Private Student Loans Compared with Subprime Loans

According to a study conducted by the government, there has been a massive increase in private student loan debt in the last ten years, which resulted to a lot of Americans in trouble of not paying back their loans.

In addition, the study, which was released last Friday, revealed that most private lenders gave loans without thinking whether or not the borrowers would be able to repay, and then resold the loans to investors in order to prevent loss of money.

Those actions are almost related with subprime mortgage lending, which increase the housing bubble and aided in causing the financial crisis in the year 2008.

Arne Duncan, secretary of the Department of Education, conducted the report together with the Consumer Financial Protection Bureau. Duncan said that subprime-style lending went to college and the students at present are paying the price.

Duncan added that the government should do more to guarantee that people who were given the private loans have the same protections with those who received federal government loans.

The study also said that private student loans have a higher risk than federal loans because they are charged with variable interest rates, which can trigger monthly payments to increase all of a sudden. In contrast, federal loans are charged with fixed interest rates.

Moreover, while federal loans can be postponed or reduced if a borrower is not able to repay, private loans do not offer those options.

Most of the times, students are not aware of the difference between federal and private loans which lead them to apply for expensive student loans, even though they were qualified for more affordable and safer government loans.

One feature of a student loan which was emphasized in the study was that it cannot be cancelled by filling for bankruptcy, not like other credit card balances or debt. As a result, a lot of borrowers are either trapped or overdue on loans that lenders are reluctant to alter.

Payday Lenders Have a Reason to Increase Rates

Wonga, a payday lender from Britain has made public that they will be expanding their interest lending to small establishments. Though some consumer groups have been opposed to the gesture no one can say for sure that the move will be hazardous to small companies.

Paying interest just to borrow cash is an idea many people will be hesitant to do. Consumers and establishments are willing to pay rates lower than the charges Wonga is offering. A zero interest rate will be very appealing for everyone. However, lenders such as Wonga charge these high interest rates to prevent bad debt expenses.

When payday shops lend money to individuals who may be unlikely to pay off their loans they have to consider the chances that the borrowers may not be able to pay back what they owe. If you think about it is practical for payday lenders to increase their rates for risky borrowers because if they fail to pay the payday shop will suffer. Most of the small companies that apply for a loan in Wonga have high default rates for their loans. The small companies will have to borrow money because if they do not they will die off anyway.

If the small businesses are not allowed to borrow money, their owners will apply for personal loans anyway and will be signing in their business property in the contract; basically it is the same thing.

Government policies should be centered on protecting consumers from negative forces in the environment, not trying to block payday lending to small companies. High interest loans are not negative forces, small businesses do not harm the environment and they do not usually contribute to the worse kinds of pollution. They only belong to individuals who want to engage in the industry.

Preventing lending to these establishments is like killing the dreams of their owners. Also, the prevention of lending to the businesses will be expensive for the government because it would require them to enforce bans which mean more money to spend on forces.

The Long-term Effects of Your Short-term Loan

When the financial status in the United States started to turn for the worse, three million sensible Americans went out to get a payday loan, and now because of that they cannot avail mortgage loans.

The status of the economy has gotten harder for the citizens that they would look for any way to get their hands on a loan when they need it. Mortgage loans are the most sought for by the masses, however the lenders are starting to become tight fisted when it comes to loaning to people who had availed payday loans, even if they had settled the accounts.

If you are planning to buy land or own any establishment, it just means you have to think it through before you get a loan. Though short-term loans or payday loans as many would call them are commonly availed by many, banks still refuse to approve loans from those who engage in the business.

Payday loan stores have been supplying their data to banks since the start of the year. The financial institutions will then refuse to give mortgages to the people whose names appear in the list. Employees are just expected to reject a customer even if he or she has good credentials.

According to Marc Gander, the founder of the Consumer Action Group; consumers are being kept in the dark by the institutions because they are not informed that getting a payday loan would ruin their hopes in purchasing a house.

Meanwhile, according to Keith Osborne, it is important to think really well if you need a mortgage loan in the future before you decide on taking on a payday loan for this will make you most unlikely to get one.

The spokesman of Consumer Finance Association, Mr. Richard Griffiths says that it is a unwise decision to base a costumer’s ability to handle a mortgage loan through his decision to apply for a payday loan.

How to Get a Car Loan While Filing for Bankruptcy

It may seem almost impossible to get approved for a loan if you have bad credit, most especially if you have recently file bankruptcy. However, applications for automobile loans even after you have filed bankruptcy is quite common these days, but if you are in dire need of a car loan in the middle of your filing then the process may vary depending on which personal bankruptcy you chose: Chapter 7 or Chapter 13.

The Chapter 7 bankruptcy would settle a person’s assets and evaluate how much will be given to his unsecured creditors. It would only take a few months to finish the process of this personal bankruptcy, and it could only be file once after 8 years.

Chapter 13 however takes about three to five years to complete. This form of personal bankruptcy would involve getting a payment schedule that must be adhered to and completed by the one who filed it.

Of course, since Chapter 7 would be faster to complete compared to Chapter 13, automobile loans would vary too.

If you have filed a Chapter 7 bankruptcy, then this is what you should do: first, you must make sure you are eligible for it. If you are, then you should have a 341 meeting with the creditors and a judicial hearing would be in charge of evaluating your assets and the truthfulness of the personal information you have placed in your debt schedule.The time of the meeting you set with a 341 creditor is important since only some of them would check an applicant’s file after the meeting.

Meanwhile, if you have filed a Chapter 13 bankruptcy, it is important that you send your request to a trustee so that you can ask the court for a petition to prevent you from acquiring more debt. If you are granted the petition, you will have the privilege to get a loan and you can get the maximum interest rate and dictate the terms of the amount of the loan. But if you are declined the privilege, then you cannot apply for any loan.

A new hope for small businesses

After the financial crisis has broken in the United States in 2008, the larger banks have held the majority of the shares over small business loan markets. According to the Small Business Administration’s data, the market shares they held is slightly over 39 percent in  2005 and rose up to 39 percent in 2009. But these past two years have not been as good for these large banks as their shares fell to 38 percent last year.

Though it is currently still too early to tell whether the drop was due to the problem in the sales of the big banks, or if the financial state of the economy is going back to the way it used to be; but it is very good news for the owners of small businesses.  With the big banks losing their grip on the sales of the industry; this means that they no longer dictate who gets a loan and who does not.

It is no secret that your bank credit is your ticket to expanding your business. Almost one-third of businessmen come to banks for loan in hopes of making their business grow, this is according to the new Census data. Though businesses seem to have increased independence on credit cards, the bank loans are still much larger compared to credit card loans.

The value of loans in smaller banks has decreased by 19 percent between 2008 and 2011, and they greatly need to re-evaluate their market shares. But it is still easier for consumers to borrow from these banks compared to large banks because they do not focus on credit scores of applicants and the businesses’ financial statements and they can be open-minded to small businesses compared to big banks.

These financial institutions according to the 2004 Journal of Financial and Quantitative Analysis study are more reliant on the character and relationships of the applicants and business owners. Though big banks may have more perks when they loan money, but business owners would turn to small banks because more often than not, they would give the amount of money the business needs.