As a financial adviser, I continually get asked by my clients if they should borrow money for certain things such as buying a home, open lines of credit for a business or pay off consumer debts such as credit cards and car loans.
The fundamental principle in borrowing money is that the interest and other costs of obtaining the loan are less than the value that is created by borrowing the money. As an example, if one borrows money at 4% and creates a 7% return, all else being equal, then there is a 3% profit or “positive arbitrage” return on that investment. The goal is to get the greatest rate of return with the lowest cost so profits are maximized.
Assets such as houses and businesses can be used as collateral to secure a loan. One can also use a consumer asset such as a car or his signature, as in a credit card.
But when should one borrow and when should debts be paid off ASAP?
Well, there are three factors that determine when a person should borrow money. They are income, appreciation, and tax benefits.
1. Income – Money should really be only borrowed against assets that produce an income. Commercial and investment real estate and other business operations produce income since the asset is used in business to provide a valuable service to another for money. This income can then be used to service the debt owed on the asset. Personal assets such as primary residences, cars, and personal lines of credit do not produce income.
2. Appreciation – One may borrow money against assets that would, over the long-term, appreciate in value. Even if the income for the use of the asset did not provide enough income to pay off the debt, the eventual sale of the asset would be at a higher value in the future so the debt could be retired upon sale. Commercial and investment real estate have the potential for appreciation as well as businesses as they grow in value through expansion. Primary residences may or may not appreciate in value, depending on the market and holding period. Consumable assets such as cars, boats, and personal credit lines do not appreciate but decline in value.
3. Tax Benefits – The government will pass laws that allow certain types of indebtedness to have preferential treatment in the tax code. When you borrow money for business purposes, the interest and other costs associated with the loan may be tax-deductible. Since you are receiving a rebate on the taxes you would otherwise owe, your cost to borrow the money is less. This creates an even larger gap between the borrowing cost and the value realized from putting those assets to productive use.
Another tax benefit may be in the form of depreciation. An asset purchased for business use is assumed to decline in market value over a certain period of time. The tax law allows a taxpayer to claim each year’s depreciation of the value of the asset against other income. This also has the effect of lowering the cost of borrowing.
When you are determining whether to borrow or not, you will have the greatest chance of profit if ALL 3 factors exist in the borrowing decision. This would only include borrowing for business purposes such as commercial or investment real estate and business debt. If you have 2 or 1 out of the 3 factors, pay it off quickly.
It is a common belief among financial advisers that a person should have a mortgage against their primary residence. Of course, this would be necessary to get into a home that could not be paid for with cash. But once the home is acquired, it would be proper to pay the home off as soon as possible rather than having perpetual debt against the property.
Why? Look at the 3 factors. A home does not provide income (unless you have a business property that has a dual purpose) and may or may not appreciate over the money you’ve poured into it. It does have the advantage of tax-deductible interest costs, however, but no depreciation benefits.
We have all heard that our home is our single largest investment. Is it? From who’s point of view? That is true, only from the perspective of the lender that utilizes the house as security for a loan. To the homeowner, it is a liability. It costs money for maintenance and improvements each year and is simply a place to live. On average, its value will keep pace with the actual rate of inflation (which is higher than “official” figures).
Intelligent borrowing means to borrow the money at the lowest net cost and generate the greatest value possible with the proceeds. Business applications give the best potential while personal indebtedness has the highest risk of not achieving the desired results.
Another situation that comes up on occasion is borrowing from a high interest lender. If for some reason you find yourself up against the proverbial wall and need to take out a payday loan Edmonton, you will want to research your options and find the best rates. It is very expensive to borrow from a short term lender.
What is a Secured Loan and what are the risks?
A Secured Loan is a loan secured on the homeowners property very much in the same way as a Mortgage is. A Mortgage on a property is known as the “1st Charge” – a Secured Loan therefore becomes the “2nd Charge.” If a Secured Loan is never paid then obviously the Homeowners home is at risk. With the Mortgage company having the 1st charge they therefore reclaim their money first. A Secured Loan Lender would then follow as they are the 2nd charge. It is worth remembering that a Mortgage and Secured Loan Company would only ever repossess a property as a last resort.
A Secured Loan is ideal for Homeowners who are looking to raise finance by using their home as security. Traditionally a Secured Loan can provide Homeowners with a lower APR than that of an Unsecured Loan. Obviously a Loan Lenders APR varies depending on the personal circumstances of the applicant. A Secured Loan can be used for a variety of purposes. The most common Secured Loan purposes are for Home Improvements and for Debt Consolidation.
Home Improvement Secured Loan
A loan that is secured on the applicants home address for the purpose of Home Improvements. The loan can be used for a new conservatory, renovations, extension or simply for double glazing. Almost any form of home improvements can be funded by a secured loan. You may find that some secured loan lenders will require proof of what you will be using the funds for. This can be provided by simply gaining a written quote from someone who you are looking to have the work done by. Chances are a Home Improvement Secured Loan will actually increase the value of your property so it will be money well invested.
Debt Consolidation Loan
A loan that is secured on the applicants home address for the purpose of Debt Consolidation. The loan is generally used to consolidate (pay off) all existing credit by putting it into one secured loan and this generally reduces the monthly payments and therefore frees up more of your monthly income to use for more exciting purposes than clearing credit cards, store cards, loans or hire purchases! Sometimes the only way in which the monthly payments can be reduced is by taking the Secured Loan over a longer period than what the existing credit is currently on. This can increase the amount in total that you will pay back but customers who take a Debt Consolidation Loan generally are more interested in the reduced monthly outgoing on credit.
A Secured Loan can be used for other purposes besides Debt Consolidation and Home Improvements. They can also be used for a Car, Holiday or Wedding. Generally Secured Loan lenders do not raise finance for Business. For a Business Loan it may be a better route to contact your local Bank or Building Society.
Why would I want a Secured Loan instead of an Unsecured Loan? There are many reasons why.
A Secured Loan can normally be taken over a longer period than that of an unsecured personal loan. Unsecured Loans can normally only be taken over a maximum of 7 or 10 years. Some Secured Loan Lenders will allow the applicant to take the finance over a 30 year period and most will allow the finance to be spread over 25 years worth of payments. Obviously by taking the loan over a longer period reduces the monthly payment to the applicant – although you must remember the longer you take the loan over the more interest you will pay.
A Secured Loan amount can often be a lot higher than that of an unsecured personal loan. Secured Loans can be taken up to £100,000 – with some lenders even allowing applicants to borrow more. An unsecured loan lender will normally only lend up to £25,000 which sometimes just isn’t enough. We may surprise you with the amount you can actually borrow. Let Loan Machine do the hard work to find out.
If you have poor or adverse credit then the chances you have of getting an unsecured personal loan are very slim. Poor or adverse credit can include many things, CCJ’s (County Court Judgements), Defaults, Mortgage Arrears, IVA’s, VAR’s, Discharged Bankrupts and Missed Credit Payments. If you have any of these then your best route for gaining finance could well be via a Secured Loan. These don’t necessarily prevent you getting a Secured Loan – there are many lenders that will lend even if you have a combination of CCJs, Mortgage Arrears and Defaults. We may surprise you by finding a loan that you didn’t think you would be able to get. Let Loan Machine do the hard work.
Equity in your property will help you obtain a Secured Loan but that doesn’t mean you have to have equity to get a Secured Loan. Loan Machine has access to lenders that will lend finance above and beyond what your property is currently worth – although to do this you generally have to have a good credit rating. But what have you got to lose? We may surprise you by finding a loan that you didn’t think you would be able to get. Let Loan Machine do the hard work.
Self Employed people can often find it very difficult to raise finance. Secured Loan Lenders open the door to the Self Employed. They offer the ability to Self Certify your income. So even if you haven’t been self employed for long or you cannot prove your income via accounts then that does not mean you cannot get a loan. If you are Self Employed with bad credit or adverse credit you may think you cannot get a loan – this isn’t necessarily true. We may surprise you by finding a loan that you didn’t think you would be able to get. Let Loan Machine do the hard work.
Although all lenders will only lend responsibly to people who can afford it, Secured Loan Lenders generally are more flexible in their criteria. Some Secured Loan lenders will let you use Disability Living Allowance, Incapacity Benefit, Working Family Tax Credit as well as many other incomes to fund a loan application. We may surprise you by finding a loan that you didn’t think you would be able to get. For information on a quality finance company in Vancouver BC click here for a news report on their lending practices.
Every car is much more than a four-wheeled automobile. It’s owner’s glory, passion and a source of great admiration. Yes, a car is not just a means of transportation. It’s America’s pride and its ultimate ecstasy.
When one sets out to buy a car, several things are to be considered. Most people have an idea of what car to buy. But, there is confusion and dilemma when the topic of car loans comes up. This article will give you a detailed understanding of the many auto financing options available with you.
Money Before Everything Else
It is so true. You cannot venture out for buying a car when you have no idea about your finances. If you think car loans are going to do everything for you, think again. You will have to manage down payment and also ensure regular payments. Car loans are just to provide ease in buying.
Finding that perfect car loan requires you to carefully put together all your income and expenses and then preparing your budget. You will have to consider your savings and choose something that will not give you financial trouble.
A Plenitude Of Options
Everything depends on getting the information that suits your situation. So, don’t settle for the first financing option you get. Don’t just stroll into your local dealer’s office or your neighborhood bank. You must first do a complete research and analyze your condition and needs.
To help you make a good choice, here’s all the information about car loan types. Check out all the advantages and disadvantages of every option. It will help you make a wise decision.
A car loan with a car from the same yard- seems too alluring to ignore!
Most Americans choose dealership financing because it offers a one-stop solution. Dealers offer loans for new as well as used cars. You must know that most dealers are link between you and the lender. Such dealers won’t themselves lend you money, instead will sell you loan application to lenders.
This option is convenient but make sure that dealer is not charging a high interest rate. For that, you must research and be wary of any red flags. Also, don’t opt for any add-on if you don’t feel their need. It will help you reduce the cost.
Banks and financial institutions offer loans for almost any purpose like buying a personal item or even a holiday trip. You can avail personal loans for buying your dream car. Now, this type of financing is useful when you need a loan for a smaller amount like $15,000.
This is another option for you. When you lease a car, you only pay for the cost of using it. The biggest advantage with leasing is that your monthly payments will be significantly lower than the usual car loan payments.
You don’t have to worry about down payment and the lease agreement will get over in two-three years. You always have the option of buying the car at the end of lease agreement.
When you go for lease financing, don’t forget to negotiate the car price. Most buyers think that one must pay the full sticker price which is wrong.
If you are one of those few lucky people who have sizable assets like a house, you can go for equity loans. You can avail a home equity loan by using your home as collateral.
Although the rates are lower and the interest is tax-deductible, there is the risk of losing your home.
Though it may sound unusual, but there are many who opt for this method. A credit card can help you buy a car for a smaller amount like $10,000. You must have a low-interest credit card. With large competition, getting a low-cost card won’t be a trouble for you.
The only thing is that you will have to restrict other purchases on your card. Also, most credit card companies charge a 3% processing fees. If you are sure of paying this charge to the dealer, go for it.
This is as popular as dealership financing, if not more. In this type of loan, your car is used as collateral against monthly payments.
It is very good option if you make regular payments. The only thing that you need to keep in mind is that you won’t be able to finance a car older than six/seven years.
Online Car Loans
This type is just the blend of car loans and the internet. With technological advancements, you can get everything on the net and car loans are no different. Online lending companies have a large network of lenders and dealers who bid for your application. All you need to do is fill a simple online application form.
As there is a wide network, getting a loan is relatively easy. Also, the convenience of availing a loan without moving out of the house is very tempting.
You should only be concerned about the company’s reliability. You can check the website’s safety by going through their security certificate. Don’t go for a company that charges for loan quotes because there are many reputable sites that offer free quotes.
How To Choose That Perfect Car Loan?
Once you decide on the type of car loan and apply, it’s time to scrutinize the loan quotes. Loan payments are important but it shouldn’t be the soul of your decision. There are several factors which are equally important. Before you rush to your decision, take a look at these variables.
Your loan term will have a huge impact on your loan. A longer loan term will mean that your monthly payments are smaller, but you may eventually be paying more interest rate. It is advisable that your term should be in accordance with the useful life of the car. Your loan should get over before the life of car to avoid the risk of an upside-down loan.
Interest depends on factors like the loan amount, loan term, credit score, financial condition, etc. One important tip to lower loan rates is by making a substantial down payment. This will reduce your loan amount and also instill a sense of faith in the lender.
The Annual Percentage Ratio will tell you about the total cost of the loan including all fees and charges. Most borrowers consider just monthly payments. But, it is impossible to compare different loan quotes with different loan terms. When you compare two loan quotes with the help of APR, you are taking into consideration all the variables.
You must compare loan quotes on the basis of the clauses in the loan agreements. Few lenders prohibit you from refinancing your car loan for the first few months. Some lenders also offer zero percent financing for the first few months only and then charge a floating interest rate. So, check for such clauses which may cause problem in the future.
Charges And Penalties
Check the loan contract for origination fees, annual charges, prepayment penalty and penalty for missing out on a payment. Choose a lender that has lesser fees and doesn’t charge you for making early re-payment. The latter will be useful if you decide to refinance your loan.
It is important to know whether you are supposed to make payments weekly or monthly. If you can afford monthly payment, don’t consider any other option. This is so because it will give you the choice of making regular payments without any undue financial restraints.
Once you compare quotes on these factors, you will definitely get a winner. Choosing your car loan by this method may take time but what matter is the ease in making payments. Every factor is important in making your life simpler and your car buying experience more pleasurable. So, memorize these important tips.
Owing a car is a dream for many, but one who takes a wise decision can fulfill it in true sense. Car loans won’t be a trouble if you consider your needs and financial condition. Remember a good decision comes with a thorough research process.
Founded in Alberta, in 2006, with the goal of reducing the hassle of obtaining fast cash payday loans, Blue Copper Capital has since expanded its operations into Edmonton and Vancouver, and now also offer personal loans as well as trade and apprenticeship loans.
Blue Copper’s Owner has Been There
Dave Chen, founder of Blue Copper Capital, has shared the same experiences as most of us when he needed a short-term cash infusion to help him over a financial hump. Because of this, Dave wanted to do something to make that process more human and understanding, and that is why he created Blue Copper Capital. Placing the emphasis on people ahead of profits was his goal from the very beginning and it is something he insists all of his employees demonstrate.
A Loan Company that Understands
Dave created Blue Copper Capital to take away the stigma and the hassle and the pressure of getting short term loans in Vancouver. Dave and his team are proud to have helped thousands of good people get back on their feet. His staff will happily meet at the time of your choosing and in your home – if that is what you wish – to take your loan application. Alternately, you can visit their Vancouver office or get an online cash advance by downloading and filling out a Credit Application Form directly from their website by simply clicking on one of the four loan category windows. A bad credit cash advance isn’t out of the question: with your proof of employment, up to $1,500 in cash is available instantly and without a credit check.
Loans for Emergencies, Vehicles and the Trades
Though Blue Copper Capital began as a payday loans company in Vernon, they now offer personal loans for everything from vacations to unexpected bills to cars and recreational vehicles. One area Dave and his team are really excited about is their Trades & Apprentice loan department. They know it can be difficult getting enough hours on the job while studying. Worrying about expenses for things like tools or a vehicle shouldn’t get in the way of your achieving your goals either.
Regardless of why you need a loan you can rest assured the people at Blue Copper Capital will treat you with the respect you deserve and will offer personalized fast cash solutions for your needs. If you live in the Vancouver area and need a loan to get you over the hump to next payday, or if you need money to buy tools so you can get back into the workforce, call Blue Copper Capital for prompt, friendly, professional and confidential service.
Blue Copper Capital – Real Loans For Real People
If you find yourself in a situation where you need a short term loan then here is a reputable company to look at.