Results for loans

test

Article #

Meet Lucy. Lucy has been working at Corporate Co. for the past three years. Since her very first day on the job, Lucy has seen her colleagues refinance students loans (Zoe), purchase cars (Joan), and even buy houses (Emily). Lucy wants to be like them, there’s just one problem: all these activities require loans, and Lucy just doesn’t feel confident handling them. What should she to do? Well, her first step is simple: understand how loans work. On their most basic level, loans are simply borrowed money. Lenders, such as banks, can give borrowers, such as Lucy, a fixed amount of money called principal, like $10,000 to buy a car. However, the bank isn’t giving Lucy this money for free. In addition to paying back her principal, they’ll require Lucy to pay a certain amount of money each month, called interest, just for using their money. In addition, if her loan is secured, as many are due to their more attractive interest and approval rates, the bank can seize actually the asset, in this case her car, if she fails to repay. So how is this interest calculated exactly? Let’s explain through an example. Let’s say Lucy’s $10,000 car loan comes with a 5% annual interest rate. Divide that 5% by 12 months, and you get roughly 0.4%, the monthly interest rate. That’s means Lucy owes the bank 0.4% of her outstanding principal each month in interest. While this seems reasonable enough, interest rates come with three more complications: One: Not all interest rates are fixed. Some, called variable interest rates, can change over time, often quite dramatically. Because of this, they can be quite risky, especially on long-term loans. Two: the interest rate of a loan is not the same thing as its APR. APR includes both the interest rate, either fixed or variable, and the fees. Thus, when comparing loans to see which is cheaper, Lucy should always use APR, not the interest rate. Three: APRs are also highly dependent on your credit score, as the lower your score, the higher your APR. For more details on this, be sure check out our next video “Credit Scores and Reports 101”. So that’s interest rates. But unfortunately, they aren't Lucy’s only concern. She also must pay back a certain amount of her principal each month. This payment, combined with interest, makes up Lucy’s total loan payment, which is the money you pay the bank each month. Should Lucy want to calculate this number herself, all she’ll need is an online calculator, like ours, and three numbers: the amount of money borrowed, the interest rate, and the length of the loan, also known as its term. This term is a critical number, especially when choosing a loan. That’s because, in general, the shorter the term of the loan, the greater your monthly loan payment. This should make sense. After all, the less time you give yourself to repay the loan, the more you'll have to pay each month to compensate. And while this may seem bad, shorter term loans can actually be great, for two reasons. One: They come with inherently lower interest rates. And two: Because their monthly payments are much larger, the borrower is forced to pay down the principal much faster, which ultimately means less interest charged over the life of the loan. This fact is so important that we’ll repeat it. The shorter you can make your loan, either through extra-debt repayments or a shorter term, the less interest you’ll pay in the long-run. Hopefully you and Lucy now better understand how loans work. Be sure to watch our next video, which covers everything you need to know about credit scores, and be sure to check out our website, where you can find more educational material, your free credit score, and great loan recommendations.

Article #

I’m guessing you’ve heard of the acclaimed TV show “Game of Thrones.” Seven kingdoms vying for power, plots within plots, watch your back or lose your head. It’s great. But you’ve probably never heard of a real life drama that I call the “Game of Loans.” That’s a game Washington politicians play on young people, that is, college students, every day. Just like “Game of Thrones,” the “Game of Loans” has plots within plots, big winners and big losers. The winners are politicians and colleges. They fool students into thinking that by generously providing ever-larger college loans to cover ever-larger tuition costs, they have earned students’ votes at election time. Why do I say students are fooled? Because it is thanks to the very politicians who promise students more and more aid -- in league with the colleges -- that college tuition became so expensive in the first place. Here’s how the game works. According to Bloomberg News, since 1978 the cost of a college education has gone up by over 1000% percent. Way past the rate of inflation. Tuition alone at many colleges is 20, 40, even 50 thousand dollars a year! So, how do you pay for it? Answer: student loans, loans that the government is happy to give you since they collect the interest. You don’t have to be a finance major to figure out that all these student loans give colleges no incentive to cut costs. Instead, it gives them every incentive to raise costs. Higher tuition obviously means more money for the college. Now if students were going to college in record numbers to study engineering or computer science or biology -- professions with high employment rates -- maybe these crazy sums would make some sense. Maybe. But the most common majors are in the social sciences and communications -- in subjects like sociology, cinema history and gender studies. Not surprisingly these majors have very high unemployment rates, as in, they don’t prepare you for a job. And these majors are mainstream! You can get a degree in storytelling, bag piping and puppet arts for your fifty thousand a year. But here‘s the point: colleges are no longer primarily about preparing you for a career. Today's higher education is about teaching you what a terrible country America is, social activism… and binge drinking. Hey, if college didn't cost so much the parties might be worth it, but it does. The average student loan debt in America is $28,400 per borrower. Note that this is per borrower, not graduate! Big difference. A large chunk of the 1.3 trillion dollar student loan liability is held by ex-students who never graduated. For every 100 students who enter a four- year college only 59 exit with a degree. But maybe you’re one of the lucky ones. You got a business degree and you found a decent job. Chances are you’re paying off your student loans and will be for the next 10, 20 or even 30 years! Good luck saving money for a down payment on a house or just about anything else. Mike Rowe from the TV show “Dirty Jobs” nicely summarized the issue this way: "We are lending money we don't have to kids who can't pay it back to train them for jobs that no longer exist." So, am I saying that college is always a waste of time and money? Of course not. But I am saying this: 1) Remember that if you take out a student loan, it’s not free money. You actually have to pay it back. I know this sounds ridiculously basic but it’s also ridiculously important. And since you owe this money to the federal government, you can’t get out of it, even if you declare bankruptcy. 2) Whenever you hear politicians say they want to make college “more affordable,” what they’re really saying is that they want to get the youth vote while making it easier for you to dig yourself into a deep hole. These politicians don’t have your best interest at heart. They have their own best interest at heart -- namely, getting elected. You don’t owe them anything. “The Game of Loans” is rigged -- and not in your favor. But if you’re smart about your choices, you can beat the odds. I’m Charlie Kirk of Turning Point USA for Prager University.

Article #

Concern is growing about the leverage loan market and the amount of debt owned by US investors. So what is a leveraged loan? It's a loan to a risky company, typically one that's already in debt or has a poor credit history. Banks lend money to these companies and then sell the loans on to investors, such as pension funds and asset managers. But why have investors been buying these loans? The interest rate paid by borrowers rises and falls in line with other short-term interest rates, rather than being fixed like a bond. Loans also get priority over bonds in bankruptcy, theoretically making them a safer way to lend to lower quality companies. This has been particularly attractive in recent years because the Federal Reserve, which sets US monetary policy, has been increasing interest rates. In turn, investors have funnelled money toward the loan market, seeking to benefit from rising rates. At over $1tn the loan market is now larger than the high-yield bond market. But this demand has given companies the upper hand, allowing them to borrow cash on more and more favourable terms and tear up many of the protections investors once had when extending credit. This reduction in lending standards and soaring growth in the market has caught the eye of central banks and financial watchdogs. The Federal Reserve, International Monetary Fund, and the Bank for International Settlements are among a host of policymakers to recently warn of the systemic risk leverage lending could pose to the financial sector. But many investors are less concerned, at least, less concerned that this could spark the next financial crisis. In part, that's because the risks sit with private investors, rather than the big, interconnected banks. And despite appearances, investors often say they are confident companies will be able to repay their debts. Nonetheless, some cracks have emerged in recent months, as heightened market volatility stemming from rising uncertainty about the global economic outlook has seen investors pull money out of this riskier asset class. In other words, a downturn in the US economy could spell the end of the Fed raising rates, reducing the allure of leveraged loans. Curiously, if things do turn sour, it may take longer for companies to default on their debt because they are not bound by such strict standards. But if they do eventually fail, investors are likely to recover less than they otherwise would have if those same protections had been in place, raising the possibility that the worst is yet to come.