.

Personal loans

Rapidly emerging as an alternative to home equity loans, personal loans are direct-to-borrower loans that are not secured by collateral such as a home or automobile. Often referred to as unsecured loans, personal loans are typically fixed-rate loans, and, like home equity loans, involve borrowing a lump sum of money to be used at the borrower’s discretion and repaid in equal installments over a defined period of time. Interest rates on personal loans are typically determined by a borrower’s credit score and history. Some traditional financial establishments such as banks and credit unions offer personal loans, but there’s also a growing market of non-traditional personal loan providers such as online and peer-to-peer lenders.

Understanding the differences and trade-offs

Though they share some similarities, there are key differences between home equity loans and personal loans. As noted earlier, home equity loans are secured against the borrower’s home, so, just as is the case with your mortgage, if you default on your home equity loan, your lender can foreclosure on your home. Personal loans, on the other hand, are usually unsecured, so, while failure to make your payments on time will adversely impact your credit, none of your personal property is at risk.

Because they’re secured against your home, however, home equity loans usually feature lower interest rates and longer loan terms than personal loans. In addition, provided you have the necessary equity, you can usually borrow more money with a home equity loan than you can with a personal loan. Personal loan amounts tend to cap out in the neighborhood of $100,000, whereas home equity loan amounts are limited only by the available equity in your home. In other words, the trade-off for the peace of mind that comes with unsecured debt is usually a smaller loan amount and a larger monthly payment.

Speaking of trade-offs, though home equity loans may deliver lower interest rates, (generally starting slightly north of the going mortgage rate), the application process is typically far more arduous than that of a personal loan. For starters, you’ll need to arrange and pay for an appraisal of your home to determine the available equity. That won’t be the only upfront cost either, as you’ll incur a variety of application costs and processing fees, just as you would with a traditional mortgage. It all adds up not only to higher upfront costs, but a longer process and thus a longer wait for your money. From start to finish, the process of securing a home equity loan can take weeks or longer. By comparison, some personal loans process in days or less.

Advantages to each

So, to recap, the typical advantages of a home equity loan include lower interest rates, longer loan terms, lower monthly payments, and, provided you have necessary equity, the ability to borrow larger amounts of money.

Personal loans, on the other hand, have advantages of their own, including what is usually a faster and less stressful application process, lower – if any – upfront application costs or fees, and the peace of mind that comes with not having to put your home up as collateral.

The verdict

If you have significant equity in your home, have the cash needed to pay upfront fees, and are willing to navigate a longer and more tedious loan process, a home equity loan is likely your best choice, as it will usually yield a lower interest rate, longer loan term, and lower monthly payment. Likewise, if you need a sizable amount of cash (think north of $100,000) and have the requisite equity, a home equity loan is probably the way to go.

On the other hand, maybe you don’t have equity in your home, or you just don’t want to drain the equity you do have. Maybe you’re not interested in having another lien against your home. Maybe you need the money fast, in days as opposed to weeks. Or maybe you just plain don’t want to deal with the hassles of a more traditional loan process. If any of those things apply to you, then a personal loan might be just what you need, especially if you have excellent credit and can score an interest rate comparable to what you would get with a home equity loan.

All of which to brings us back to where we started, for the verdict really is that most boring of answers: it depends. Fortunately, it depends on something you know better than anyone else – you. Focus on what’s right for you, based on your specific situation, and the “right” answer is sure to follow.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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7 Ways to Control Your Spending and Expenses to Reduce Debt

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Debt can invade your life in many different ways. It can sneak up on you: the result of spending $20 more than you can afford every day (which becomes more than $20,000 of debt in 3 years). It can appear all at once, after an emergency medical expense or a job loss. And it can surprise you in a terribly painful way, when you learn about a family member’s hidden, debt-fueled addiction.

If your expenses are more than your income, then you have an issue. Even if we find ways of getting your debt to cost less, you still need to fix the underlying issue. If you continue to spend more each month than you earn, your debt will continue to grow. So, you need to figure out how to:

  • Increase your recurring, regular monthly earnings and / or
  • Decrease your monthly expenses

Determining Where You Can Cut Expenses

Look through your list of everything else. Are there some obvious, painless things that you can cut? If at first you think now, try this exercise:

Fast forward to retirement. You are now 65 years old, and you have to choose a place to live. There are two options. You can buy the nice home on the beach in Florida, that is just seconds to the beach. Or, you can buy a studio apartment in a bad neighborhood with a view of the parking garage. How you spend everything else will determine where you live when you retire.

The more you save now, the more you have later. So, you just need to decide. You may not be willing to give up that daily $5 latte habit. Which turns into $1,825 a year and $54,750 over the course of 30 years before you want to retire. Just know that by having that daily $5 coffee fix, you are giving up a nicer place to live in retirement. Everything is a trade-off.

For some people, there just isn’t enough money, period. When you look through your “everything else” bucket of expenses, there aren’t many expenses, if any, that you can cut. If you cut expenses it means you don’t eat or you don’t travel to work. If that is the case, you have to find a way to increase your earnings or cut your fixed expenses. You should spend a decent amount of time looking to cut your fixed expenses.

How to Reduce Fixed Expenses

Mortgage

Can you refinance your mortgage? Take a look at PenFed, a credit union with very low interest rates, to see their current interest rates [click here]. As the time of this writing, a 30-year fixed mortgage at 0 points is 3.600%.

Penfed It may be worth refinancing to reduce your monthly paying if your interest rate is a 4.600% or higher. In general, if your interest rate is a full 1% higher, it may make sense to refinance. If it is 2% higher, it almost definitely makes sense to refinance.

Warning: If you cannot afford your monthly mortgage payment, and you cannot increase your income, you may need to think about selling your home and finding a cheaper place to live. No one likes to admit defeat, but the longer you stay in a place you can’t afford, the more likely defeat becomes. Take a real long, hard look at the home and its maintenance costs. There should be no shame in moving to a cheaper location. Or, you move to a place with a lower cost of living where you can earn more. I have moved in order to make more money. Some people would rather stay put and cut their expenses. But you have to make a choice.

Rent 

If you signed up for a lease that is just too expensive, there is good news. You have more flexibility than a homeowner. Find out what is required to break your lease, and start looking for something that you can afford. As a general rule, you should never be spending more than 30% of your take-home pay on rent. Ideally, you can spend even less. I don’t care what real estate agents or banks say you can afford. They are not thinking about your best interests; instead, they are thinking about their best interests. If your rent (or mortgage, for that matter) costs more than 30% of your net, take-home pay, you will likely find life difficult.

Automobile

It is very difficult to get out of an automobile you can’t afford. Why? Because a car depreciates (usually by at least 30%) the minute you leave the car lot. If you financed the entire car, you can end up getting stuck in a car loan, and refinancing options are limited.

If you are upside down on your car (owe more than the car is worth), the only way out is to come up with the money to pay down the loan. Once your loan amount is just a bit below the possible sales price, you can sell and find a cheaper option. But, until then you can be stuck. That is a big warning: a high-pressure on a car lot can be a tremendous burden for years if you make the wrong decision.

If you have good credit and your loan balance is less than you car’s value, you can look to refinance. Credit unions have great deals in this space. If you don’t belong to a credit union, consider https://www.penfed.org/– one of our favorites. They are easy to deal with, and they have incredibly low interest rates and none of the junk fees.

Auto Insurance

shop around and see if you can get cheaper car insurance. There are a lot of sites out there. We like TheZebra it can help you compare across lots of different companies.

Life Insurance

Too many people pay far too much money for insurance. If you are in a whole life insurance policy, you are almost certainly paying too much. The purpose of life insurance is to make sure that people who depend upon you can maintain their lifestyle if you die. Life insurance should not be a way to save for retirement, and it should not be a way to give your children an inheritance. That means term life insurance is almost always the best option.

Just as it sounds, term life insurance will only cover you for a specified period of time, whereas whole life covers you for your whole life (the name does make sense). So, in term life insurance, the insurance company may never pay a claim. In whole life, they definitely will pay a claim. As a result, term life insurance is much cheaper. You can speak with your local insurance agent to find a good term life policy.

Not convinced? Here’s an example:

Meet Bob. He is 35 years old and has a wife and two children. His wife left her job to be with the kids. So, there are three people who depend upon Bob. He wants to make sure that if he dies, his wife can stay in the house and take care of the kids. He makes $100,000. So, he buys a $1,000,000 30-year term life insurance policy (10x his income). If he dies before he is 65, his family will receive $1,000,000. At 65, the policy expires and he can get that policy for less than $100 per month. When Bob is 65, his kids are on their own and his retirement savings is available for retirement. By buying a term life policy instead of whole life, Bob is saving hundreds every month. 

How to Eliminate Needless Expenses

Recurring Expenses

It is so easy to sign up for something and forget about it. The first month (or year) is free, and then the bill starts. It gets charged to your credit card, and you don’t even mention it. Just cancel all of those recurring charges. You will be amazed at how quickly they add up.

If you don’t even know what you are paying, there is a really good tool called Prosper Daily (formerly BillGuard). Just visit https://www.prosper.com/daily/ and it will look at your expenses to find recurring transactions. They can also help you cancel those transactions. It is worth taking a look.

Bank Accounts

People end up spending silly money on checking accounts, when they should be free. If you are spending monthly fees, overdraft fees or ATM fees, you should consider switching banks. At MagnifyMoney, we make it easy to find a checking account that is actually free. You can compare bank accounts by clicking here.

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Address the Core Issue 

We had to spend a lot of time on the topic of spending money and budgeting. You just can’t spend more money than you make, because your debt will continue to increase. Any type of debt consolidation plan will not solve the core, underlying problem. I have seen far too many people move their debt from a high interest rate to a low interest rate, and think the problem has been solved. But, because their core-spending problem was not solved, they ended up in even more debt. Deal with your spending first, and then you can deal with your debt.

Download our Debt Free Forever Guide! It’s FREE and will help get you back on track.

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Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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