Why a Personal Loan Won’t Work for Debt Consolidation

November 24, 2008

Debt consolidation explained…

Everyone needs to borrow money at some point in their life. It can be as simple as asking a relative for ten-fifty for a burger, to be paid back later, to deals with lending institutions involving amounts ranging from tens to millions of rands. Money may be needed to purchase a car, refurbish a home, or deal with a medical emergency. As long as the borrower can repay the loan, there’s no problem—the borrower gets a need addressed and the lender gets some profit out of risking their funds. It’s when the borrower runs into problems repaying that things start to go sour.

Basic Loan Components and Types

There are so many loan packages available today that it can be difficult sometimes to distinguish the best one for a particular need. All loans come with three basic components: the principal, which is the amount actually borrowed; the interest, which is charged by the lender and is the way by which they make a profit out of the deal; and the miscellaneous fees charged upon setup.

Loans come in two basic varieties: secured and unsecured. Secured loans involve the borrower pledging some sort of security to cover the deal; this is commonly in the form of cars or other belongings, or a home or property. If the borrower defaults on the loan, the lender can then seize the agreed-upon collateral and sell it to try and recover some of its money. These sorts of deals come with low interest rates because some of the risk to the lender is covered by the collateral.

Unsecured loans, on the other hand, don’t require collateral, thus making them easier to acquire but at the cost of higher interest rates, to make up for the increased risk.

Personal Loans and Debt Consolidation

Personal loans, which can come in both secured and unsecured forms, are among the most basic of loans. They are used for everything, from covering the purchase of new appliances or that shiny new sedan, to funding vacations and dealing with unforeseen events.

Some people also take out loans to use them in paying off other loans, but that isn’t advisable. For one thing, unless the borrower manages to snag a really good loan, the amount borrowed will never be enough to completely pay off a previous loan. Then the hapless individual winds up with an additional financial burden on their back.

When faced with multiple loans with considerable interest charges, one of the best courses of action could be to use a debt consolidation loan from a reputable firm. Taking this course of action could probably result in lower monthly payments and reduced charges, as well as address the inability of some debtors to manage their finances. Not only that, financial education conducted by some of these firms could also lead the borrower not only to debt freedom, but also teach them to live within their means and stop the endless cycle of debt repayment..

For other related articles and advice, please go to http://www.globalproperty.co.za

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Refinancing – Is it for You?

October 27, 2008

What does refinancing actually mean? It means: replacing your existing mortgage with another, lower interest rate loan. There are many good reasons to consider refinancing, including lowering your repayments, shortening your loan term, taking advantage of your home’s equity, debt consolidation, cash out options etc.

Mortgage refinancing can save you a lot of money if you do it right. Overpaying on your mortgage, when refinancing, is a common mistake that homeowners make, which costs them thousands of rands in interest.

Deciding if you should refinance or not depends greatly on what your financial goals are.

If you are refinancing in order to pay less interest, you would not see the savings right away. This is because financial institutions charge fees when you take out a new mortgage, and in some cases you also have to pay a penalty for canceling your old mortgage. To determine whether refinancing makes financial sense for you, consider these issues:

The Loan Term

It will not make sense to refinance your mortgage and start over with a 20-year term should your existing mortgage almost be paid off.

The Interest Rate

A percentage drop of just one half to three quarters of a percentage point can result into huge savings over the long term.
However, to get the benefits of a lower rate, you may have to pay fees associated with the mortgage.

Refinancing Costs

Refinancing is a lot like getting a new mortgage. Your lender may charge certain fees to facilitate your new loan. The benefits of refinancing add up over time, so if you do not plan owning your home for much longer, the lower payments associated with the refinancing may not cover the costs involved.

As a rule of thumb, the longer you plan to stay in your home the more sense it will make to consider refinancing. If your refinancing expenses can be recovered within the first 24 months of the new loan, mortgage refinancing is probably a good idea.

Pre payment penalties

Many mortgages carry a penalty if you pay them off early. If you do not wish to pay such a fee you will have to give your financial institution a 3 month / 90day notice period. Some however do not charge such a fee and you should go through your original loan documents to make sure.

The break-even point

If you can determine your break-even point, then you can start figuring out when you will start saving money. This involves a very simple calculation.

Start of by calculating how much you will save by lowering your monthly payment. Then add the costs associated with refinancing and divide the total by your monthly savings. This will give you an indication of the number of months it will take to reach the break-even point.
However to get a more accurate estimate, use our financial calculators on http://www.globalproperty.co.za


A debt consolidation loan is the most powerful means to regain control over your growing debt.

August 7, 2008

You see, debt levels are rising and consumer credit to households is estimated at R760bn with 14 million active credit consumers and 50 million open accounts. The average % of debt to income is 73%. At the same time there are 80,000 judgments for debt per month.

Credit card debt has seen a dramatic increase of 138 percent since 2004 while lease agreements rose by 123 percent in the same period. Is it any wonder that more and more people find themselves in a cash crunch at the end of the month?

With a debt consolidation loan you combine all your outstanding debt into one loan. Instead of having multiple creditors to pay you only have to deal with one. That alone can save you time and a lot of stress.

You arrange the repayment terms to fit your monthly budget. This means that you can now manage your debt and still have some money left over each month.

When you consolidate debt, you effectively roll all your outstanding debt and loans into one loan. You arrange repayment terms that fit your monthly budget – which means you can now manage your debt and still have some money left over each month for you and your family.

Have you ever sat down and figured out how much interest you are paying on your outstanding credit card debt??

That’s money that could have gone to paying down your debt, but instead it gets paid to the credit card companies month after month without making so much as a dent in your balances.

When you consolidate debt, you finally get rid of those credit card late fees and costly interest penalties. Starting fresh with your new loan, the money that would’ve gone to interest can now go towards reducing your debt!!

Zulika van Heerden provides more powerful articles and tips on her site:  www.globalproperty.co.za


How To Choose A Good Debt Consolidation Loan

June 19, 2008

Once you have decided on debt consolidation, you now have to choose your debt consolidation loan product.  You have many choices, but not all of them will suit your purposes.  Therefore, you must carefully check each one of your options and consider the following factors before you choose the debt consolidation loan for you.

 

Interest Rate

Naturally, you have to find out what interest rate you will be charged by a certain debt consolidation loan.  If you are going to consolidate your existing loans, then you’d better find a loan that charges a lower interest than any of your current loans.  It doesn’t make sense to transfer your balance from a low-interest loan to a higher- interest loan, does it?

 

Apart from looking at the standard variable percentage rate (VPR), you also have to check the promotional VPR.  Most loan companies offer introductory loan interest rates to entice people into applying for a loan.  These introductory loans are precisely that – they will last only for a certain period of time.  Therefore, be careful about signing up for a debt consolidation loan that has very good introductory rates  yet have higher than average VPR afterwards.

 

Repayment Terms

When does the loan have to be paid in full, and how much minimum payment do you need to cough up every month?  These are the two most pertinent questions that you need to ask before you take up any debt consolidation offer.

 

Theoretically,  a loan with a short repayment period typically means greater savings since you won’t spend decades paying interest.  However, you also need to be realistic.  If you take out a short-term loan and miss out on a payment because the monthly minimum dues are too high and are much more than you can possibly pay, then your interest rates will soar when you default on a payment.  You will lose out more in the long run.

 

 So , before you take out a debt consolidation loan, make sure that the terms are manageable and attainable given the current state of your finances.

 

Credit Limit or Face Value

How much money will be lent to you? If you’re taking out a line of credit for debt consolidation, how much credit will be extended to you?  It is important that you know from the start if the amount of money the bank will lend you for debt consolidation is enough to cover all of your existing loans.  Otherwise, you will not succeed in consolidating all your multiple loan balances into one.


Don’t Get Into A Debt Dilemma – Mistake no 3

June 13, 2008

Mistake 3: Consolidating Everything

 

Many decide to consolidate every single one of their debts into just one debt consolidation plan. Some even do this despite the fact that some of their debts are already on one consolidation plan or another, simply because the new scheme offers a longer term.

 

Consolidating everything rarely works especially if you have a very large amount to deal with or if you’ve already got some debts under another scheme. Other shorter-term schemes often offer lower interest rates in lieu of the longer time to pay.

 

 It’s recommended that you take the offer with the lower interest because you have to pay less in the long run and end up paying debts for less time, even if you have to pay more in the short term.

 

Debt consolidation isn’t just about lifting the pressure of your debt deadlines from your shoulders, though that’s an obvious aspect of it. Debt consolidation doesn’t keep your debts at bay forever and it doesn’t pay off your debts either. All a debt consolidation scheme gives you is time, which would just be wasted if you didn’t have a predefined plan on how to use it.

 

Zulika van Heerden provides valuable information on her site on how to live a debt free life.
To read more tips and techniques like the ones in this article go to: http://www.globalproperty.co.za


Don’t Get Into A Debt Dilemma – Mistake 1 of 3

June 9, 2008

Debt consolidation can seem like a breath of fresh air, especially if you’ve been dogged by your debt and credit problems for a long time. Your creditors are suddenly off your tail, you have a credit rating to speak of again and you can breathe a sigh of relief.

 

But this sense of security may very well be false, particularly if you commit three common mistakes made by many who choose to consolidate their debts. You’d best avoid those same mistakes else you’re likely to find yourself running through the whole cycle of indebtedness all over again.

 

Mistake 1: No Plan at All

 

It might sound ridiculous but many have participated into a debt consolidation scheme without any sort of idea for getting rid of that debt eventually. It’s very foolish to enter a debt consolidation scheme without a concrete action plan for reducing and gradually eliminating your debts.

 

Remember, debt consolidation schemes merely give you some leeway when it comes to deadlines for paying off your debts, but they don’t hold off debts indefinitely.

 

Consolidation schemes still have deadlines for paying your bills that you must eventually meet. To make matters worse, your consolidated debts accrue interest and other fees the longer they’re left stagnant, so you’d best not forget about them.

 

Zulika van Heerden provides valuable information on her site on how to live a debt free life.
To read more tips and techniques like the ones in this article go to: http://www.globalproperty.co.za


Facts About Home Loans

May 30, 2008

Prospective homeowners should explore their options prior to signing on the dotted line of a mortgage agreement. Probably the most critical thing to know and understand when acquiring a home loan is to know what the various terms mean. This can be accomplished easily by asking a lot of questions and asking your realtor to explain everything to you. Plus, some online browsing can turn up the answers to most of the questions that you might have.

It is important to look at the different types of home loans that are available and to understand the differences among them. From a fixed rate to an adjustable rate to an interest only to a balloon mortgage, the choices are many and the differences among them are very large. If you do not understand what a particular type of loan means in terms of monthly payments as well as the duration of the payments, then you should not be signing on the dotted line.

Potential buyers should also understand the various terms or words that are employed when dealing with real estate. Some of these include points, closing fees, recording fee, escrow account, and origination fee.

If the loan that you are getting is a first time loan, then it is the primary loan and the primary lienholder. This means that the lender of this specific loan holds the first claim against the property for repayment of the loan holders debt.

Home loans can be obtained at banks, savings and loans, credit unions, and financial lenders. Each lender assesses their own schedule of fees, offers their own range of interest rates, and their own selection of loan packages.

In order to qualify for a home loan, potential borrowers will need to go through a pre-qualification screening. During this stage, each borrower is expected to bring a number of financial documents to verify their information. Once they pass that stage, they will continue with the application process. Additional paperwork is completed and processed.

In order to receive approval for a home loan, the potential borrower needs to provide the following pieces of information: terms of employment, income level, level of debt, age of the applicants, and the type of home that is the intended object of purchase. Plus, the current interest rate and the size of the down payment can all influence whether or not the potential borrower is approved for the loan. The appraised value of the home will also come into play as well.

When buying a home, it is important not to bite off more than you can chew. If a homeowner fails to pay on his home loan, the lender can repossess the home and the homeowner is left with nothing, except maybe bad credit.

Zulika van Heerden is an expert on mortgage financing and provides free information on her site for homeowners. To read more tips and techniques like the ones in this article go to: http://www.globalproperty.co.za