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What is Collateral? | Learning About How Payday Loans Work

March 17, 2021

The media talks about mortgage rates constantly, and you’ve likely heard a lot about car loans, too. What do those two loans have in common? They are both referred to as “secured” loans because they are lent against–or “secured”–items (or assets) that the person borrowing the money is purchasing. These items are called “collateral.”

By contrast, a payday loan is an “unsecured” personal loan. In other words, when a lender gives you money for a payday loan, there is no specific valuable item that the lender is providing you money to purchase. Instead, the lender underwrites your ability to pay back the loan based on your income and a few other factors.

What is collateral, then, and why does it matter?

What is collateral?

When you’re borrowing money to buy a car or house, the bank has an ownership interest–called a “lien”–against the item that you’re buying. The asset that the bank lends against, be that a car or home, is called collateral. Collateral is, in essence, a valuable thing that the bank can take possession of and re-sell if the borrower stops paying his or her loan.

At its core, collateral gives lenders much greater certainty that they will be able to get their money back if you stop paying your loan. Lenders spend a lot of time underwriting borrowers for secured loans involving cars and homes, but they also spend a lot of time underwriting the item against which money will be lent. Lenders need to make sure that the car or home is worth what is being paid for them. Collateral provides extra security for the lender in case you stop paying your loan.

For example, say a borrower is paying $200,000 for a home and borrowing $160,000 to buy that home. The bank will order an appraisal to get an opinion of value that shows the bank that the home is actually worth $200,000. If buying a used car, a lender will consult a valuation service such as Kelley Blue Book to determine the value of the car being purchased.

Why does this matter?

Collateral is something that a lender can foreclose on–or repossess, in the case of a car–if the borrower stops paying their loan. This provides the lender with more comfort and security that they will be able to get their money back on the loan whether or not the borrower keeps paying the normal schedule of principal and interest. Why is this?

Imagine that a bank lends someone $10,000 to buy a used car. If a borrower stops paying the loan schedule and still owes $8,000 but the car is worth $8,500, the lender can repossess the car, sell it for $8,500 and make most, if not all, of its money back on the loan after selling costs. No one likes the repo man, but he’s there for a good reason: the bank has an ownership interest in the car and needs to get paid back for the money it lent.

Because payday loans are personal, unsecured loans, there is no valuable item or specific asset that a lender can take ownership of if the loan isn’t paid back. This inherently makes the loan riskier for the lended because they are relying solely on the borrower’s income stream–his or her job–in order to get the money back.

If a payday loan borrower takes out a loan and then stops paying, the lender has no recourse other than to try and get the borrower to pay them back, or file something in the borrower’s credit report showing that payments weren’t made.

Payday loans do not have traditional collateral and therefore are much riskier from a lender’s perspective. Because of this, the interest rates are usually much higher than for a home or auto loan. Lenders have to charge a higher interest rate to cover the higher amount of risk they are taking on when lending to an individual without any collateral or recourse.

If you are borrowing money through a payday loan, you will almost certainly pay a higher interest rate than you would if taking out a home or auto loan. That may not sound exciting to you, but there’s an important point to keep in mind: payday lenders can offer you same-day cash, and you do not have to put up your house, car or any other assert as collateral. Home and auto lenders will take much more time to make a lending decision. Plus, they will have to pull your credit report and do an extensive underwriting process. With a payday loan, you can get instant cash when you need it, but you do have to pay a higher interest rate to access these loans.

Quick Cash with a Payday Loan

If you’re facing financial difficulties, a payday loan is an easy way to get quick cash that just can’t be replicated by a lender that specializes in making home or auto loans. This is in large part thanks to the fact that a payday loan is an unsecured, personal loan that is not backed by any specific collateral.

Payday loans are far quicker to obtain than other types of loans. Why? The lender does not have to underwrite any asset — the car or home that you’re buying– and payday loans are almost always for much smaller amounts than would be required for a house or a car. This allows lenders to offer cash quickly and easily.

Payday loans are not intended to be used over a long time period or for large purchases, but if you just need a small amount of cash for a short amount of time, they can be the perfect solution.

If you need quick cash for back-to-school costs, car or truck repairs, or any other unexpected expenses, apply now for a payday loan.

What are CDs?

February 26, 2021

Depending on what generation you belong to, you’ve likely heard your parents or even your grandparents talk about a CD, or a certificate of deposit. While the terminology may seem a bit antiquated, CDs can be a useful savings tool for all generations.

What is a CD, or Certificate of Deposit?

A CD is a type of low-risk savings account. It has a fixed interest rate that increases with the term of the CD. Unlike a traditional savings account, a CD keeps your money under lock a key for the life of the term and you can’t make additional monetary contributions.

Terms for a CD are fixed and generally range from as short as three months to as long as five years. Most have an early withdrawal penalty if you cash it out before the end of the term. Generally, a longer term = a higher rate. Luckily, CDs are available in short-term, mid-range, and long-term options. CDs have federal deposit insurance, so you are guaranteed to get your money back no matter what.

When to Get a CD

There are a few times in life you might consider getting a CD. If you are looking for a dependable return on your money and will not need to dip into the funds for a while, a CD may be a good savings option for you!

Locking up funds for a future purchase.
Protecting wealth for a set time.
Using CDs for pre-invested funds.

CDs can be a great savings option once you’ve saved enough for an emergency fund, are able to contribute to your retirement savings, are actively working on paying off debt, and have started saving a percentage of your salary. A CD can be a good option if you have quite a bit of funds sitting in a savings account not earning much interest.

Tips for Obtaining a CD

If you’ve decided to obtain a CD, you’ll want to make sure you are purchasing it from a healthy bank. Review the bank rating for financial strength and performance and try to only purchase from an institution that is AAA rated or 5 stars. Also, ensure the institution is FDIC-insured so that your savings are protected.

Payday Loans Perks

January 29, 2021

A payday loan is a short-term unsecured loan where you can almost always get the money within 24 hours. Payday loans can be a great way to get financial assistance in a pinch. They can help you to pay off a credit card, pay late bills, manage a financial emergency, or just help with any unplanned expenses.

Here are some great benefits of a payday loan:

The process for applying for payday loans is quick and easy. Several companies even have their process online, so you don’t have to get an appointment with anyone.
Fewer requirements. Most lenders have minimum requirements for traditional loans, but payday loan services do not require much more than proof of income and valid identification. This takes a lot of the hassle out of prepping for a loan.
Help with your credit. The payoff terms of these loans are quick, which can help you to focus on paying off your outstanding payday loan debt as quickly as you can. Knowing that you won’t have to be relied on to pay for the loan for the next few years is a great feeling.
There are so many lenders. This makes it easier for you, the borrower, to find a lender that best suits your needs and your situation. Some are even online!
You can repay payday loans easily when you get your next paycheck. Most payday loan lenders will help you set up a payment plan so that you can stay on top of your payments.
Smaller loan amounts. Your income can limit how much you can borrow. This makes it easier to know that you’ll actually be able to pay back your loan amount on time since your budget won’t be stretched to the breaking point with loan payments that are too large.
Interest rates. Most states have a cap on how much interest lenders can charge on payday loans.

Payday loans can help fill the gap of the benefits that you are normally receiving. They can be there to help you through until the next paycheck comes in. Be sure to follow through and make your payments on time, so if you ever find yourself in a tough situation you can borrow from a payday loan lender again.

A Payday Loan can Help you Through a Financial Emergency

January 15, 2021

A payday loan is a short-term loan that can help you cover immediate cash needs. Unexpected financial emergencies happen, and they can happen often. But knowing what types of emergencies payday loans can cover can help you to be a little better prepared by knowing you can have that money quickly and take care of your expenses.

A Payday Loan can Help you Through a Financial Emergency

Here are a few of the common financial issues you might experience:

Car repairs. Cars can break down anytime and anywhere. You can experience something small like a flat tire, or you might be forced to deal with some major work like a blown transmission. Most of the issues that your car has will need to be looked at by a professional. And repairs are not cheap.
Medical emergencies. Medical bills can start to stack up rather quickly. They can vary from a short-term illness to pregnancy to an accident to an emergency hospital stay. Any of these can result in some very expensive out-of-pocket costs for you and your family.
Pet emergencies. Pets are just like children in regards that they need to be taken care of properly. They need to have their checkups with their veterinarian throughout the year and will need to visit their vet when they are not feeling well. Those visits can certainly add up to some hefty bills. Please do not let the unknown cost of a vet bill keep you from taking care of your furry family member.
Appliances. Replacing or repairing your appliances can take a lot of money. These are necessities since you need to be able to use a stove to cook you and your family dinner or have a refrigerator to keep your foods cool and from spoiling.
Home repairs. Some of the most common home repairs are a leaky roof, A/C blowout, and a busted water heater. Sometimes those types of repairs are not covered by home insurance and will need to be paid out of pocket.

Payday loans can help get you the extra cash that you need to be able to cover all of your unexpected emergencies! You can get the money quickly and can get extra cash multiple times a year if needed. Financial emergencies can happen to the best of us, and payday loans can help you out in those situations.

How to Set Financial Goals for a New Year

January 8, 2021

A new year brings on new beginnings and a good topic for those beginnings is setting up your financial goals for the year ahead.

What are Financial Goals?

These are the goals you want to accomplish with your money. It can be anything; there are no limitations for the financial goals you want to set for yourself. Why should you set financial goals? Because goals can help guide you in managing your money.

Financial goals can come in all different amounts and timeframes and can be big or little. You set goals to know what you are working towards and when you can accomplish it. Financial goals help to set yourself up for future financial success. However you define that success is up to you!

2021 Financial Goal Setting

Here are a few ideas to get you started on your financial goal setting for this New Year:

Develop a financial plan. A plan is an overall picture of your financial goals. Your plan has the details for all your accounts, and it helps to build the foundation for what you want to set as your goals.
Establish an emergency fund. Saving for emergencies should be high on your priority list; especially after the year many of us faced dealing with financial stress and/or uncertainty from the pandemic. Establishing an emergency fund is a good goal to break up into smaller portions. First, focus on adding a small amount of cash to your emergency fund savings. Then, continue adding small amounts throughout the ear until you have built up your savings to cover 3-6 months of expenses for you and your family.
Develop a budget. Nothing is worse than not knowing where your money is going. Sometimes ignorance is definitely not bliss! Work to set a budget to manage your weekly and monthly expenses. You can use spreadsheets, notebooks, online tools, or apps to track the categories that your money goes to. Whatever way you choose to track your spending, stick with it!
Pay off your debt. This is a big one. Debt can be very overwhelming and scary for many. The first thing you can do for yourself is to accept that you have debt. Don’t be afraid to get your total amount of all your outstanding debts (student loans, credit cards, personal loans, car notes, mortgage, etc.). List all your debt out and start planning to get it all paid off! This is a great opportunity to look at where your money is going and to see if you can re-allocate any of it to paying off your debts. Consider using the snowball method to get you started.
Save for retirement. Retirement might seem far away to some, but it will be here before you know it. Why not start now and get some money saved? See if you can contribute to your employer’s 401k or get an IRA. There are options! You just need to see what is best for you and your situation.

Track It & Get Control of Your Finances

Keep track of the progress you are making towards your financial goals. Have someone help you with your accountability if you find that’s something you need. It can be a lot to handle and it is ok to ask for some help in that regard. Break your goals down into more attainable actions if needed.

Getting control of your finances is one of the best things you can do for yourself. Seek out financial help if you need it. Talking with a financial planner (or even a financially-savvy friend or family member!) or reading books can do wonders to help get you started.

Overspent on Holidays? Payday Loans Can Help!

December 30, 2020

There always tends to be financial stress this time of year. Whether the financial strain is from finding and buying the perfect gift, traveling to see friends and family, attending all the fabulous holiday parties, or ringing in the New Year in style, it’s almost impossible to not stretch your budget past its breaking point during the holiday season. Planning and making sure you get to experience everything can put a strain on your wallet. A little extra cash, quickly, can help ease that strain and allow you to better enjoy the season. Payday loans are available to help you get that extra cash to make up for all that extra spending you did around the holidays.

Overspent on Holidays? Payday Loans can Help!

Payday loans are a type of short-term loan. Most are unsecured, meaning you don’t have to put up your personal property as collateral.

Payday loans have several benefits:

You can access your money quickly. Most payday loan lenders don’t require any more information than any other loan company. You can be approved in minutes and get your cash within the hour.
Convenient process. There are no appointments needed. The forms are easy to fill out and the money can be used towards anything.
There are few requirements. There is no need to put up collateral or have a perfect credit score in order to qualify for a payday loan. Typically, the only requirements are that you must be 18 years or older and have a valid form of identification.

You get your money, get your gift, and enjoy the holiday. The quickness and ease of a payday loan can not only help with your finances, but also with the stress that comes with it. Know that there is a simple solution that you can turn to. Payday loans are there to help you out when you need it the most.