Once the holiday season comes and goes, you may feel empty inside for a few days. After all, you put a lot of time into preparing for a week (or more) of fun.
For many, spending during the holiday season can get out of control. Even if you try to keep yourself in check, you may find that you have gone too far. Preventing this scenario will keep you from desperate situations, including obtaining financing, or worse – considering loan sharks to juggle your finances.
Once the holiday season is over and January is here, it is time to review your balance sheet. When doing so, it is important to focus on the following details:
Credit card debt. Did you spend any money on your credit card during the holidays? If so, it is your hopes that you can pay off the balance, in full, the next time a statement arrives. This allows you to put your holiday spending in the past, while also avoiding an interest charge.
Focus on your budget. Let’s face it: you may have blown past your budget in December. From gifts to food to travel, you had a lot on your plate. Now, however, it is time to get back on track. Review your budget, make any necessary changes, and be sure that you are 100 percent comfortable with every last category.
Have a plan for saving more. A budget is more than something that shows you how much you are spending. It is also something that helps you save more. What changes can you make to save more money in the new year?
The way you review your finances after the holiday season is dependent on many personal factors. Even so, most people find it helpful to focus on the three details above.
With the right approach, you will feel better about your financial situation as the calendar turns and you are faced with another 12 months.
There are people who love to negotiate, as well as those who would rather avoid this at all costs.
Even if you aren’t the type who looks forward to this, there are a few times when opening your mouth can save you quite a bit of money – and a loan or debt.
Here are three things you absolutely need to negotiate:
Cell phone bill. Negotiating your phone bill is easier than ever before, due in large part to growing competition throughout the industry.
As the end of your contract closes in, reach out to your cell phone provider to discuss your options. Even if you only save a few dollars per month, this has a way of adding up over the course of a year.
Furniture. When was the last time you visited a furniture store? As you probably recall, the prices often seem much higher than what they should be.
You should never hesitate to ask for a discount when shopping for furniture, which includes mattresses.
Some stores are more willing than others to negotiate, but you should always do your best to save. Sometimes all it takes is the suggestion of a lower price in order to keep some money in your pocket.
Medical bill. There is nothing worse than receiving a bill from a medical facility or doctor that is higher than expected.
If it’s a small bill, such as $100 or less, it’s probably best to make the payment and move on. However, in the event of a larger bill, don’t wait to contact the appropriate party to discuss your options. For example, you may qualify for a discount if you pay the amount in full.
There are those who negotiate everything they want to purchase, as well as those who typically shy away from this. Negotiating price helps to keep things fair when you know that you can get a better deal elsewhere, or you are being treated unfairly. This ultimately will help your financial situation and help you to avoid another loan.
Regardless of where you fit in, the three situations above call for a negotiation. If you’re lucky, you’ll find yourself saving money soon enough.
There are a lot of new things happening in today’s crazy economic climate and it can be hard to keep track of everything. Businesses are being forced to close temporarily. The government is sending out assistance checks. The Federal Reserve has cut interest rates to zero.
Many of these measures are taken to protect you, the consumer. However, if you’re not careful then one of these measures (the Federal Reserve lowering cutting interest rates) could work against you. This is because low-interest rates encourage predatory lenders. What exactly is a predatory lender? Let’s take a look and explore a few ways that you can avoid them.
What’s an anglerfish?
An anglerfish is a deepwater fish known for their freaky appearance and (more famously) for luring their prey in with a bulb at the end of their dorsal fin that lights up.
Anglerfish, since they live in the deep ocean where it’s incredibly dark, lure unsuspecting fish in with their bright dorsal fin. Fish swim up curiously and then when they get close enough, they’re gobbled up by the anglerfish. Are those fish dumb for swimming up to the light? Not really! They couldn’t see the anglerfish and were just exploring around. They didn’t know any better and didn’t realize their mistake until it was too late.
So what does this have to do with you and predatory lenders?
It’s relevant to you because in the world of finance there are people and institutions that act like anglerfish. Some (not all!) people working in the personal world are known for their predatory tactics. They deliberately try and take advantage of trusting people who don’t know any better. Another name for this type of person is a loan shark.
What is a loan shark
A loan shark is an illegal lender that targets low income or desperate families. They appear friendly to win your trust but then loan you money at rates that are significantly higher than other lenders. A loan shark is a common name for predatory lenders, however, we prefer the term anglerfish for two reasons:
1. Sharks are the biggest, baddest predators in the ocean. Everyone knows what a shark is and know to steer clear when one comes by.
2. Anglerfish are sneaky. They lure in prey with something bright and shiny and take advantage of curious fish.
When someone goes to a loan shark for money, the loan shark happily provides it at an interest rate that is drastically higher than what other lenders charge. That person doesn’t realize that the rate is incredibly high. They just simply don’t know any better and happily sign on the dotted line. The anglerfish has snatched another victim.
Just like our example earlier, are these people dumb for getting taken advantage of? Not really! They’re just exploring around in the dark and don’t know any better. They trust the lender to have their best interests at heart.
When your mechanic says that you need a new carburetor, you probably listen. When your dentist says you need a crown put in, you listen. Why would you not listen to a financier when they tell you what you need to pay in interest?
How loan sharks make their money
Understanding how loan sharks make their money and what their incentives are can help you avoid them. This is the general process of how a loan shark makes their money:
1. Find nice, unsuspecting people in desperate need of money.
2. Appear friendly to win their trust and offer (what appears to be) a good deal.
3. Trap these people into an agreement where they’ll pay a ton of money to the loan shark over the course of years.
It’s important to note than the process of lending/borrowing money by itself doesn’t constitute a loan shark. For example, if you go to an institution like Bank of America and take out a mortgage, that’s very different than dealing with a loan shark.
The most important factor to look at when accepting a loan of any kind is to look at the interest rate that you’re being offered. The interest rate is just the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. For example, if you borrow $10,000 for 1 year at 4% interest, you’ll have to pay back an additional $400 in addition to the $10,000 you borrowed. That is the price you pay the lender in exchange for the money.
How to recognize a loan shark
Having a general idea of what a good and bad interest rate is for certain types of loans can be the easiest way to spot a red flag. Here is a general guide to understanding interest rates.
➢ Under 5% – Any interest rate that is under 5% is fairly common and a pretty decent rate. If the offer includes a rate that has an interest rate under 5% then you’re probably not dealing with a loan shark.
➢ 5%-10% – This is a little bit higher than normal but it still doesn’t mean you’re dealing with a loan shark. An interest rate between 5%-10% could just be higher due to the nature of the loan you’re asking for.
➢ 10%+ – This is where you should definitely start to be suspicious. The only interest rates that are consistently over 10% are credit card rates (usually around 20%). Any other rate that’s this high should alert a siren in your mind.
While considering this, it’s also important to look at the terms of the entire deal. Most times, loan sharks will lure you in with offers of quick money upfront and low initial payments but then jack the interest rate up incredibly high after a few months have passed.
This is why it’s important to really do your research when accepting a loan. It may be an enticing offer and get you money that you need but that doesn’t mean it’s a good deal.
Why this is a dangerous time for loan sharks
The current economic climate right now is an especially ripe feeding ground for loan sharks (or anglerfish). There are three reasons why this is:
1. Low interest rates – This means that there is a lot of incentive for people to borrow money because it’s much cheaper than normal. It can also mean higher profits for a loan shark and will make them more aggressive.
2. Unemployment – millions of people are filing for unemployment as they lose their jobs because of the coronavirus. If the situation continues, these people might struggle to make ends meet and have to borrow money to pay their bills.
3. Desperation – When people can’t work and pay their bills or feed their families, they start to get desperate. If they can’t turn anywhere to earn money, they’ll probably turn to questionable lenders in search of cash.
All three of these factors are incentives for loan sharks to take advantage of people. The most unfortunate part is that getting locked into a predatory loan can keep you paying extra money for years after the recession and hard times have passed. Although things may seem dire at the moment, a hasty decision to say yes to a loan shark can leave you financially crippled for years to come.
To ensure that doesn’t happen to you, here are a few ways you can avoid predatory lenders, loan sharks, and anglerfish.
Tips to avoid loan sharks
To ensure that you don’t get taken advantage of, here are a few things to always look out for when speaking with a lender.
➢ Be wary of a stranger trying to do you a favor – Often times, loan sharks will be overly friendly and compensating to try and lure you into their deal. If a random stranger suddenly approaches you acting like your best friend and offering an amazing deal, there is probably something they’re not telling you.
➢ Always do research on the interest rate being offered – We mentioned this already but always do a little research on the rate you’re offered to make sure it’s a fair market rate. By “market rate”, we just mean a rate that is accepted as fair by the overall market. You can do research by asking other lenders for the same deal and seeing what they offer you.
Think of it like shopping around a few used car dealerships trying to find the best price. If the standard price for a certain model is $5,000 but you suddenly find one dealer who will sell you that model for $500, it’s cause for suspicion.
➢ If it sounds too good to be true, it probably is – This saying can be applied to lots of things but it is especially true here. If you’re desperate for cash and get approached by a lender who an amazing deal, it’s probably too good to be true.
➢ Be aware when people approach you with a deal – There is another saying that goes “everyone is selling something”. If someone approaches you with an amazing deal for you you should ask yourself what they’re selling you and how they will profit from the deal. If they had nothing to gain then what would inspire a total stranger to approach you and offer you a deal?
➢ Recognize high-pressure sales tactics –
○ Forcing you to sign something on the spot.
○ Threatening to rescind an offer if you leave.
○ Saying a deal is only available that day/week.
○ Discouraging you from talking to other businesses.
These are all signs of high-pressure sales tactics. The goal is to get you into the room and sign you on the spot. If you start to feel the pressure to make a commitment on the spot then that’s a sign that you should probably leave. If you start to leave and they panic and start talking faster then you know you’ve made the right decision.
This one can be hard to overcome because salespeople are naturally good talkers. They can address all your concerns and make you feel as though you’re stupid for not signing. However, a truly professional salesperson won’t pressure you to sign on the spot. If they’re really working in your best interests and following all the rules then they should have no problem with you leaving and doing your due diligence.
These are just a few ways that you can avoid predatory lenders. We hope that you’ve found this article valuable and it helps you in the future. Remember, as long as you understand how anglerfish catch their prey you’ll be smart enough to stay away from any bobbing lights in the distance! If you’re interested in reading more, please subscribe below to get alerted of new articles as we write them. You can also explore some of our other articles at LoanSharks.com.
A home equity line of credit (HELOC) is a great way to get your hands on money in a hurry. As long as you have equity in your home, there is not much fear of being denied.
Despite the fact that getting your hands on this money may be an easy process, it doesn’t mean you should actually move forward. There are five reasons why avoiding a home equity line of credit may be in your best interest:
Unstable income. If you don’t know where your next paycheck is coming from, maybe because you work as a contractor, a HELOC is not the best idea. In the event you are unable to keep up with the payment, the lender could begin the foreclosure process.
You don’t want to (or can’t afford) the fees. Depending on the lender, it can be expensive to obtain a HELOC. There are fees and upfront costs to think about.
You don’t need that much money. A HELOC is often a good idea if you need a large sum of money all at once, such as to complete a home renovation. If you only require a small amount of money, you should probably turn to your emergency fund or a low interest credit card.
You are scared of an interest rate increase. Unless you have a fixed rate line of credit, an interest rate increase could come into play at some point. This is something to consider before you sign on the dotted line. Make sure you are comfortable with the current rate, as well as the “cap” set by the lender.
You don’t really need the money. The idea of a HELOC may excite you. After all, who doesn’t want access to extra money? But remember this: the money is not free. You are borrowing against the equity in your home, while also paying interest. If you don’t need the money right now, forget about a HELOC for the time being.
These are some of the many reasons to avoid a home equity line of credit. Now, here is the next big question: what are some of the top reasons to apply for a HELOC?
