Business Loan vs. Business Line of Credit

1.Business loans are used one time whereas lines of credit can be used multiple times.

2. When you get a loan is different from when you get a line of credit. A loan is normally not something you would get until you need it because it’s normally for one specific purpose. A line of credit is something you obtain before you need it. Remember the line of credit, unlike a loan, is not for one specific purpose.

3. With a loan you have a monthly payment that, although there are a few exceptions, doesn’t change from month to month and those monthly payments begin right away. Whether you’re using all the money or not your monthly payment does not change. With a line of credit you only make payments on the amount of money you’ve borrowed so if your balance is zero your payment is zero.

4. The closing costs are higher for a loan than a line of credit. There are always exceptions to every rule but most loans carry closing costs anywhere from 2-7% whereas lines of credit have very minimal or no closing costs. Cost is an obvious factor in determining loan vs line of credit.

5. Loans carry with them fixed terms or amortization periods. Because of this the monthly payments on loans are usually higher than the monthly payments on lines of credit. Think about it like this. If you were to get a loan for $50,000 your monthly payment will likely be $400-700/month more than it would be if you owed $50,000 on a line or lines of credit.

6. Loans are usually best for long-term debt that gets paid off over 2 to 6 years. Lines of credit, however, are best for short-term purposes such as financing receivables, marketing, and making payroll. We acknowledge that lines of credit are great for unexpected cash-flow issues but make sure you don’t exhaust your lines of credit on surprises. Use as much of your line of credit for what we call RGA – Revenue Generating Activities.

2

Image by guaranteedautoloan

Every Investor’s Situation in Loaning

Beyond the emotions surrounding investment risk, you need to evaluate the facts of your financial situation and stage of life. The specifics can determine how well you come through market fluctuations. Ask yourself about these influences when considering the risk you might take in your retirement plan:

1. Time – How many years will it be until you need to sell or restructure investments, either for the start of retirement or for other major events in life?
2. Income stability – How stable is your job or business income? Are you confident your income will hold up even if your investments experience some volatility?
3. Emergency funds – How many months of living expenses do you have in a cash reserve and will it carry you through emergencies without tapping into long-term investments? It is recommended that you have at least six months of emergency savings but you may want more depending on your circumstance or risk tolerance.
4. Insurance – Do you have sufficient medical, disability and life insurance coverage to endure an emergency and support your dependents without selling off investments? According to the Employee Benefit Research Institute, a 65-year-old couple will need an estimated $271,000 to pay for all out of pocket medical costs throughout retirement, assuming the couple signs up for Medicare at age 65 and has no employer-provided retiree health insurance.

Successful investing and preparation for retirement come from establishing a sound long-term strategy and then following through with that plan. No one can foresee every emergency or life change, but you can minimize risks by providing for challenging times so you don’t need to abandon your long-term goals for every unexpected expense.

Good advice:

Seek out expert advice specializing in retirement planning. Solid financial advice should offer you objectivity and benefits of life situations when assessing your preferences for risk. Along with expert advice, be sure to give ample thought to risk, volatility and your own self-assessment. Paying attention to the risk side of retirement will enable you to design a long-term investment plan that feels right and pays off as you fulfill your goals.

Risk is always possible

Risk is always a possibility

Image by theartofretirement

Investment Risk Tolerance

When you envision your retirement years, chances are you may not see investment risk as central to the picture. But defining your approach to risk is, in fact, vitally important to developing a retirement plan that works.

There are two scenarios you want to avoid when approaching retirement:

1. Solely focusing on maximizing returns only to find that market losses have eroded your savings.
2. Discovering your nest egg has not grown because it was stored for safe keeping in accounts that paid near-zero interest.

A key step is to analyze your feelings about risk, or risk tolerance, in light of your financial position. Can your retirement plan withstand short-term fluctuations in the markets? Will you be able to sleep soundly when the market drops, as well as when it rises? On the other hand, are you accepting enough risk to earn the returns your portfolio will need to cover retirement costs?

Know yourself by discovering your risk tolerance:

Assessing your “risk tolerance” is highly personal and it is about knowing yourself. You should analyze your own feelings about risk, then have an in-depth discussion with your financial advisor to be confident that your retirement plan fits your risk preferences. The values of most investments fluctuate in the financial markets. This is referred to “volatility.” The investment industry often uses jargon or labels as shorthand for risk but labels may miss the point:

1. Defensive vs. aggressive.
2. Investment-grade vs. high-yield.
3. Formulas like “beta” or “Sharpe ratio”.
4. Labels like conservative, moderate or aggressive for investor.

What you need is peace of mind with the level of risk you are taking. Nobody is happy when investments drop in value, but you can test out some scenarios to see how volatility affects you:

1. Do you lose sleep or find yourself beset with worry about your savings?
2. Does it upset you if a monthly statement shows your balance has dropped a percentage or two?
3. How about if your account declines 10 or 20 percent? Will it cause you to sell everything, ride out the dip as a “market cycle,” or add more money in an effort to “buy low”?

There is always a risk in investing.

There is always a risk in investing.

Image by yourfinancialpartner

Determining Financial Goals to Accomplish

Assess your finances and eliminate credit card debt:

Take a good look at your financial situation, including credit card debt, student loans, car loans, mortgages, etc. Before you start investing and saving for your goals, you need to eliminate credit card debt that carries very high interest rates. This should be your first financial goal. Once all credit card payments are made, you can then take that same amount of money and invest it. All other debt such as student loans, car loans and a mortgage, tend to have lower interest rates and can be paid down while you invest in the markets. In addition, if you have bought stocks or funds in the past and those investments still make sense, determine if they fit into your financial plan. Close brokerage and bank accounts you don’t need or use. Figure out how many years you have until retirement and the amount of income you’ll need.

Set up a back-up fund:

Once you pay off your credit card debt, your next short-term goal is to build up a back-up or emergency fund. It’s generally a good idea to establish a back-up day fund before you invest for any other goal. Advisors recommend that people set aside three months worth of everyday expenses into such a fund. This helps build a cushion for unforeseen expenses like a car repair or replacement of a large household appliance. It pays to plan ahead. Also, try not to put large essential expenses on a credit card, because that will just put you back to square one.

Your next short-term goal is improving your savings by cutting back on unwarranted spending. Reduce spending on things that are more luxury-type items and wants as opposed to needs. Cut back on eating out and restaurants and maybe try renting movies instead of going to the theater. Think of other expenses that you can eliminate, such as bottled water, magazines at the newsstand and your land-line phone at home. Try to use debit cards instead of credit cards as well, unless you plan to pay off your credit cards at the end of each pay cycle.

How to make goals

How to make goals

Image by tflguide

Interest Charge of a Credit Card

Credit card issuers usually waive interest charges if the balance is paid in full each month, but typically will charge full interest on the entire outstanding balance from the date of each purchase if the total balance is not paid. For example, if a user had a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged. If, however, even $1.00 of the total amount remained unpaid, interest would be charged on the $1,000 from the date of purchase until the payment is received. The precise manner in which interest is charged is usually detailed in a cardholder agreement which may be summarized on the back of the monthly statement. The general calculation formula most financial institutions use to determine the amount of interest to be charged is APR/100 x ADB/365 x number of days revolved. Take the annual percentage rate (APR) and divide by 100 then multiply to the amount of the average daily balance (ADB) divided by 365 and then take this total and multiply by the total number of days the amount revolved before payment was made on the account. Financial institutions refer to interest charged back to the original time of the transaction and up to the time a payment was made, if not in full, as a residual retail finance charge (RRFC). Thus after an amount has revolved and a payment has been made, the user of the card will still receive interest charges on their statement after paying the next statement in full.

The credit card may simply serve as a form of revolving credit, or it may become a complicated financial instrument with multiple balance segments each at a different interest rate, possibly with a single umbrella credit limit, or with separate credit limits applicable to the various balance segments. Usually this compartmentalization is the result of special incentive offers from the issuing bank, to encourage balance transfers from cards of other issuers. In the event that several interest rates apply to various balance segments, payment allocation is generally at the discretion of the issuing bank, and payments will therefore usually be allocated towards the lowest rate balances until paid in full before any money is paid towards higher rate balances.

Numerous Faces of Credit Cards

Numerous Faces of Credit Cards

Image by bostoncoachblog

Problems regarding the Use of Credit Card

Credit card security relies on the physical security of the plastic card as well as the privacy of the credit card number. Therefore, whenever a person other than the card owner has access to the card or its number, security is potentially compromised. Once, merchants would often accept credit card numbers without additional verification for mail order purchases. It’s now common practice to only ship to confirmed addresses as a security measure to minimise fraudulent purchases. Some merchants will accept a credit card number for in-store purchases, whereupon access to the number allows easy fraud, but many require the card itself to be present, and require a signature. A lost or stolen card can be cancelled, and if this is done quickly, will greatly limit the fraud that can take place in this way. European banks can require a cardholder’s security PIN be entered for in-person purchases with the card. The PCI DSS is the security standard issued by the PCI SSC (Payment Card Industry Security Standards Council). This data security standard is used by acquiring banks to impose cardholder data security measures upon their merchants.

The goal of the credit card companies is not to eliminate fraud, but to reduce it to manageable levels. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction – as would be expected from organisations whose goal is profit maximisation. Internet fraud may be by claiming a chargeback which is not justified “friendly fraud”, or carried out by the use of credit card information which can be stolen in many ways, the simplest being copying information from retailers, either online or offline. Despite efforts to improve security for remote purchases using credit cards, security breaches are usually the result of poor practice by merchants. For example, a website that safely uses SSL to encrypt card data from a client may then email the data, unencrypted, from the webserver to the merchant; or the merchant may store unencrypted details in a way that allows them to be accessed over the Internet or by a rogue employee; unencrypted card details are always a security risk and even encryption data may be cracked.

Credits cards are not perfect, it has flaws.

Credits cards are not perfect, it has flaws.

Image by blog.generalassmb

Cons of Credit Scores

The use of credit cards can be beneficial due to the fact that you can gain the capacity to purchase without actually having enough liquid assets. However, there are still disadvantages of using it especially when it comes to the credit scores. Here some of the cons identified by most users:

Easily gamed:
Because a significant portion of the FICO score is determined by the ratio of credit used to credit available on credit card accounts, one way to increase the score is to increase the credit limits on one’s credit card accounts.

Not a good predictor of risk:
Some have blamed lenders for inappropriately approving loans for subprime applicants, despite signs that people with poor scores were at high risk for not repaying the loan. By not considering whether the person could afford the payments if they were to increase in the future, many of these loans may have put the borrowers at risk for default. According to a Fitch study, the accuracy of FICO in predicting delinquency has diminished in recent years. In 2001 there was an average 31-point difference in the FICO score between borrowers who had defaulted and those who paid on time. By 2006 the difference was only 10 points. Some banks have reduced their reliance on FICO scoring. For example, Golden West Financial, which merged with Wachovia Bank in 2006 and abandoned FICO scores for a more costly analysis of a potential borrower’s assets and employment before giving a loan.

Use in employment decisions:
Experian, Equifax, TransUnion and their trade association which is the Consumer Data Industry Association or CDIA, have all gone on record saying that employers do not receive credit scores on the credit reports sold for the purposes of employment screening. The use of credit reports for employment screening is allowed in all states, although some have passed legislation limiting the practice to only certain positions.

Other concerns:
The use of credit information in connection with applying for various types of insurance or in landlord background checks has drawn similar amounts of scrutiny and criticism. This is because the activities of finding secure employment, renting suitable accommodation and securing insurance are the basic functions of meaningful participation in modern society, and in the case of some types of auto insurance for instance, are mandated by law.

The Credit Score Scale

The Credit Score Scale

Image by freecreditscore

Credit Card Scams

With the convenience that credit cards bring to the table, more and more people are frequently using this financial tool for their daily consumption. Consumers are now more inclined to swipe their cards for a faster transaction. Even with its advantages, using a credit card may expose you to various problems. Nowadays, a major difficulty most people face is the existence of credit card scams. This is a form of theft or fraud that can be done in different ways. Some may use a software to obtain your account details; some may lead you into sharing your security code (a three digit code at the back of your card); or some may simply just steal your bag, eventually your credit card. At the event that they have your information and credit card details, these scammers use it for their own benefit.

5

 

One may ask how these scammers would even gain access to your signature, an important factor before your transaction can even be made final. Most of the time and without you knowing it, these people could easily get your copy of the credit card receipt. This includes your name, credit card number, and most especially your signature. With this on hand, the scammer can, without any trouble, copy and use your account. At the end of the month, you will just be surprised with the amount shown on your statement of account.

There are ways to protect yourself from these fraudulent crimes. It is crucial for you to not in any circumstance give out your personal information to any random person. If you need someone to know your details beside yourself, always turn to someone you can trust, like a family member. It is also important for you to regularly check and manage your account in order to properly monitor transactions you have made or possibly even more transactions that you have not made. This will equip you with the knowledge as to whether or not you are under a credit card scam. Nowadays, banks provide their clients with e – cards that they can use for online transactions. This would typically consist of a dummy account number that will not easily let other people gain access to your main account.

6

Sometimes these things happen even if we apply the best set of protection, as stated earlier. In the event that this occurs, it is best to report it to your bank as soon as possible. It would also be helpful to report it the local authority in order to let the greater population know that these types of people are still existent and actively seeking to basically steal money.

Credit Card, Is It A Thumbs Down?

What are the disadvantages of having credit cards? First of all, are there any disadvantages to it? Or are we just the benefactors of this wonderful gift of the world? But what are credit cards? Credit cards are what we use to delay the payment of our purchase. Credit card companies are sort of loaning you the money to pay for what you wanted to buy, in return, you get to pay them later but with an given interest rate. Now that we know what they are, are there any negative factors that we can get from these said plastic heroes of our time?

Credit cards may be a disadvantage.   Image taken from: HappySmarts

Credit cards may be a disadvantage. 
 Image taken from: HappySmarts

Well if you are the type of person who really spends a lot and do not have the money on you, but you are sure that you will get the money at the end of the month or every 15th, well then this is for you. Some people who are sure about the amount of money that they have are coming and just have a lot of expenses to pay for during the middle of the month, prefer the convenience of a credit card.

But not all of us are like this, some people abuse the fact that credit card companies allow you to pay later, and tend to “spend money they do not have” and find themselves in more debt than they’re already in. These people tend to over use their card. For example, they use it on unnecessary things like buying clothes or shoes that they do not particularly need at the moment or upgrading their gadgets just because there is a new model that is out. They do this just because they tell themselves that they still have until the end of the month to pay for it.

Credit cards may lead to overspending. Image taken from: The Re Knee Blogspot

Credit cards may lead to overspending.
Image taken from: The Re Knee Blogspot

Another disadvantage that credit cards have is the safety that you are compromising. Your credit card details can make or break your financial stability and also your safety because they contain a lot of personal information. If your credit card is stolen, the person who has stolen your card can use it just by knowing your credit card number. They can use this information for online shopping and they can just spend all they want because they are technically not spending any money at all. Also, by knowing the credit card details, they can just enter this in a database and find out other personal information like your address and your real name. There might be disadvantages to credit cards but the pros sure weigh out the cons in this argument.

Say NO to Credit Cards

Having a credit card is almost a necessity today.  Most have a hard time when they do not have their credit cards with them and some may even not be able to function properly and do their usual routines.  We have reached that century where credit cards have replaced cash for most people.  People have already experienced the convenience of not having to bring large amounts of money when you have to buy something and also having to delay the payment of the purchase you have made.

A lot of unfortunate events have still occurred related to having or using a credit card.  This is because even though credit cards have made the life of many easier, it also has it’s disadvantages to its consumer or users.

First and foremost is that, it can be easily overused.  Since credit cards are super easy to use, it is easy to be overused as well.  With just one swipe, you can buy a new furniture, a new cabinet of clothes, a new rack of shoes and a lot more.  Since you do not have to pay right at the moment the purchase was done, even if they cannot afford the said purchases, they still use their credit cards to buy it.  With the system of revolving credit, some people have the mindset of just letting the debt carry over to the next month and not pay it right away but this will just increase your debt because the interest rate keeps on adding.

Another disadvantage of having a credit card is that it has interest rates, and they are usually high, and unexpected or hidden charges.  As mentioned a bit earlier, the debt caused by your purchase will end up being more expensive because of the additional charges from the interest rates.  The issue of having hidden charges and fees have already been brought up by a lot of consumers.  A lot of consumers have complained that they were shocked once they received their bills and it was way more than what they have expected and when they cleared it with the credit card company, it was due to other fees from the credit card.

You end up paying more because of interest rates.  Image taken from: Rate-Bee

You end up paying more because of interest rates.
Image taken from: Rate-Bee

Last disadvantage is that, credit cards could be copied and duplicated and be used by someone else.  There are an increasing number of stories about credit card frauds, scams and identity theft.

Credit cards are prone to being copied and stolen.  Image taken from: Pittsfield Police Department

Credit cards are prone to being copied and stolen.
Image taken from: Pittsfield Police Department