how to reduce finance charges on a car loan

How to Reduce Finance Charges on a Car Loan.

Finance charges applied to a car loan are the actual charges for the cost of borrowing the money needed to purchase your car. The finance charge that is associated with your car loan is directly contingent upon three variables: loan amount, interest rate, and loan term. Modifying any or all of these variables will change the amount of finance charges you will pay for the loan. There are a number of ways to reduce finance charges on a loan, and the method you choose will be contingent upon whether you already have a loan or are taking out a new loan. Knowing your options can help you save money and pay off your vehicle faster.

Method 1 Reducing Finance Charges for a New Loan.

1. Learn your credit score. Automobile loans are largely determined by the borrower's credit score; the better the borrower's credit score is, the lower his interest rate will likely be. Knowing your credit score before you apply for an automobile loan can help ensure that you get the best possible loan terms. You can obtain a free copy of your credit report (one free copy is guaranteed every 12 months) by visiting AnnualCreditReport.com or by calling 1-877-322-8228.

Your credit report won't explicitly contain your credit score, but it will contain information that determines your credit score. Because of this, it's tremendously important to review all of the information contained in your credit report and understand what determines your credit score to ensure that there are no errors.

If your credit score is low, you may need to improve your credit score. Improving your credit score will likely get you much better terms on your loan. If you can hold off on purchasing your vehicle until you've repaired your credit, it may be worth waiting.

Consider contacting a credit counseling organization to help you rebuild your credit. A credit counselor can work with you to build and stick to a budget, and can even help you manage your income and your debts. You can find a credit counseling organization near you by searching online - just be clear on the terms and fees of the services offered before signing up with a credit counselor.

2. Shop around for your loan. Most dealerships offer automobile loans at the dealership, which can make it convenient for buyers. However, the dealership may not be offering the best available loan. Many automobile dealers arrange loans by acting as a "middle man" between you and a bank, which means that the dealership may charge you extra to compensate for its services. Even if the dealership's fees aren't unreasonable, it's likely that the dealer will then sell your contract to a bank, credit union, or finance company, and you may end up making payments to that third party. Even if you end up going with the dealer's financing option, it's worth shopping around for a better loan from a local bank or credit union.

3. Don't take out a small loan. Every loan term is different, depending on factors like your credit score and the amount you're requesting to borrow. Smaller loans typically have very high monthly finance charges, because the bank makes money off of these charges and they know that a smaller loan will be paid off more quickly. If you intend to take out an auto loan for only a few thousand dollars, it may be worth saving up until you have the whole amount that you'll need to purchase an automobile, or purchasing an automobile that fits in your available price range.

4. Get a pre-approved loan before you buy a car. Pre-approved loans are arranged in advance with a bank or financial institution. This may be helpful, as many people feel pressured to go with the loan options that a dealer offers at the car lot, and end up getting a loan with high finance charges. If you get a pre-approved loan beforehand, you'll know exactly how much you can afford to spend on an automobile, which will also help you stay within your budget.

5. Consider leasing instead of buying. Leasing a vehicle allows you to use your vehicle for an arranged duration of time and a predetermined number of miles. You won't own your car, but lease payments are typically lower than what the monthly payments on a loan would be for the exact same vehicle. Some lease terms also give you the option of purchasing your vehicle at the end of the leasing period. Before you decide to lease, it may be helpful to consider.

the lease costs at the beginning, middle, and end of the leasing period.

what leasing offers and terms are available to you.

how long you want to keep the automobile.

Method 2 Refinancing an Existing Loan.

1. Contact your lender. You can apply to refinance your automobile loan with the lender from the original loan, or you can switch to a new lender. Lenders who allow refinancing will replace your existing loan with a new loan, typically offering lower monthly finance charges. Not every lender will allow borrowers to refinance a loan, so it may be worth comparing your options to determine which lender to go with, or whether you're eligible to refinance at all.

2. Gather the necessary information. As part of the refinancing application process, you'll need some basic information to provide the lender. Before you apply to refinance your loan, you'll need to have ready:

your current interest rate.

how much money is still owed on the existing loan.

how many months remain in the existing loan's terms.

the make, model, and current odometer reading of your vehicle.

the current value of your vehicle.

your current income and employment history.

your current credit score.

3. Compare refinance loan options. If you are eligible for an automobile loan refinance with your existing lender, you may be eligible for a better loan through a different lending institution. It's worth comparing your refinance loan options to get the best available loan terms. When you search around and compare refinance options, it's worth considering:

the loan rate.

the duration of the loan.

whether there are pre-payment penalties or late payment penalties.

any fees or finance charges.

what (if any) the conditions for automobile repossession are with a given lender.

Method 3 Pre-paying an Existing Loan.

1. Learn whether you're able to pre-pay your loan. If refinancing isn't an option, you may be eligible for pre-paying your loan. Pre-payment, also called early loan payoff, simply means that you pay off your debt before the agreed-upon end date of an existing loan.[29] The benefit of pre-paying your loan is that you're not subjected to the monthly finance charges you would otherwise be paying on your loan, but for that reason many lenders charge a pre-payment penalty or fee.[30] The terms of your existing loan should specify whether there is any pre-payment or early loan payoff penalty, but if you're unsure you can always consult with your lender.

2. Learn the pre-payment process for your lender. If your lender permits you to make pre-payments on your loan, there may be a special process for making those payments. These payments are sometimes referred to as principal-only payments, and it's important to specify to your lender that you intend for that payment to be applied to the principal loan, not the finance charges for upcoming months. Each lender's process may be different, so it's best to call or email the lender's customer service department and ask what you need to do to make a principal-only payment towards your loan.

3. Calculate your early loan payoff amount. There are many early loan payoff "calculators" available online, but all of them factor in the same basic information to determine how much you will need to pay in order to payoff your loan early:

the total number of months in your existing loan term.

the number of months remaining on your existing loan.

the amount your existing loan was for.

the monthly payments remaining on your loan.

the current annual interest rate (APR) on your existing loan.

Tips.

Reducing the finance charges by reducing the term of the loan will lower the finance charges overall but it will also increase your monthly payment, because you take less time to repay the loan.

Consider working with a credit counseling organization if you're having trouble sticking with your budget or paying off your loans.

November 26, 2019

How to Reduce Finance Charges on a Car Loan

How to Reduce Finance Charges on a Car Loan.

Finance charges applied to a car loan are the actual charges for the cost of borrowing the money needed to purchase your car. The finance charge that is associated with your car loan is directly contingent upon three variables: loan amount, interest rate, and loan term. Modifying any or all of these variables will change the amount of finance charges you will pay for the loan. There are a number of ways to reduce finance charges on a loan, and the method you choose will be contingent upon whether you already have a loan or are taking out a new loan. Knowing your options can help you save money and pay off your vehicle faster.

Method 1 Reducing Finance Charges for a New Loan.

1. Learn your credit score. Automobile loans are largely determined by the borrower's credit score; the better the borrower's credit score is, the lower his interest rate will likely be. Knowing your credit score before you apply for an automobile loan can help ensure that you get the best possible loan terms. You can obtain a free copy of your credit report (one free copy is guaranteed every 12 months) by visiting AnnualCreditReport.com or by calling 1-877-322-8228.

Your credit report won't explicitly contain your credit score, but it will contain information that determines your credit score. Because of this, it's tremendously important to review all of the information contained in your credit report and understand what determines your credit score to ensure that there are no errors.

If your credit score is low, you may need to improve your credit score. Improving your credit score will likely get you much better terms on your loan. If you can hold off on purchasing your vehicle until you've repaired your credit, it may be worth waiting.

Consider contacting a credit counseling organization to help you rebuild your credit. A credit counselor can work with you to build and stick to a budget, and can even help you manage your income and your debts. You can find a credit counseling organization near you by searching online - just be clear on the terms and fees of the services offered before signing up with a credit counselor.

2. Shop around for your loan. Most dealerships offer automobile loans at the dealership, which can make it convenient for buyers. However, the dealership may not be offering the best available loan. Many automobile dealers arrange loans by acting as a "middle man" between you and a bank, which means that the dealership may charge you extra to compensate for its services. Even if the dealership's fees aren't unreasonable, it's likely that the dealer will then sell your contract to a bank, credit union, or finance company, and you may end up making payments to that third party. Even if you end up going with the dealer's financing option, it's worth shopping around for a better loan from a local bank or credit union.

3. Don't take out a small loan. Every loan term is different, depending on factors like your credit score and the amount you're requesting to borrow. Smaller loans typically have very high monthly finance charges, because the bank makes money off of these charges and they know that a smaller loan will be paid off more quickly. If you intend to take out an auto loan for only a few thousand dollars, it may be worth saving up until you have the whole amount that you'll need to purchase an automobile, or purchasing an automobile that fits in your available price range.

4. Get a pre-approved loan before you buy a car. Pre-approved loans are arranged in advance with a bank or financial institution. This may be helpful, as many people feel pressured to go with the loan options that a dealer offers at the car lot, and end up getting a loan with high finance charges. If you get a pre-approved loan beforehand, you'll know exactly how much you can afford to spend on an automobile, which will also help you stay within your budget.

5. Consider leasing instead of buying. Leasing a vehicle allows you to use your vehicle for an arranged duration of time and a predetermined number of miles. You won't own your car, but lease payments are typically lower than what the monthly payments on a loan would be for the exact same vehicle. Some lease terms also give you the option of purchasing your vehicle at the end of the leasing period. Before you decide to lease, it may be helpful to consider.

the lease costs at the beginning, middle, and end of the leasing period.

what leasing offers and terms are available to you.

how long you want to keep the automobile.

Method 2 Refinancing an Existing Loan.

1. Contact your lender. You can apply to refinance your automobile loan with the lender from the original loan, or you can switch to a new lender. Lenders who allow refinancing will replace your existing loan with a new loan, typically offering lower monthly finance charges. Not every lender will allow borrowers to refinance a loan, so it may be worth comparing your options to determine which lender to go with, or whether you're eligible to refinance at all.

2. Gather the necessary information. As part of the refinancing application process, you'll need some basic information to provide the lender. Before you apply to refinance your loan, you'll need to have ready:

your current interest rate.

how much money is still owed on the existing loan.

how many months remain in the existing loan's terms.

the make, model, and current odometer reading of your vehicle.

the current value of your vehicle.

your current income and employment history.

your current credit score.

3. Compare refinance loan options. If you are eligible for an automobile loan refinance with your existing lender, you may be eligible for a better loan through a different lending institution. It's worth comparing your refinance loan options to get the best available loan terms. When you search around and compare refinance options, it's worth considering:

the loan rate.

the duration of the loan.

whether there are pre-payment penalties or late payment penalties.

any fees or finance charges.

what (if any) the conditions for automobile repossession are with a given lender.

Method 3 Pre-paying an Existing Loan.

1. Learn whether you're able to pre-pay your loan. If refinancing isn't an option, you may be eligible for pre-paying your loan. Pre-payment, also called early loan payoff, simply means that you pay off your debt before the agreed-upon end date of an existing loan.[29] The benefit of pre-paying your loan is that you're not subjected to the monthly finance charges you would otherwise be paying on your loan, but for that reason many lenders charge a pre-payment penalty or fee.[30] The terms of your existing loan should specify whether there is any pre-payment or early loan payoff penalty, but if you're unsure you can always consult with your lender.

2. Learn the pre-payment process for your lender. If your lender permits you to make pre-payments on your loan, there may be a special process for making those payments. These payments are sometimes referred to as principal-only payments, and it's important to specify to your lender that you intend for that payment to be applied to the principal loan, not the finance charges for upcoming months. Each lender's process may be different, so it's best to call or email the lender's customer service department and ask what you need to do to make a principal-only payment towards your loan.

3. Calculate your early loan payoff amount. There are many early loan payoff "calculators" available online, but all of them factor in the same basic information to determine how much you will need to pay in order to payoff your loan early:

the total number of months in your existing loan term.

the number of months remaining on your existing loan.

the amount your existing loan was for.

the monthly payments remaining on your loan.

the current annual interest rate (APR) on your existing loan.

Tips.

Reducing the finance charges by reducing the term of the loan will lower the finance charges overall but it will also increase your monthly payment, because you take less time to repay the loan.

Consider working with a credit counseling organization if you're having trouble sticking with your budget or paying off your loans.

November 28, 2019

How to Get a Small Business Loan

How to Get a Small Business Loan. 

Whether you’re planning to expand an existing business or just now getting one off the ground, a small business loan can give you the financial support you need. Not all businesses can get a small business loan, so you need to take special care when applying for one. Make sure your credit history is as strong as possible, and search for lenders. Lenders will want to see numerous financial documents, so gather them ahead of time. Although getting a small business loan takes a lot of work, it is possible.

Part 1 Improving Your Credit Profile.
1. Pull your personal credit score. Most lenders will look at your personal credit history, even when you apply for a business loan. For this reason, obtain your credit score and check whether it’s high enough to qualify for the best interest rates. Generally, you’ll need a score above 680. You can get your credit score in the following ways:
Check your credit card statement. Many credit card companies now give their customers their FICO score.
Buy your FICO score for $20 at myfico.com.
Use a free website, such as CreditKarma.com or Credit Sesame.com.
2. Obtain a copy of your personal credit report. Errors on your credit report can pull down your credit score. In the U.S., you can get a free copy of your credit report each year from the three major Credit Reporting Agencies (CRAs). Don’t contact the CRA’s individually. Instead, visit annualcreditreport.com or call 1-877-322-8228. All three credit reports will be sent to you.
3. Remove inaccurate information from your credit report. Highlight any errors and contact the CRA that has the wrong information. Common errors include accounts listed that don’t belong to you or accounts inaccurately listed as in default.
You can contact the CRA directly through its website. If the inaccurate information appears on more than one credit report, you only need to contact one CRA, which will alert the other two.
It can take up to 60 days to remove inaccurate information.
4. Improve your credit score. Paying down your balances is the fastest way to improve your credit score. Tackle high-interest debts first, such as credit card debts. Send every monthly payment on time and pay at least the minimum. You should see a slow but steady improvement in your credit score.
Avoid taking out a new credit card, which will temporarily hurt your score. Instead, you can ask for an increase in the credit limit on one or more cards.
Unfortunately, there’s no quick fix for improving your credit score, and you should avoid any company promising to improve your score fast. These companies are often scammers.
5. Build your business credit. Lenders will also look at your business credit profile. Start building your business credit history by obtaining a D-U-N-S number from Dun & Bradstreet. You can get it for free by registering at their website.
Your creditors should report your payment history to Dun & Bradstreet. If not, list them as trade references. Dun & Bradstreet will then follow up and collect payment information.
Your business credit report will contain information about court judgments or liens against your business. You can boost your business credit by paying off any liens and judgments.

Part 2 Identifying Loans and Potential Lenders.
1. Determine the type of loan you need. There are several types of business loans you can get. You should identify the type you need before talking to a lender. Consider the following options.
Line of credit. You can draw from a credit line whenever you’re short of cash. For example, you might need money to make payroll or pay a vendor. You then pay back what you drew on your credit line. A line of credit is a lot like a credit card.
Installment loan. You can get an installment loan to expand operations. You pay it back in equal monthly installments over one to seven years.
Equipment loan. You get a loan to buy equipment, and the lender takes a security interest in the equipment until the loan is paid back. If you default on your loan, the lender seizes the equipment.
2. Stop into banks. Some banks are hesitant to lend to small businesses, but you still should stop in and talk to a loan officer. Discuss your business and ask for the bank’s requirements. You should stop in at least a month before you intend to apply.
Visit banks you’ve done business with as well as banks with whom you have no prior relationship. However, local community banks are more likely to lend to a small business than a large national bank.
3. Check with credit unions. Credit unions have increased the number of business loans they make, so they are a good option for small business owners. You’ll need to become a member of the credit union before you can apply for a business loan, but setting up an account shouldn’t be too burdensome. Credit unions typically offer better rates and lower fees than traditional banks.
4. Research online lenders. Online lending has exploded over the past few years and is a good option if your credit isn’t perfect. You can find online lenders at different aggregator sites, such as LendingTree and Fundera.
There are many online scammers, so thoroughly research online lenders. Look up the business with the Better Business Bureau and Google the company to check for complaints. Only do business with an online lender that has a street address.
5. Research government-backed loans. In many jurisdictions, the government will guarantee loans. This means they agree to pay back a certain percentage of the loan if the borrower defaults. Because of this guarantee, you generally get more favorable interest rates and repayment terms.
In the U.S., the Small Business Administration (SBA) guarantees small business loans. It’s most popular loan program is the 7(a) program which guarantees up to $5 million in loans. 7(a) loans can be used to build a new business or expand an existing one.
Even though the SBA guarantees the loan, you still apply with a bank. Talk to the bank about whether it is experienced with SBA loans and ask if it is part of the SBA Preferred Lender Program (PLP).
6. Ask friends or family for a loan. The people who know you the best might be willing to loan your business money. Approach your friends and family in the same manner you would a bank. Provide them with a copy of your business plan and your financial documents.
You can agree to pay interest, which will show that you are serious about repaying the loan. In the U.S., the interest rate shouldn’t be higher than the maximum allowed in your state, but it should be at least the federal funds rate, which you can find at the IRS website.
Also draft a promissory note and sign it, which will make the loan official.

Part 3 Gathering Required Information.
1. Create a personal financial statement. Every owner who owns at least 20% of your business should create a personal financial statement. Financial statements contain information about your assets, such as cash, mutual funds, certificates of deposits, and real estate. They also identify all liabilities owed to lenders, creditors, and the government.
2. Pull together business financial documents. Lenders will want to see your business balance sheet, profit and loss statement, and cash flow statement. If you need help creating these documents, consult with an account.
Ideally, your financial statements should be audited by a certified public accountant. Ask another business owner if they would recommend their CPA, or contact your nearest accounting society to obtain a referral.
3. Collect other required information. Lenders want a complete picture of your business, so they will require plenty of paperwork. Gather this ahead of time so that the application process goes smoothly. Get the following.
Personal tax returns for the past three years.
Recent personal bank statements.
Business tax returns for the past three years.
Recent business bank statements.
Resumes for each owner and member of management.
Business leases.
Articles of Organization (if an LLC) or Incorporation (if a corporation).
Franchise agreement (if applicable).
4. Show you have the necessary down payment. Generally, you need a cash down payment of 20%. If you hope to borrow $100,000, then you should have $20,000 in cash. Make sure that you have bank records showing the necessary down payment.
5. Draft a business plan. Your business plan lays out where your business is headed in the next few years and how you plan to get there. Lenders want to see a solid business plan before they will make a loan. Your business plan should identify your target market, marketing plan, management, and financial projections.
Some lenders want your business plan to contain specific information. Stop into the bank before applying and ask about their specific requirements.
Business plans can be hard to write. In the U.S., you can get help at your nearest Small Business Development Center, which you can find at https://www.sba.gov/tools/local-assistance/sbdc.
6. Document any collateral. Some lenders won’t give you a loan unless you pledge assets as collateral. Collateral protects lenders since they can seize the assets if you default on your loan. Common forms of collateral include inventory, heavy equipment, accounts receivables, and your home.
You should document the location and condition of the collateral. If possible, hire an appraiser to value the collateral.

Part 4 Applying for Your Loan.
1. Fill out your application. Each lender’s application will be slightly different. However, most will ask your reasons for applying for the loan, as well as the identity of your management team. Also identify any suppliers you will be buying assets from.
Each lender will pull your credit report, which will ding your credit score. However, all credit pulls in a two-week window will count as a single pull, so plan accordingly.
2. Wait to hear back. You should hear back within two to four weeks. If you want, you can call once a week and ask for an update on your application status. The lender might need more documentation, so provide it as quickly as possible.
About 80% of applicants for small business loans are rejected, so don’t be surprised if you get turned down. Ask any lender who rejects you to explain why. For example, you might need to save a larger down payment or draft a better business plan.
If no lender will give you a loan, consider other forms of funding, such as getting a business credit card.
3. Review the loan terms. Any lender that approves you should provide a term sheet which contains the details of the loan—the loan period, the annual percentage rate, and fees. Make sure you are comfortable with the terms.
You probably will need to personally guarantee the loan. This means that if you stop making payments, the lender can come after your personal assets, such as your car or home.
4. Close on the loan. Sign the term sheet or commitment letter and return it to the lender. The lender will then schedule a closing, which usually happens 45-60 days later. If your loan is guaranteed by the SBA, you’ll work with the loan officer to gather the necessary documents to submit. At the closing, you will review and sign a variety of documents before receiving your loan proceeds.

FAQ.

Question : Where can I find investors for small business?
Answer : If you're in the U.S., contact your nearest Chamber of Commerce or Small Business Development Center. They might know of local investors who are interested in small businesses.
Question : Are there any charities the will help me start a business?
Answer : You should start looking into crowdfunding websites. If people like your product or service, they'll donate money. Sometimes you can give the donators your product/service at a discounted price as an incentive.

April 07, 2020

How to Finance a Business Purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.





Taking Out a Loan



Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.







Financing the Purchase With Your Own Assets.



Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.







Bringing On Investors or Partners.



Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.







Getting Seller Financing



Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.[



Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 14, 2019

how to finance a business purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.





Taking Out a Loan



Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.







Financing the Purchase With Your Own Assets.



Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.







Bringing On Investors or Partners.



Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.







Getting Seller Financing



Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.[



Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 13, 2019

how to finance a business purchase

How to Finance a Business Purchase.

Buying an existing business can be convenient in a number of ways. You're buying into a proven business model with existing customers, marketing, and products. With this framework in place, you can also begin repaying your purchase expenses immediately with the profits earned by the business. However, financing that business purchase in the first place can be just as expensive as starting a business yourself. Consider the following methods for coming up with the capital to purchase a business and choose those that best suit your needs.



Method 1 Taking Out a Loan.



1. Investigate SBA loans. The Small Business Administration (SBA) guarantees loans to small business to help them get started and expand their operations. To get started on the road towards acquiring SBA financing, visit a local bank or financial institution that provides SBA loans. The SBA loan makes it easier for you to acquire financing, as part of the loan is repaid by the SBA if you fail to make payments. Specifically, the loan program you will be looking for is the SBA Basic 7(a) loan program, which is used for acquiring or starting new businesses. To qualify for this type of loan, you must.

Own or seek to own a small business as defined by the SBA. This information can be found on their website.

Plan to operate for profit.

Plan to operate within the United States or its possessions.

Have your own assets invested in the business.

Show a need for the loan.

Not owe the US government any money.



2. Meet with financial institutions. Financing is also available through local lending institutions, like banks and credit unions. However, this type of lending can be very difficult to secure, particularly if you have less-than-stellar credit or if there are not significant personal or business assets that can be used as collateral. To qualify for a traditional bank loan, you will need demonstrable management experience, strong existing cash flows, experience in the industry, and a high personal credit score. It may also be easier for you to obtain a loan if you have an existing, strong relationship with the bank providing the loan.

If you are a woman, veteran, or minority, banks may have special lending programs that you can qualify for.



3. Assess the collateral you can provide. Your collateral is the assets, either yours or the business's, that you can provide as insurance in case you default on your loan. For some business loans, these may need to be worth as much as 50 to 70 percent of the loan value. When providing collateral for the banks to use, you can include any of the following:

Equity in your own home.

Assets owned by the business, like accounts receivable and inventory.

A personal guarantee. This essentially means that, in the event of a default, you are personally liable to repay a certain amount of the loan value.

Most lenders, including the SBA, require a personal guarantee for a loan in addition to any collateral pledged. This is because they would prefer avoiding have to take possession of the collateral and go through the subsequent sale.



4. Get pre-qualified for several loans. Before finalizing the purchase of the business, you will need one or several letters of pre-qualification for loans. This means going through the loan process with each lender and getting the go-ahead from them to purchase the business. You can then show the letters to the seller and finalize the purchase, at which point you will need to actually take out one of the loans that you are pre-qualified for.

Getting pre-qualified for several loans is advantageous in case the lending requirements change between your pre-qualification and the close of the sale.

You will need to be pre-qualified for more than the purchase price of the business. You should also include about 90 days of working capital (money used to keep the business functioning, like utilities and inventory purchasing money). You can work with the current owner to assess how much is needed.



5. Consider alternative loan options. There are many other sources of loans available to finance the initial purchase of a business. For some people, there may be an opportunity to borrow money from friends or family. However, bear in mind that this may damage your relationship with that person if things go south. Some other options you can consider include:

Peer-to-peer (P2P) financing. Online lending markets like LendingClub.com and Prosper.com allow you to borrow small amounts (generally less than $25,000) from other people. However, rates on these sites are typically higher than what a bank or the SBA could offer you.

Microloans. Microloans are for smaller amounts that traditional business loans (usually less than $50,000) and have shorter durations (under six years). Check with the SBA or a microlending specialist to investigate your options.



Method 2 Financing the Purchase With Your Own Assets.



1. Use your own savings. The easiest and cheapest way to finance your own business is with your own personal savings. This includes any savings accounts, CDs, investment accounts, or other liquid accounts you hold. By using the money from these accounts to finance your personal, you can avoid having to work with partners, investors, or lenders when running your business. However, it is rare that an individual has enough money in these accounts to purchase a business.



2. Sell any valuable assets you currently own. Another way to raise money is to sell off valuable assets that you own. Parcels of land, non-essential vehicles, and boats can all be sold to raise this type of money.



3. Borrow against your home equity. You can borrow against the value of your home using a second mortgage or a home equity line of credit (HELOC). However, this requires having enough equity in your home in the first place. More importantly, it also introduces the risk that, in the event of the business's default, your house may be foreclosed upon by the lender. Consider the risks and try every other options available to you before pursuing this type of financing.



4. Avoid purchasing the business with your retirement savings. While it is possible to roll your IRA or 401(k) savings balances into a business venture without taking a tax hit, doing so is incredibly risky. If your business fails to perform as expected, you could lose all of the money you have saved for retirement. Personal finance experts recommend against using this as a method of business financing.



Method 3 Bringing On Investors or Partners.



1. Consider finding a partner or several of them. A partner is someone who provides some initial purchase money for the business in exchange for an ownership share. Your partner will likely want to be involved in the business in some way, so make sure to only take on a partner that you can work well with. And being personally close with someone doesn't make them a good partner; sometimes a trusted or knowledgable co-worker or acquaintance can make a better partner than a friend or family member.

In addition, make sure to draw up a legal contract that clarifies the terms of the partnership. This agreement should list how disputes are settled, how major decisions are made, and exactly how profits are divided.



2. Work with a silent partner. A silent partner is one that contributes capital to the business, but has no say in its operations. However, many silent partners eventually want to have a say in how the business is run. Again, to ensure that this relationship works as planned, draw up a partnership agreement that specifies the terms of your partnership in detail.



3. Bring on angel investors. An angel investor is a wealthy private investor who gives start-up capital to new businesses and new business owners in exchange for equity in that business. Businesses with angel investors benefits from the angel investor's industry expertise, business contacts, and financial resources. Locating angel investors, however, can be difficult. You'll have to locate a high net worth individual who shares your passion for the business you are buying and its industry. Then, you'll have to convince them of your own management skill and your ability to give them a good return on their money.

Angel Investors can be located by visiting the Angel Capital Association's website.



4. Engage in equity crowdfunding. Equity crowdfunding, which involves selling small stakes in your business to a large number of small investors, is a relative newcomer in the world of business financing. While equity crowdfunding has been around for years, operating through sites like SeedInvest, it has recently become tightly regulated by the Securities and Exchange Commission (SEC). Equity crowdfunding can be an effective way to raise money, but only with the proper guidance, as following SEC guidelines can be complicated.



Method 4 Getting Seller Financing.



1. Consider the benefits and drawbacks of seller financing. Seller financing, also called owner financing, is a purchase arrangement in which you repay the sale price of the business directly to its previous owner over several years. For the buyer, this provides some flexibility in repaying the loan, such as negotiating a longer repayment period, a temporary reprieve from payments, or reducing the price in exchange for letting the owner keep some equity in the business. However, this type of arrangement is typically more expensive, with the owner charging a higher interest rate than the bank would charge.

Ideally, the buyer should negotiate an arrangement where all or a portion of the loan financed by the seller may be contingent upon the profits reached and payable over a limited term. This protects the buyer in case profits are not as high as expected.

Obtaining seller financing may give you more power in negotiating down the price of the business.

Doing so also gives the seller reason to help you out more in running and managing the business.



2. Ask the seller if they would consider seller financing. Start by asking the seller directly if they would consider seller financing. It may help if you explain to them that this will result in their getting more money over time, as they get to keep the interest on your loan (rather than the bank keeping it). If they agree, you can begin negotiating a contract.

If possible, avoid securing the seller with assets purchased. This gives you a cushion if additional financing is needed to get the business is running smoothly.



3. Negotiate a contract. Work with the seller to form the terms of sale. Start by offering to make a down payment with what you can gather on your own, say 10 to 20 percent of the sale price. Try to offer as large of a down payment as you can afford; this will only help you and save you money in the long run. Then discuss a repayment period and interest rate. Try to negotiate a longer repayment period and lower interest rate to make sure that you can afford the payments.

You may be able to agree on a large, balloon payment in a number of years. This will reduce your monthly payments. Then, you can get a bank loan or use your savings to cover the balloon payment.

Alternately, where a C corporation is involved in the purchase, issuing preferred stock may be a better option than debt for the buyer when repaying the balloon payment.



4. Have a lawyer review the contract. Ideally, you should have an attorney that specializes in business contracts draw up the contract. However, you can also have one review the contract to ensure that your interests are represented and that there are no surprises waiting for you in the wording of the contract. You may also want to have an accountant review the financials of the deal to make sure everything checks out.

The lawyer, and possibly an accountant, should confirm the validity of the financial statements, specifically the identity, value and location of assets and liabilities.



5. Finalize the deal. Once you've been assured that the contract is right for both you and the seller, close the deal and take control of the business. With seller financing, you'll likely be able to convince the previous owner to help you out with getting started as the manager of your new business.

November 22, 2019

How to Easy Finance a Car

How to Easy Finance a Car.

You’ve found the car of your dreams. Now what do you do? How do you get the money for it? When an individual decides to buy a new or used car, he or she often needs to finance part of or all of the vehicle’s price. Because cars are such a big purchase, many buyers can't provide cash down for the vehicle, so they choose to finance a car over a period of time. There are two financing routes you can choose to go down — either getting a direct or a dealer loan. Before you choose to finance your next vehicle, you should do your homework to ensure that you get the best deal.


Method 1 Doing Your Homework.

Find out how much you can afford up front. If you know the ballpark value of what you want to pay for a vehicle, and how much you can afford to pay in cash, you will know about how much you will need to finance.

Maximize your down payment. A smart way to finance a car is to get as much of a down payment as you can. The more you can pay at the beginning of a deal, the less you will have to pay in interest. Even if you have to temporarily sell some assets to buy the car outright, that can be a better deal than financing a major portion of the cost.

Know your credit score. Much of the financing offer for a car is based on your credit score. Those with good credit will get better interest rates and cheaper car financing offers. This is important no matter who you finance your vehicle through.

Find out your credit score either through the dealer or online at websites like www.annualcreditreport.com, www.freecreditscore.com, www.creditkarma.com, or www.myfico.com.

If your credit score is higher than 680, you are considered a prime borrower and are eligible for the best interest rates available. The higher your score, the better bargaining position you will be in.

Compare loan rates online. There are many websites that compare deals at no cost. Additionally, it is a great way to get in contact with various companies.

Get the necessary materials together. Most lenders will want your name, social security number, date of birth, previous and current addresses, occupation, proof of income, and information on other outstanding debts.


Method 2 Getting a Direct Loan.

Contact certified lenders. Local and national banks, as well as credit unions can give you the terms and interest rates they are offering on used car loans over the phone and online. Shop around and find the best rate for you. You don't have to apply for financing through the dealer, though you certainly can. Oftentimes you can get a fairer deal when you figure out your financing first before you walk into the dealership. Apply for financing through a bank or an app that connects you to lenders.

Oftentimes, credit unions have the lowest interest rates, especially if you are a member. Check with your employer to see if they have any connections with local credit unions for you to take advantage of.

Many lenders offer 5 year loans on vehicles that are five years old at most. Older vehicles are often only eligible for 1 to 2 year loans. In many cases, the fear is that an older car will break down and then borrowers will default on their loans.

Additionally, lenders often impose mileage restrictions (often 100,000 miles) and will not finance salvage-titled vehicles. Typically, they will only fund loans for vehicles purchased through a franchised dealership, not through a private party or independent dealer. In these cases, you’ll have to get a deal loan. See below.

Solicit rate quotes from several lenders. The interest rates offered on used car loans are generally 4 to 6 percent higher than rates offered on new car loans. This is because lenders are fearful of financing used vehicles.

Be as specific as possible with a lender. Provide the lender with information about the vehicle you choose. You will need to provide the car's make, model and VIN number, among other things. The more detail you can give the lender, the more firm your rate quote will be.

Talk to lenders about any fees or extra charges. Some lenders offer low interest rates and make back the money by tacking on additional fees and charges to a loan deal. You'll want to know about these, as well as any other specific loan agreement aspects like prepayment penalties, which can trigger fees if you pay the loan off early.

Get prequalified. Fill out the paperwork ahead of time. Many banks or lenders will pre-qualify you for a car loan based on your credit score, the type of car you plan on purchasing, and your driving history.

Ask the lender with the best rate offer for a pre-qualification letter. It should outline the terms and conditions of the loan. Bring this letter with you to the dealership when shopping for the car. When you go to the dealer's lot, you can show them evidence pre-qualification from a reputable lender. This will expedite the car buying experience. It will also tell the car dealer you are ready to buy.

If you haven’t prequalified, you can get financing at the dealer's lot for a one-stop shopping experience, but having other lender alternatives helps you to get the best deal.


Method 3 Getting a Dealer Loan.

Get a loan through a new or used car dealer.

In general, interest rates offered by dealerships are higher than interest rates you can find directly from a lender. In many cases, smaller dealerships work with third party lenders to finance your vehicle. Because they play the middleman, they pass off the costs to you. Therefore, you may want to apply for a direct loan first and cut out the dealership middleman.

In some cases, financing lenders like local banks and credit unions won’t take a chance on used cars. For used cars, most dealers will finance used cars they sell, regardless of its age. Therefore, you may want to apply for a dealer loan if a direct lender denies you financing.

Bring leverage. Bring interest rates from direct loan lenders, even if you plan on financing with the dealer. Dealers are more likely to offer lower interest rates, if you show them that you know what other lenders are offering. Make sure you research competitive interest rates based on your credit score.

Offer a down payment in cash or trade equivalent to at least 10% of the vehicle's purchase price. The larger the down payment, the less money you will have to finance and the less interest you’ll have to pay on that loan.

Tips.

If you have a low credit score, consider asking someone with a high credit score to co-sign on a loan. A co-signor with a high credit score may help you to secure a lower-interest loan.

If your loan application gets rejected, don’t feel bad. Most likely, the lender doesn’t think you are able to pay back the loan on time. Reassess your budget and try again or try a different lender.

Warnings.

If you finance a used car, be prepared to pay for comprehensive insurance on the vehicle, which is more expensive than collision insurance commonly applied to used cars. Lenders require that you carry comprehensive insurance to protect their investment. Lenders often fear that if you damage the car, you will default on the loan, so they make you take out better insurance.

Be wary of dealers who advertise financing with "no credit check." Typically, these car lots sell high-mileage vehicles with inflated down payments and interest rates.

November 22, 2019

how to easy finance a car

How to Easy Finance a Car.

You’ve found the car of your dreams. Now what do you do? How do you get the money for it? When an individual decides to buy a new or used car, he or she often needs to finance part of or all of the vehicle’s price. Because cars are such a big purchase, many buyers can't provide cash down for the vehicle, so they choose to finance a car over a period of time. There are two financing routes you can choose to go down — either getting a direct or a dealer loan. Before you choose to finance your next vehicle, you should do your homework to ensure that you get the best deal.







Method 1 Doing Your Homework.



Find out how much you can afford up front. If you know the ballpark value of what you want to pay for a vehicle, and how much you can afford to pay in cash, you will know about how much you will need to finance.

Maximize your down payment. A smart way to finance a car is to get as much of a down payment as you can. The more you can pay at the beginning of a deal, the less you will have to pay in interest. Even if you have to temporarily sell some assets to buy the car outright, that can be a better deal than financing a major portion of the cost.



Know your credit score. Much of the financing offer for a car is based on your credit score. Those with good credit will get better interest rates and cheaper car financing offers. This is important no matter who you finance your vehicle through.

Find out your credit score either through the dealer or online at websites like www.annualcreditreport.com, www.freecreditscore.com, www.creditkarma.com, or www.myfico.com.

If your credit score is higher than 680, you are considered a prime borrower and are eligible for the best interest rates available. The higher your score, the better bargaining position you will be in.



Compare loan rates online. There are many websites that compare deals at no cost. Additionally, it is a great way to get in contact with various companies.



Get the necessary materials together. Most lenders will want your name, social security number, date of birth, previous and current addresses, occupation, proof of income, and information on other outstanding debts.









Method 2 Getting a Direct Loan.



Contact certified lenders. Local and national banks, as well as credit unions can give you the terms and interest rates they are offering on used car loans over the phone and online. Shop around and find the best rate for you. You don't have to apply for financing through the dealer, though you certainly can. Oftentimes you can get a fairer deal when you figure out your financing first before you walk into the dealership. Apply for financing through a bank or an app that connects you to lenders.

Oftentimes, credit unions have the lowest interest rates, especially if you are a member. Check with your employer to see if they have any connections with local credit unions for you to take advantage of.

Many lenders offer 5 year loans on vehicles that are five years old at most. Older vehicles are often only eligible for 1 to 2 year loans. In many cases, the fear is that an older car will break down and then borrowers will default on their loans.

Additionally, lenders often impose mileage restrictions (often 100,000 miles) and will not finance salvage-titled vehicles. Typically, they will only fund loans for vehicles purchased through a franchised dealership, not through a private party or independent dealer. In these cases, you’ll have to get a deal loan. See below.



Solicit rate quotes from several lenders. The interest rates offered on used car loans are generally 4 to 6 percent higher than rates offered on new car loans. This is because lenders are fearful of financing used vehicles.

Be as specific as possible with a lender. Provide the lender with information about the vehicle you choose. You will need to provide the car's make, model and VIN number, among other things. The more detail you can give the lender, the more firm your rate quote will be.

Talk to lenders about any fees or extra charges. Some lenders offer low interest rates and make back the money by tacking on additional fees and charges to a loan deal. You'll want to know about these, as well as any other specific loan agreement aspects like prepayment penalties, which can trigger fees if you pay the loan off early.



Get prequalified. Fill out the paperwork ahead of time. Many banks or lenders will pre-qualify you for a car loan based on your credit score, the type of car you plan on purchasing, and your driving history.



Ask the lender with the best rate offer for a pre-qualification letter. It should outline the terms and conditions of the loan. Bring this letter with you to the dealership when shopping for the car. When you go to the dealer's lot, you can show them evidence pre-qualification from a reputable lender. This will expedite the car buying experience. It will also tell the car dealer you are ready to buy.

If you haven’t prequalified, you can get financing at the dealer's lot for a one-stop shopping experience, but having other lender alternatives helps you to get the best deal.







Method 3 Getting a Dealer Loan.



Get a loan through a new or used car dealer.

In general, interest rates offered by dealerships are higher than interest rates you can find directly from a lender. In many cases, smaller dealerships work with third party lenders to finance your vehicle. Because they play the middleman, they pass off the costs to you. Therefore, you may want to apply for a direct loan first and cut out the dealership middleman.

In some cases, financing lenders like local banks and credit unions won’t take a chance on used cars. For used cars, most dealers will finance used cars they sell, regardless of its age. Therefore, you may want to apply for a dealer loan if a direct lender denies you financing.



Bring leverage. Bring interest rates from direct loan lenders, even if you plan on financing with the dealer. Dealers are more likely to offer lower interest rates, if you show them that you know what other lenders are offering. Make sure you research competitive interest rates based on your credit score.



Offer a down payment in cash or trade equivalent to at least 10% of the vehicle's purchase price. The larger the down payment, the less money you will have to finance and the less interest you’ll have to pay on that loan.





Tips.

If you have a low credit score, consider asking someone with a high credit score to co-sign on a loan. A co-signor with a high credit score may help you to secure a lower-interest loan.

If your loan application gets rejected, don’t feel bad. Most likely, the lender doesn’t think you are able to pay back the loan on time. Reassess your budget and try again or try a different lender.

Warnings.

If you finance a used car, be prepared to pay for comprehensive insurance on the vehicle, which is more expensive than collision insurance commonly applied to used cars. Lenders require that you carry comprehensive insurance to protect their investment. Lenders often fear that if you damage the car, you will default on the loan, so they make you take out better insurance.

Be wary of dealers who advertise financing with "no credit check." Typically, these car lots sell high-mileage vehicles with inflated down payments and interest rates.

November 17, 2019

how to organize your personal year end finances

How to Organize Your Personal Year End Finances.

You should never organize your year-end finances all at once. Rather, you should be engaged in a steady process of organizing and reorganizing your financial documents and information throughout the year. The process you use when organizing at the end of the year will be basically the same process you use monthly or quarterly to evaluate your investments, insurance, and budget. Use the year-end financial organizational process to get the opinion of a financial planner to help you streamline your finances, identify areas of waste, and take corrective actions to save money.

Method 1 Getting Organized.

1. Select your organizational categories. Knowing how to organize your financial documents can be tough. Thinking broadly about the sorts of documents you ought to organize for your year-end finances will help the process move along smoothly. Some documents might need to be copied and placed in multiple locations. For instance, education loan payments might need to be in a “loans” folder and also a “taxes” folder. Depending on what sort of financial documents you have, you may or may not need folders devoted to each of the main financial categories, which include.

Financial management (bank statements and loan records).

Insurance and annuity documents (policies and statements).

Estate documents (wills, trusts, and powers of attorney).

Investments (stocks and bond).

Income tax information (tax returns and documents attesting to charitable giving).

Employment and military records (discharge papers and employee benefits).

Home records (appraisals, renovation receipts).

Medical documents (summaries of recent appointments and any medical bills or payments made).

Legal documents (passports, personal records, and real estate settlements).

2. Use the same organizational system for all your documents. You probably receive and pay some bills through regular mail, and some through digital outlets or automatic account debiting. In this case, it's important to impose a parallel structure on your analog and digital documents alike.

For instance, if you organize your vertical files containing utility bills, credit card bills, and other significant financial documents in order that they were received, you should not organize your digital files into folders containing payments, bills, and receipts according to the company or institution that you made the payments to.

3. Know what to keep. Retain anything tax-related for at least three years. Keep anything that demonstrates a financial loss for seven years. For instance, you ought to keep a bill of sale on a property that sold for less than what you paid for it. You should also retain receipts for transactions paid by credit card until you get the credit card bill that reflects them. Finally, keep all monthly account statements until you get the year-end reconciliation statement.

Conversely, you should know what to get rid of.When new insurance policies arrive, get rid of the old ones.

Err on the side of caution when disposing of financial documents. If you're unsure if you need to keep something, retain it.

For more in-depth guidelines on what you should pitch and keep, consult IRS Publication 17.

4. Use an app or website to help you organize. There are a variety of handy apps to help get your year-end finances organized. For instance, you might check out feedthepig.com, manilla.com, or mint.com.Apps that might help include Mint, Personal Capital, and Spending Tracker.

Method 2 Looking Ahead.

1. Set a budget. Find ways to save next year. Use your year-end financial organization time to identify sources that are draining your money. For instance, if you're paying for cable TV but never watch it, think about cancelling it altogether.

Overall, you should be spending about 35% of your income on home expenses (rent, utilities, and groceries), 15% on transportation expenses (car insurance, train fare, and auto repairs), 25% on entertainment and other miscellaneous expenses, 15% on paying off debt, and putting the final 10% of your income toward savings.

If you live in an expensive area or have a low income, you might need to contribute more money to home expenses and less toward debt or miscellaneous expenditures.

2. Simplify payments and financial data for next year. When you're done organizing your current year's financial data and documentation, look for ways to streamline the process next year. For instance, you can cut back on time spent searching for wayward documents by using automatic bill payments. You might also use debiting by tying regular payments like utilities and credit card charges directly to your bank account.

Cut back on the number of credit cards you use regularly. This will reduce the number of credit card bills you need to juggle. Use the credit card with the lowest interest rate as your day-to-day credit card, and use the other cards once a month in order to prevent their disuse from hurting your credit score.

For the same reason, limit your bank accounts. You should have one checking account and one savings account. If you have multiple checking and savings accounts, close the one with the most fees and least generous terms of service.

Consolidate your retirement accounts and investments, too. If you have several IRAs, transfer all the money into a single IRA. Use one brokerage firm to simplify investments.

3. Keep your finances organized throughout the year. Instead of putting all your receipts, account statements, and other financial documents in a stack and watching them slowly pile up over the course of a year, put them in the appropriate file or folder as you receive them. This will prevent confusion when trying to organize everything at year's end.

Use a three-ring binder with pockets to organize your financial materials in an orderly way. Move non-current financial records to your filing cabinet.

If you feel more comfortable printing out digital documents, print them out and put them in your vertical file or binder.

If you don't print out digital receipts and other documents, ensure that you put them in the appropriate folder according to your predesignated system as you receive them. For instance, when you get your digital W-2, immediately download it and put it with your other tax documents.

If you need to copy certain digital documents to make them accessible in multiple locations, don't be afraid to do so.

Method 3 Evaluating Your Financial Health.

1. Consult a financial planner or accountant. With the help of a certified financial planner or accountant, you'll be able to get your year-end finances under control. They can help you find ways to save when you file taxes in the coming months, and can explain some of the nuances of the tax code. For instance, you might want to ask.

Should I accelerate or defer income?

What losses or gains should I take this year?

Should I convert my traditional IRA to a Roth IRA so that my earnings will grow tax-free?

Are there any charitable donations I should make?

2. Total your year-to-date spending. You should have a column with all the payments, investments, and savings you have at the end of the year. Compare these numbers to their counterparts at the beginning of the year to get an overall sense of your financial health.

Your investment value should be greater at the end of the year than it was at the beginning of the year.

Your savings should be higher at the end of the year than it was at the beginning of the year.

Your spending should be less than the value of your savings.

3. Review your credit reports. Each year, you are entitled to three free credit reports, one each from the three major credit agencies (Experian, Equifax, and TransUnion). These reports will let you know if your credit score is good or if it needs a boost.

The best way to check your credit reports is not to check all three at once, but rather to space them out regularly over time. Ideally, you'd check one every four months.

4. Check your portfolio. Read the latest reports from your stock broker or financial planner to determine the relative health of your investments. If your portfolio is not doing well, think about investing elsewhere. Talk to a certified financial planner or stockbroker for advice about how to develop a robust portfolio.

Method  4 Finding Ways to Save.

1. Analyze your insurance coverage. If you have home, life, auto, or other insurance, contact some agents representing insurers in your area to find out if you have the best coverage you can afford. If you've made improvements to your home over the past year, you may have increased the value of your home, and that value should be reflected in your insurance policy.

Likewise, if you've welcomed a new family member into your family over the past year, you must check with your insurance provider to guarantee that they're covered under your insurance.

2. Review your tax data. Working with a tax professional, find ways to reduce your tax burden before the year is out. Charitable giving is the easiest way to do this. Look for reputable charities whose work you believe in through GuideStar (http://www.guidestar.org), CharityWatch (https://www.charitywatch.org/home) and Charity Navigator (http://www.charitynavigator.org).

You can also make in-kind (material) donations to thrift stores like the Salvation Army in exchange for a tax discount.

You can also qualify for tax deductions based on work-related expenses like travel or items of clothing you bought specifically for work.

3. Update your information where necessary. If you've had a change in your marital status you may need to revise your tax withholding and/or employee health coverage. If you're unsure if you need to update this information, contact a financial planner for assistance.

4. Empty your flexible spending account. A flexible spending account for healthcare should be used to cover outstanding claims from your doctor, dentist, or other health provider. If you have a flexible spending account oriented toward other types of spending like dependent care, employ the account to cover the appropriate expenses before the year is out.

Only $500 of a flexible spending account can carry over into the following year, so it's important to take full advantage of the account before the year ends.

January 22, 2020

How to Organize Your Personal Year End Finances

How to Organize Your Personal Year End Finances.

You should never organize your year-end finances all at once. Rather, you should be engaged in a steady process of organizing and reorganizing your financial documents and information throughout the year. The process you use when organizing at the end of the year will be basically the same process you use monthly or quarterly to evaluate your investments, insurance, and budget. Use the year-end financial organizational process to get the opinion of a financial planner to help you streamline your finances, identify areas of waste, and take corrective actions to save money.

Method 1 Getting Organized.

1. Select your organizational categories. Knowing how to organize your financial documents can be tough. Thinking broadly about the sorts of documents you ought to organize for your year-end finances will help the process move along smoothly. Some documents might need to be copied and placed in multiple locations. For instance, education loan payments might need to be in a “loans” folder and also a “taxes” folder. Depending on what sort of financial documents you have, you may or may not need folders devoted to each of the main financial categories, which include.

Financial management (bank statements and loan records).

Insurance and annuity documents (policies and statements).

Estate documents (wills, trusts, and powers of attorney).

Investments (stocks and bond).

Income tax information (tax returns and documents attesting to charitable giving).

Employment and military records (discharge papers and employee benefits).

Home records (appraisals, renovation receipts).

Medical documents (summaries of recent appointments and any medical bills or payments made).

Legal documents (passports, personal records, and real estate settlements).

2. Use the same organizational system for all your documents. You probably receive and pay some bills through regular mail, and some through digital outlets or automatic account debiting. In this case, it's important to impose a parallel structure on your analog and digital documents alike.

For instance, if you organize your vertical files containing utility bills, credit card bills, and other significant financial documents in order that they were received, you should not organize your digital files into folders containing payments, bills, and receipts according to the company or institution that you made the payments to.

3. Know what to keep. Retain anything tax-related for at least three years. Keep anything that demonstrates a financial loss for seven years. For instance, you ought to keep a bill of sale on a property that sold for less than what you paid for it. You should also retain receipts for transactions paid by credit card until you get the credit card bill that reflects them. Finally, keep all monthly account statements until you get the year-end reconciliation statement.

Conversely, you should know what to get rid of.When new insurance policies arrive, get rid of the old ones.

Err on the side of caution when disposing of financial documents. If you're unsure if you need to keep something, retain it.

For more in-depth guidelines on what you should pitch and keep, consult IRS Publication 17.

4. Use an app or website to help you organize. There are a variety of handy apps to help get your year-end finances organized. For instance, you might check out feedthepig.com, manilla.com, or mint.com.Apps that might help include Mint, Personal Capital, and Spending Tracker.

Method 2 Looking Ahead.

1. Set a budget. Find ways to save next year. Use your year-end financial organization time to identify sources that are draining your money. For instance, if you're paying for cable TV but never watch it, think about cancelling it altogether.

Overall, you should be spending about 35% of your income on home expenses (rent, utilities, and groceries), 15% on transportation expenses (car insurance, train fare, and auto repairs), 25% on entertainment and other miscellaneous expenses, 15% on paying off debt, and putting the final 10% of your income toward savings.

If you live in an expensive area or have a low income, you might need to contribute more money to home expenses and less toward debt or miscellaneous expenditures.

2. Simplify payments and financial data for next year. When you're done organizing your current year's financial data and documentation, look for ways to streamline the process next year. For instance, you can cut back on time spent searching for wayward documents by using automatic bill payments. You might also use debiting by tying regular payments like utilities and credit card charges directly to your bank account.

Cut back on the number of credit cards you use regularly. This will reduce the number of credit card bills you need to juggle. Use the credit card with the lowest interest rate as your day-to-day credit card, and use the other cards once a month in order to prevent their disuse from hurting your credit score.

For the same reason, limit your bank accounts. You should have one checking account and one savings account. If you have multiple checking and savings accounts, close the one with the most fees and least generous terms of service.

Consolidate your retirement accounts and investments, too. If you have several IRAs, transfer all the money into a single IRA. Use one brokerage firm to simplify investments.

3. Keep your finances organized throughout the year. Instead of putting all your receipts, account statements, and other financial documents in a stack and watching them slowly pile up over the course of a year, put them in the appropriate file or folder as you receive them. This will prevent confusion when trying to organize everything at year's end.

Use a three-ring binder with pockets to organize your financial materials in an orderly way. Move non-current financial records to your filing cabinet.

If you feel more comfortable printing out digital documents, print them out and put them in your vertical file or binder.

If you don't print out digital receipts and other documents, ensure that you put them in the appropriate folder according to your predesignated system as you receive them. For instance, when you get your digital W-2, immediately download it and put it with your other tax documents.

If you need to copy certain digital documents to make them accessible in multiple locations, don't be afraid to do so.

Method 3 Evaluating Your Financial Health.

1. Consult a financial planner or accountant. With the help of a certified financial planner or accountant, you'll be able to get your year-end finances under control. They can help you find ways to save when you file taxes in the coming months, and can explain some of the nuances of the tax code. For instance, you might want to ask.

Should I accelerate or defer income?

What losses or gains should I take this year?

Should I convert my traditional IRA to a Roth IRA so that my earnings will grow tax-free?

Are there any charitable donations I should make?

2. Total your year-to-date spending. You should have a column with all the payments, investments, and savings you have at the end of the year. Compare these numbers to their counterparts at the beginning of the year to get an overall sense of your financial health.

Your investment value should be greater at the end of the year than it was at the beginning of the year.

Your savings should be higher at the end of the year than it was at the beginning of the year.

Your spending should be less than the value of your savings.

3. Review your credit reports. Each year, you are entitled to three free credit reports, one each from the three major credit agencies (Experian, Equifax, and TransUnion). These reports will let you know if your credit score is good or if it needs a boost.

The best way to check your credit reports is not to check all three at once, but rather to space them out regularly over time. Ideally, you'd check one every four months.

4. Check your portfolio. Read the latest reports from your stock broker or financial planner to determine the relative health of your investments. If your portfolio is not doing well, think about investing elsewhere. Talk to a certified financial planner or stockbroker for advice about how to develop a robust portfolio.

Method  4 Finding Ways to Save.

1. Analyze your insurance coverage. If you have home, life, auto, or other insurance, contact some agents representing insurers in your area to find out if you have the best coverage you can afford. If you've made improvements to your home over the past year, you may have increased the value of your home, and that value should be reflected in your insurance policy.

Likewise, if you've welcomed a new family member into your family over the past year, you must check with your insurance provider to guarantee that they're covered under your insurance.

2. Review your tax data. Working with a tax professional, find ways to reduce your tax burden before the year is out. Charitable giving is the easiest way to do this. Look for reputable charities whose work you believe in through GuideStar (http://www.guidestar.org), CharityWatch (https://www.charitywatch.org/home) and Charity Navigator (http://www.charitynavigator.org).

You can also make in-kind (material) donations to thrift stores like the Salvation Army in exchange for a tax discount.

You can also qualify for tax deductions based on work-related expenses like travel or items of clothing you bought specifically for work.

3. Update your information where necessary. If you've had a change in your marital status you may need to revise your tax withholding and/or employee health coverage. If you're unsure if you need to update this information, contact a financial planner for assistance.

4. Empty your flexible spending account. A flexible spending account for healthcare should be used to cover outstanding claims from your doctor, dentist, or other health provider. If you have a flexible spending account oriented toward other types of spending like dependent care, employ the account to cover the appropriate expenses before the year is out.

Only $500 of a flexible spending account can carry over into the following year, so it's important to take full advantage of the account before the year ends.

January 22, 2020