What is a Secured Loan?
Secured loans – also known as homeowner loans, home loans or second-charge mortgages – allow you to borrow money while using your home as ‘security’ (also called ‘collateral’). This means the lender can sell your property if you aren’t keeping up with repayments, as a way of getting their money back. What is an Unsecured Loan? What is an Unsecured Loan? An unsecured loan is a loan that doesn't require any type of collateral. Instead of relying on a borrower's assets as security, lenders approve unsecured loans based on a borrower’s creditworthiness. Examples of unsecured loans include personal loans, student loans, and credit cards. Differences between Secured & Unsecured Loan? In short the main difference between a secured loan and unsecured loans is the loanee requires a tangible asset which they can sell if you default on the loan. There are advantage and disadvantages to both types of loan as an unsecured loan naturally requires a much better credit score which may not be available to the whole population however if your finances do take a turn for the worse the loanee cannot repossess your property or car to pay of the loan.
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Making a big purchase, consolidating debt, or covering emergency expenses with the help of financing feels great in the moment — until that first loan payment is due. Suddenly, all that feeling of financial flexibility goes out the window as you factor a new bill into your budget. No matter the number, it’s an adjustment — so don’t panic. Maybe it’s as simple as reducing your dining out expenses or picking up a side hustle — what’s most important is that you’re able to make your monthly payments on time and in full.
But let’s back up for a second. Before you take out a loan in the first place, it’s important to know what that monthly figure will be. (And yes, what you’ll have to do to pay your debt back.) Whether you’re a math whiz or you slept through Algebra I, it’s good to have at least a basic idea of how your loan repayment will be calculated. Doing so will ensure that you don’t take out a loan you won’t be able to afford on a month-to-month basis, so there are no surprises or penny-scrounging moments. Plus, we’re big fans of budgeting around here in general. Any opportunity to crunch numbers and dive into our finances is time well spent in our book. Don’t worry — we’re not just going to give you a formula and wish you well. Ahead, we’ll break down the steps you need to learn how to calculate your loan’s monthly payment with confidence. How do you calculate a loan payment? The first step to calculating your monthly payment actually involves no math at all — it’s identifying your loan type, which will determine your loan payment schedule. Yes, before you start digging into the numbers, it’s important to first know what kind of loan you’re getting — an interest-only loan or amortized loan. Once you know, you’ll then be able to figure out the types of loan payment calculations you’ll need to make. With an interest-only loan, you would only pay interest for the first few years, and nothing on the principal balance. While this does mean smaller monthly payments, eventually, you’ll be required to pay off the full loan in a lump sum or with higher monthly payments. Most people choose this type of loan for their mortgage to buy a more expensive property, have more cash flexibility, and to keep overall costs low if things are tight. The other kind of loan is an amortized loan. These loans include both the interest and principal balance over a set length of time (i.e. the term). In other words, amortized loans require the borrower to make scheduled, periodic payments (or amortization schedule) that are applied to both the principal and the interest. Any extra payments made on this loan will go toward the principal amount. Good examples of an amortized loan is your auto loan, personal loan, student loan, and traditional fixed-rate mortgage. What is my loan payment formula? Now that you have identified the type of loan you have, the second step is plugging numbers into a loan payment formula based on your loan type. If you have an amortized loan, calculating your loan payment can get a little hairy — and potentially bring back not-so fond memories of high school math. (But stick with us.) Here’s an example: let’s say you get an auto loan for $10,000 at a 7.5% annual interest rate for 5 years after making a $1,000 down payment. To solve the equation, you’ll need to find the numbers for these values: A = Payment amount per period P = Initial principal (loan amount) r = Interest rate per period n = Total number of payments or periods The formula for calculating your monthly payment is: A = P {r(1+r)n} / {(1+r)n –1} When you plug in your numbers, it would shake out as this: P = $10,000 r = 7.5% per year / 12 months = 0.625% per period (and entered as 0.00625 in your calculator) n = 5 years times 12 months = 60 total periods So, when we plug in the numbers: 10,000 {(.00625 x 1.0062560) / (1.0062560 – 1)} 10,000 {(.00625 x 1.4533)/(1.4533 - 1)} 10,000 (.00908/.4533) 10,000 (.0200377) = $200.38 In this case, your monthly payment for your car’s loan term would be $200.38. If you have an interest-only loan, calculating loan payments is a lot easier. The formula is: Loan Payment = Loan Balance x (annual interest rate/12) In this case, your monthly interest-only payment for the loan above would be $62.50. Knowing these calculations can also help you decide which kind of loan to look for based on the monthly payment amount. An interest-only loan will have a lower monthly payment if you’re on a tight budget for the time being, but again, you will owe the full principal amount at some point. Be sure to talk to your lender about the pros and cons before deciding on your loan. If these two steps made you break out in stress sweats, allow us to introduce to you our third and final step: use an online loan payment calculator. You just need to make sure you’re plugging the right numbers into the right spots. The Balance offers this Google spreadsheet for calculating amortized loans. This loan calculator from Credit Karma is good too. To calculate interest-only loan payments, try this loan one from Mortgage Calculator. How to pay less interest on your loan Ah, interest charges. You simply cannot take a loan out without paying them — but there are ways to find lower interest rates to help you save money on your loans and overall interest payment in the long run. Here are a few of our simplest tips for getting a reduced rate: Check out a local, community financial institution. When you’re shopping around for the best rate, you might be surprised to find out that a credit union or smaller institution offers lower interest rates on loans. It might take some time, but the money saved could be worth the extra effort. Pay any current debt off as much as you can. Whether it’s from a credit card or federal loans, paying down your debt will allow your credit utilization rate to lower, which will then raise your credit score. (In good time.) Setting up automatic payments. If you set up auto-pay for your personal loan, car loan, mortgage, or other kind of loan, you should be able to lower your interest rate. (Be sure to check with your financial institution to see if this is an option first.) This is because with autopay, banks are more likely to be paid on time and don’t need to worry if you’ll make your payment each month. Improve your credit score. One of the best ways to guarantee a lower interest rate (and potentially reduce it for any current loans you may have) is to have an excellent credit score. However, this step doesn’t come as quickly as the first two — especially if you have bad credit. Start by catching up on any past due payments, keep your credit utilization ratio below 20%, and check your credit report for any errors. Check out this list of highly effective ways to improve your credit score if you’re serious about getting your number into excellent credit territory. How to get the best deal on a loan This one is simple: get a loan that helps you manage your monthly payments. Now that you know how to calculate your monthly number, it’s crucial you have a game plan for paying off your loan. Making an extra payment on your loan is the best way to save on interest (provided there isn’t a prepayment penalty). But it can be scary to do that. What if unexpected costs come up? Like car repairs or vet visits? For business loans visit GBL. Here is a brief overview of all the standard documentation required for preparing a business loan proposal in Cardiff, Wales. I say standard as some loan providers in Cardiff, Wales may provide additional information or perhaps less depending on other aspects of your loan application:
If you want to make sure you have all the documentation get in touch with the broker organising your business loan in Cardiff, Wales and ask them exactly what documentation you need as they will be able to give an exact list specific to your circumstances. When it comes to financing a business, in particular a start-up, everything can seem a little daunting. Generating finance to get your business idea off the ground can seem nigh on impossible but what the average innovator does not realise is the sheer amount of financing available to them depending on their circumstances. The aim of this post is to shed light on these finance options and hopefully help you get your business off the ground.
Finance Options Credit Cards The most common type of finance used by businesses. It might seem a little odd just how popular credit cards are with all the other types of finance available however it does boil down to one simple fact. Credit cards allow expenses to be paid back within a credit free amount of time (usually 30 days). This is incredibly useful for businesses when it comes to managing their cash flow and why it is the number 1 choice. Personal Finance Personal finance is not just having a large sum of money in reserve to facilitate your start-up business need (though it can be!). You can also look at all your other personal assets that can be leveraged. Re-mortgaging is a popular form of personal finance that gives budding entrepreneurs the funding they need to lift off their business dreams. Another vital asset that new entrepreneurs have is their own personal time. By working longer hours and completing multiple roles within an organisation without the need for the pay eliminates the need to hire employees to fulfil that role. Of course, not all individuals have the luxury of foregoing a wage which is why other forms of finance are utilised. Government Grants Government grants might be one of the most under utilised methods of finance for a start-up business. I know when I was younger and a newly minted director I did not even think of applying for a government grant for my business, yet the help does exist. As of writing, there are currently 166 government schemes available within the UK for businesses to take advantage of. 129 of these government schemes are for start-ups (have been trading for less than 2 years). 68 schemes are for finance and loans. These schemes can be found on the government website. Business Loans A business loan is another possible avenue of financing for new businesses. Applying for one does have some caveats. A strong personal credit score combined with a solid business plan (link other blog here) can go along way to helping secure a business loan however there are other avenues as well even with a poor credit score. Assets can be used as collateral to secure the loan you need. Crowdfunding Crowdfunding is another source of financing a start-up business within the UK. With the soaring popularity of online platforms such as Kickstarter and Indiegogo, crowdfunding has been normalised as a means of raising money for worthy causes and worthy businesses. One of the common myths of crowdfunding is that you simply pitch an idea and, if that idea is good enough then individuals will part with their hard earned cash. And this is what happens but there must be an incentive put in place. Simply Business states that there are four types of crowdfunding:
Decide which crowdfunding campaign you want to run and get investors today! |