What to watch out for when working with Online Lenders

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Online lending is part of the developing technology of all industries. Billions of loans are funded every year through the internet. But if you are looking for a loan online, there are certain features of it to focus on so you don’t fall into a trap.

What to watch out for and how to deal with it:

1.    Initial Low Interest Rate

Interest is the primary cost of the loan. And for lenders, the primary business model. You should accept that interest rates for online lenders will be higher than traditional banks, since the trade-off is that approval guidelines are much easier with online lenders. To not scare away their potential borrowers, many online lenders will offer a low or zero percent interest rate in the beginning as a promotion. But similar to credit cards, many times the interest rates after the promotion will be higher than the market rate to make up for the lost revenue for the lender.

To avoid this, calculate the cost of the loan once you make the last payment, and match that to your financial limits. Compare that to the final cost of the loan to lenders who don’t offer a promotion. In the end it might be higher or lower but it’s worth the investigation. Never take a lender’s bait, especially if a collateral is at stake.

2.    No Credit Check Advertising

When you have good credit, lenders will beg you to accept their money. In the alternative lending world, much of it online, if your loan can be approved easily without reviewing your history and credit, then the lender is charging you higher fees and rates for the risk they take. Understand that whenever you are being offered a loan with no credit check, that the cost of the loan will be much higher than standard process verification loans.

3. Upfront Application Fees

Never EVER borrow from lenders that require you an advance payment prior to your loan application. This could be marketed by them as an “Application Fee”. Although some lenders ask for origination fees at the time you get your money, any payments you make before getting approval could be a scam.

4. Origination/Processing Fees

Borrowing money doesn’t have to cost you a huge amount upfront. When applying for a loan, always check the interest rate AND the processing/origination fees before proceeding with the application.

Also, understand that both interest rates and processing/origination fees are negotiable. And if a lender has approved you, there is a good chance other lenders will approve you and reduce their rates to get your business. Discuss with each loan rep their fees and the ability to reduce them to close on the loan.

5.  Online Debt Consolidation 

There are online lenders that promote consolidation loans if you have bad credit or owe many lenders money. The convenience is that you are paying one lender instead of many, but the cost is essentially the same (or could be higher after factoring in the origination fees). It’s wise to only do debt consolidation once matching total cost of the new loan to your current loans, comparing the interest rates, origination fees, and terms.

6. Speak To Different Lenders WITHOUT Having Them Pull Your Credit

Choosing the right loan to suit your needs can be difficult. This is why it is important to speak in detail to a variety of online lenders to understand not only what they offer, but how their loan products differ than other lenders. The more details you know, the better understanding you will have.

But it is equally important to not have each lender pull your credit. Every time a new lender pulls your credit, it affects your credit score negatively.

To best avoid this, present to each lender a recent credit report you pulled on your own (on your own does not affect your score). After which, discuss the pre-approval rates based on that credit report. Once picking the best lender based on your pre-approval, allow them to then pull your credit to get a full approval. It is important not to do anything that will affect your credit score between the time you show lenders your report and the time your preferred lender pulls your credit.

How the undoing of Dodd-Frank will affect getting a mortgage if you don’t have good credit

President Trump’s executive order that repeals the 2010 Dodd-Frank Act is in the works. The idea is that, without the Act’s restrictions, financial companies will be given the opportunity to grow. Yet, the act was created to protect low to middle-class, retirees and market investors. If you are in the process of looking for a mortgage, here is how the Acts repeal could affect you both positively and negatively.

Unstable Financial Protection

The 2008 recession was largely a result of unregulated financial markets. The Dodd-Frank Act is responsible for the creation of the Consumer Financial Protection Bureau (CFPB). The CFPB is a strict enforcer of laws regarding the consumer’s protection that applies to mortgage lenders, credit card companies, banks and other financial firms.

This could affect you in both ways. With the order of repealing the act, consumers and investors would be more vulnerable to being led to make bad financial decisions. At the same time, if you have bad credit or not a strong candidate for loans, you might be able to get approved now with the more open lending guidelines.

Easier Mortgage application

Another thing that the Dodd-Frank Act gave birth to is the Volcker Rule: restricting banks to lend risky loans that may result in huge losses of the bank’s money. With the undoing of the act, banks can now lend to riskier borrowers at higher interest rates. This will allow creative mortgage products for new homeowners, real estate investors, and low credit homeowners.

Restoration of the Fed’s Authority

Repealing the Act will also restore the authority of Fed’s ability to provide funds to large financial companies that are about to go bankrupt. That assurance gives banks and lending institutions the ability to lend more freely, knowing their business is protected by the government.

It seems that if you have bad credit or have not been able to qualify for a loan, the repeal of Dodd-Frank is to your benefit. In reality, the nullification of the Dodd-Frank Act can’t be done by just a simple sign of a pen. There are complicated congressional steps that could take years to undo. Still, if you are considering taking a loan, or perhaps refinance in the future a current loan, you must acknowledge the pros and cons of the possible new U.S. financial markets to come.

What are the best mortgages available for real estate landlords


When your planning to get involved in the landlord business, there will always be a big possibility that you’ll have to borrow some money to help facilitate your venture.  

However, real estate financing isn’t as simple as just getting a mortgage. Real estate landlords must analyze and consider the types of mortgages based on their business model. This will not only help you figure out what perfectly suits your needs but also maximize the cash flow from your investment. 

Here are, some types of mortgages that you must consider as a landlord:

  •    Balloon Mortgage

This type of Mortgage usually has a due date much sooner than the typical 30 year mortgage. Typically, the entire balance is due  in 5-7 years, even though the monthly payments are still amortized over 30 years. Because balloon mortgage lenders like knowing that their loan will be paid off much sooner than standard mortgages, the interest on balloon loans are lower. If you are a real estate investor planning to hold the property to get rent but still sell in 5 to 7 years, this type of mortgage makes sense.

  •    Interest Only

Interest only mortgage allows you to pay only the interest on the loan, allowing you to have lower payments since the principle portion is not there. It is important to note that this type of mortgage is only worth it if your purchasing a property with good indications that it will appreciate. The reason is because since the principle doesn’t get reduced, there is the risk of being underwater if the property depreciates over time.

  •     Hybrid mortgage

Also known as variable rate mortgage that is fixed for a certain amount of time, usually 5, 7 or 10 years. After the fixed block, the rates would only change once a year. Variable rate mortgages have lower rate than a standard fixed rate. This hybrid of the two allows a landlord to still have the long term predictability of fixed rates with the lower interest rates of an adjustable mortgage. The federal prime index rate will determine the changes of the variable rate.  

Be reminded that these types of mortgages may not indicate your success or failure as a landlord. Many times success comes from managing the properties correctly. But having a mortgage designed for landlords that allows you to have lower payments than standard mortgages gives cushion if any issues arise with rent collection or large maintenance expenses. Speaking to a variety of lenders will allow you to learn the pros and cons of each loan product, that way you can best understand your options and be confident with your decision.

When to use merchant cash advance instead of a business loan?

Merchant cash advance (MCA) gives an up-front loan to your business by taking a percentage of your future credit or debit card sales. Whereas a business loan works like a mortgage, you will get a sum, and you need to pay back in monthly installments. 

When is it better to use merchant cash advance than a regular business loan? when you:

Have low or poor credit history

If you have no credit card history or low fico score, you might not qualify for a business loan.  Business loans have stricter eligibility requirements than merchant cash advance. Merchant cash advances don’t focus on the borrowers credit history, just the  credit card revenues of the business, so a good credit is not necessary. 

Don’t want debt on your credit

The good thing about merchant cash advance is that it doesn’t show on your credit report. If you don’t want to have a lot of debt on your balance sheet, then a merchant cash advance is ideal. A business loan does show up on your credit, limiting you from getting loans/credit cards in the future.

Have revenue mostly through credit card

If your revenue model is mostly through credit card transactions, then the rates and costs of MCA will be more negotiable since their primary qualification is future credit card sales. 

Have a business that is online based 

Online businesses normally don’t have high value assets and traditional business lenders typically require assets to qualify for a loan. Merchant cash advance lenders specialize in loaning to online businesses partly because of this. 

Only need a small loan amount 

Traditional business lenders like to lend larger loan amounts so the money earned from interest is high enough to cover their expenses. Also the approval time takes longer as there are verification checks with a business loan.

Merchant cash advances fund in less time since processing is simpler and minimum amounts is typically lower than business loans. 

It is important to note that merchant cash advance fees are much higher than business loans, and this is because the risk for the lender. If you are able to get a business loan but like the flexibility and convenience of an MCA, the higher rates might justify the new cash infusion, especially if you are able to speak to several merchant cash advance  lenders and negotiate the lowest rate possible.

Difference between soft money and hard money real estate lenders

In the real estate lending world, soft money and hard money loans are funded by similar  alternative mortgage lenders. Both hard money and soft are given to borrowers or real estate investors who would not qualify or do not want to go through the process of getting a conventional bank mortgage. However they differ based on the criteria.

To get a better picture of the differences between soft money and hard money real estate loans, understand:

The Basics

Soft money lenders essentially provide loans to borrowers who would otherwise go for a hard money loan but because the borrowers may have strong income and good credit worthiness, they are able to get better terms on the loan. Essentially making the hard money turn to soft money.

Examples of better terms are more reasonable interest rates and repayment schedules, and flexibility on grace periods.

Hard money loans allows borrowers with low credit scores and no income to get funded because hard money lenders focus on the worth of the real estate and provide money on a percentage of the value of that property. 

The Costs

Though it is much easier to get approved for hard money loans, borrowers need to pay much higher fees. The rate of interest is also quite high compared to soft money loans (Sometimes more than 10-12% higher than conventional banks loans).  The origination fees range from 1-3 points. The Loan to value (LTV) typically will be a maximum of up to 75% of the appraised value of the property. 

Soft money loans tend to be no more than 3-6% percent of conventional bank loans. Points may be only 1 or not at all, and the LTV can go up to 85% depending on the circumstances.

The Terms

Since there is less risk for a lender with a soft money loan, the terms are longer than hard money. Typical hard money loan terms are 6 months to a maximum of three years, but soft money lenders will go longer.  

Which one is good for who?

Hard money loans are better for real estate investors who may have lots of debt and need fast access to cash for a new purchase or renovation. There are very little verification and paperwork involved with a hard money loan compared to other mortgage loans, so funding can be in as little as a few days. Hard money is best for borrowers who are only planning to keep the property for a short time. The higher expense of hard money loans is worth it if the borrower is planning to make a large profit on the property by flipping it. 

Soft money loans are better for either real estate investors or homeowners who cannot qualify for a conventional mortgage, but still have good enough credit to not be a risk for alternative lenders. Also, soft money loans are better for those who are wanting to keep the property for a longer period of time than a flip. Soft money takes a little longer to fund than hard money as verification of the borrower is more detailed. 

Qualifying for a either soft money or hard money can vary since different lenders have different criteria. Are you looking for a quick funding and able to handle higher costs? Do you have good enough credit and can wait a little bit longer to qualify for a soft money?

Speaking to various lenders and crunching the numbers with each one to see what best works for your scenario is the best way to go about it.

How to pay off your loan faster


Paying off a loan faster not only helps save you money on interest, but also boosts your credit if you ever need a loan in the future. There are many ways to pay off your loan faster, here are some suggestions:

•    Half-monthly payments instead of monthly

Paying twice in a month instead of once will pay off the loan much faster. If the lender allows extra-payments and no prepayment penalty, bi-weekly payments will payoff is highly recommended. Interest expense will be less, and the life of your loan payment will reduce significantly.

•    Paying in round figures

Again, if your lender is ok for extra payments and if your wallet can afford it, rounding up your payments will reduce the duration of the loan. Suppose your actual payment is 260 dollars a month, and you decide to round it up to 300. So you pay  this extra 40 dollars every month, which means 480 dollars extra annually. This means at the end of the year, you have almost covered 14 installments in your actual 12 installments.

•    Get an extra income 

It can be a good idea to get a side gig or extra income to give yourself more money to pay off the loan. Any type of new income, no matter how small, will allow you to make substantial reduction in the principle amount of your loan since its money you wouldn’t otherwise have.

•    Go paperless, save the earth as well

Auto-payments and digital transaction statements seem to be a meager step to help reduce your loan amount. But in reality, the automatic payments allow you to not stress every time your manually making the loan payments. With less stress, you are able to think more clearly on how to pay off the loan faster. Plus you are saving the eco-system as well.

•     Refinance with a better loan

Taking a new loan with betters terms will allow you to pay off your debts faster. This is because the new loan will pay off the old loan, and with the new loan rates being lower, you are able to use any extra money saved to pay off the new loan quicker.

Criteria for the new loan, such as your current credit score, will vary from lender to lender. It is important to speak to a variety of lenders so you can compare each of their loan rates to your current loan rate so you can know if refinancing makes sense.

Pros and Cons of personal loans when you don’t have a stable income

It is a misconception that loans can be approved only when you have consistent stable income. Financial trouble can hit anybody, and that is the time when you need financial support the most. There are different ways to get a loan if your going when you don’t have income However, each way has its pros and cons:

•    Loans via Car title

If your car has no other loan on it, it can be used as collateral for a personal loan.

PROS: No income or credit required and funding is quick, usually within a day.

CONS: The market value of the vehicle has to be higher than the amount of the loan you need. Also, certain lenders might inspect the car before funding so it is important to have your car working properly with necessary documents. Interest rates are higher than standard installment loans.

•    Pawnbrokers

Similar to title loans in that you need a collateral, a pawnbroker will take any item that has value and lend against it.

PROS:  If you don’t have a car, this is another option to get a collateral loan if your unemployed. Loans are made on site, giving you access to quick funding.

CONS: Untill you pay off the loan, that item is kept by the pawnbroker, and if you fail to repay, the pawnbroker will simply sell off the item.

•   Loan against life insurance

Taking loans against your life insurance is also a good option in desperate times.

PROS: No credit check and no income needed. Since it’s against an asset, the loan amount is not taxed. Loans on life insurance have a more lenient repayment schedule than other loans.

CONS: If you were to die before paying back the loan, the balance plus interest is taken out of the death benefit given to the beneficiaries. Also, if the loan is unpaid and accrues from the interest, your policy is at risk of termination.

•    A financially stable co-signer 

A family member/friend who has financial stability and credit history and is willing to be on the loan with you.

PROS: Allows access to loans that that offer much lower fees and interest rates.

CONS: Puts your co-signer at risk, and if the loan gets unpaid, not only will the co-signer be impacted negatively, so will the relationship you have with that co-signer.

•    Cash advances

If you own a credit card, you can draw from the issuing bank an advance on the line.

PROS: Does not require any approval process except that you have been on time with your credit card dues. No physical collateral at risk in case of default.

CONS: Requires you to have a credit card with a line of credit large enough for the amount you need. Interest rates and fees are steep.

•    No income verification personal loan

Alternative lenders will offer loans if your unemployed without a lot of documentation or proof of regular income.

PROS:  Approval is given instantly once the minimal information is processed. Funding is quick.

CONS: Would need to have a standard checking/savings account. Fees are dependent on your credit score and even though you can still get a loan with bad credit and no income, the rates will be higher.

Since these alternative lenders are typically online and/or smaller companies, approval guidelines can be flexible depending on your situation. Application is free so while considering the other types of loans, speaking to these lenders will allow you to weigh the options available.