PDF Loans and Financing - California

Loans and Financing

Credit and loans

Loan - money that you borrow from a lender and promise to pay back on a set schedule.

Interest ? when you borrow money, you make a promise to pay back the money you borrowed plus some extra. The extra amount is called interest. Interest is your cost to borrow the money.

Credit is the ability to borrow money now, and pay it back later. Credit is important because it:

? Can be useful in times of emergencies ? Is more convenient than carrying large amounts of cash ? Allows you to make a large purchase such as a car or house, and pay for it over time ? Is the record of how you manage your credit and may affect your ability to obtain employment,

housing, and insurance

Secured and Unsecured loans

In a secured loan, the borrower pledges (gives collateral to the lender for the loan). An unsecured loan is not backed by collateral. Example: student loans and credit cards are often unsecured loans.

Assets

An asset is something valuable that you own like a car, savings accounts, and property such as your home. Some items generally cannot be used as collateral, unless they are used to secure the purchase of that item itself. These include:

? Furniture for your home ? Clothing ? kitchenware

Collateral ? something you provide the lender to secure a loan. Example: you pledge an asset you own, such as your car, to the lender to secure the loan. If you do not repay the loan, the lender can take the asset and sell it to help repay your loan.

Guarantee ? a form of collateral. Example: co-signing is a form of guaranteeing a loan. For instance, a person with no credit history may ask someone else to co-sign a loan. The cosigner is then equally responsible for the loan. The co-signer must pay the unpaid loan balance plus interest if the borrower does not repay the loan as agreed.

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Three Types of Loans

Consumer Installment Loans ? are used to pay for purchases and other expenses for you and your family. Example includes an auto loan. The automobile you are purchasing is used as collateral for the loan. With a consumer installment loan, you are borrowing a fixed sum of money. You pay it back with equal payments over time.

Credit Cards - give you the ongoing ability to borrow money for household, family, and other personal expenses. Having a credit card allows you to buy things and pay for them later. Remember that if you are not careful in spending, you can get into big trouble ? you could be burdened with credit card debt. You need to be sure you are able to make the minimum monthly payment on your credit card bill.

Home Loans - for the purpose of buying a home. It is secured by the home you are buying. That means you could lose your house if you do not repay your loan as agreed.

Home Refinancing ? replaces an existing home loan by paying it in full and replacing it with a new home loan. A cash-out refinance loan allows you to borrow more money than is owed on the loan being replaced. Homeowners often refinance their home loans to obtain a lower interest rate, to get money for home repairs, or for other personal needs such as investments.

Costs Associated With Getting a Loan

Fees may be charged by financial institutions for activities such as review in your loan application. They may also charge you a penalty fee if you violate the terms of the loan agreement. For example, a lender might charge a $30 late fee when you do not pay your bill on time. The lender might also charge other fees. For instance, a credit card company might charge you an annual maintenance fee or a service fee when you get a cash advance. Interest is the amount of money financial institution charges for letting you use its money. The interest rate can be either fixed or variable. Fixed rate loans generally stay the same throughout the term of the loan. Variable rate loans might change during the loan term. The loan agreement will show the details of the rate changes.

Truth in Lending Law

Amount Financed - on an installment loan, this is the amount of credit the lender is letting you borrow. The amount financed will generally be the same as the amount of the loan, unless you have prepaid any loan fees, or finance charges.

Annual Percentage Rate (APR) - the APR is the cost of borrowing money. It is the cost of credit stated as an annual percentage rate. It reflects both interest and other fees and costs defined as finance charges. It is the primary tool you should use to compare lending options.

Fees - lenders must disclose the fees they charge for things like late payments. Make sure you check out what fees could be charged and how to avoid the fees.

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Financial Tip - if you have a good credit history, you can probably find a credit card with no annual fee. If your current card has an annual fee, call your lender and ask them to waive it. They might do this rather than lose a good customer.

Grace Period - grace period is the number of days you have to pay your credit card balance in full before the credit card company starts charging interest. Without a grace period, interest will be charged from the date you use your card or from the date each transaction is posted to your account.

Types of Alternative Financial Services

Rent-to-Own

Rent-to-own services let you use an item for a period of time by making monthly or weekly payments. If you want to purchase the item, your rental payments will be partly credited toward the purchase price. The store will set up a plan for you to rent the item until you pay enough to own it. If you choose not to purchase, you would simply be renting the item to be returned at the end of the rental period. The store is the legal owner of the item until you make the final payment. If you miss a payment, the store can take the item back. If this happens, you will not own the item, and you will not get your money back. Rent-to-own agreements are technically not loans, so no interest is charged. However, the difference between the cash price (if you were to buy the item outright that day) and your total payment (the total of your rental payments over time) is like the interest you pay on a loan. Generally, using rent-to-own services is more expensive--sometimes much more expensive--than getting a consumer installment loan to buy the item.

Payday Loans

Payday loans (or cash advance loans) are short-term loans (usually up to two weeks). You write a check payable to the lender dated two weeks from now and receive cash that day. The loan service cashes the check on your payday to pay the loan in full. You can also go into the loan office and pay your loan with cash, at which point the lender returns your uncashed check to you. You must be careful of payday loans. They are usually made to people who need money right away and plan to pay it back with their next paycheck. Payday loans can be much more costly than they appear at first glance. If you do not have the money to pay the loan within the agreed-upon time period, the lender will renew the loan and charge you additional fees. This will increase the total amount you owe. Let's look at an example of how payday loan services work.

Short Term Loans

? Pawn shops ? Car title lenders (for a loan secured by the borrowers promise to repay out of their next

paycheck or regular income payment).

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? Borrow from yourself. The best way is to save money regularly with automatic deposits from your paycheck. Then when you need the money for emergencies you can borrow it from yourself.

How Lenders Make Loan Decisions ? The Four C's

Capacity refers to your present and future ability to meet your payments. How long have you been continuously employed with the same company, or same type of job? Generally, a lender would like to see that you have held the same job or same type of job for at least a year. How much money do you make each month? What are your monthly expenses? A bank will compare the total of the amount yu owe on credit cards and other loans, plus your other monthly expenses, with your monthly income. This is called a debt-to income ratio. It helps determine how much money you can afford to borrow. The bank wants to ensure that your expenses are not too high for you to take on the additional monthly debt of a loan payment. They want to be sure you can repay what they lend.

Capital refers to the value of your assets and your net worth. How much money do you have in your checking and savings accounts? Lenders may want to know if you have any emergency funds to fall back on if you run into trouble. Do you own a house? Homeownership means you are working at building wealth. If you run into problems paying your debts, your home could be a source for repayment. Do you have investments or other assets (like a car)? Lenders want to determine the value of your assets. Lenders will also compare the difference between the value of your assets and the amount of debt you have. This is called net worth. A positive net worth demonstrates your ability to manage your money and build wealth.

Character refers to how you have paid your bills or debts in the past. Have you had credit in the past? If you have no credit history of late payments, you will have an easier time getting your loan request approved. How many credit accounts do you have? If you have never had a credit account, you may have difficulty getting approved for a loan. Having a good credit history shows a lender you can borrow money responsibly. Some lenders might let you demonstrate you will be a good risk by asking for proof that you pay your rent, utility, and phone bills on time or that you make regular deposits to a savings account but, not all lenders will accept, as evidence of your credit-worthiness, obligations that are not filed with a credit bureau. You may have to shop around.How have you managed your credit accounts? A creditor will look at whether you have kept your promises to repay debts. A lender will see you as a greater risk to lend money to if you have:

? Filed for bankruptcy ? Had any court judgments against you ? Had property repossessed or foreclosed ? Made late payments

These situations may make it more difficult for you to get approved for a loan. However, some lenders will ask you to explain what happened. Depending on your circumstances, a lender might be willing to approve your loan request.

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There are several situations that might prevent you from getting a loan, or result in you paying much more for credit, particularly if you are currently going through them. Collateral refers to property or assets offered to secure the loan. Do you have assets to secure the loan? Collateral is security you provide the lender. As we have seen, giving the lender collateral means that you pledge an asset that you own, such as your home, to the lender, with the agreement that it will be the repayment source in case you cannot repay the loan. A co-signer can help you get a loan if you are unable to obtain one yourself. This person signs the loan documents with you and is equally responsible for repaying the loan if you cannot. The lender cannot insist that the co-signer be a specific person, such as your husband or wife, but it will have to be an adult with credit.

Free Annual Credit Report

Submit a request online at or call toll-free: 1-877-322-8228. Complete the Annual Credit Report Request Form from and mail it to:

Annual Credit Report Request Service

P.O. box 105281

Atlanta, GA 30348-5281

Find a USDVA Facility

Use the facility locator or call 1-877-222-VETS (8387).

Contact Your County Veterans Service Office

The County Veterans Service Offices (CVSO) are locally-funded agencies established to assist veterans and their families in obtaining benefits and services accrued through military service. These County Veteran Service Offices promote the interest and welfare of veterans, their dependents, and their survivors by enhancing their quality of life through counseling, education, benefits assistance, and advocacy. They connect Veterans to their benefits by assisting in their interactions with the USDVA.

? Visit the CalVet website for more information, OR ? Find the CVSO closest to you, OR

CalVet strongly recommends you to work with the CVSO nearest you. Your CVSO can guide you through the benefits and services available as well as help connect you with other local resources.

eBenefits

Apply for compensation, pension, housing, education and training, healthcare, insurance, and burial benefits through ebenefits. .

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