I’m sure you already heard that from a friend or from a family member: “the bank declined my loan, they don’t know what their doing!”. Banks and other financial institutions are often seen as the bad guy who doesn’t understand. This situation often occurs because most people don’t know how loans workout. I have a Norwegian friend who works in a bank and told me how it works. Here are they look at Norwegian consumer loan application:
The first question is related to the person who applies for a loan. The banker wants to know where you work, for how long, if you are married, have children, etc. This helps him drafting a portrait of the kind of person you are. The point is to know if you are in a situation that you will need more credit later on or if you are relatively stable. Loan officers love when someone is stable, it makes credit behaviours predictable.
Then, the banker will look at your balance sheet. If you have been working for the past 20 years, he will expect to see some assets. If you ask for more credit and you show a negative balance sheet (more liabilities than assets), your chances of getting the loan are not very good. Usually, cars, furnitures and jewels are not accepted as asset in the eye of a financial institution. They will most likely look at your bank account, investments and real estate properties.
The financial institution will also pull out a credit bureau to see which kind of payer you are. A bad credit is a direct breach of confidence in your relation with the bank.
Finally, the banker wants to know who you will pay off your debt. This is often a misconception from the population who has assets, but little revenue. If your house is free of debt but you don’t work anymore, it will be harder to convince the lending firm to give you a new mortgage. In the end, the banker doesn’t want to take back your house. He is not in the housing business, he is in the lending business. He wants to make sure you have an income stream that is sufficient to pay for your living and reimburse your debts.
My friend finished his explanation with a great tip to put all your chances on your side to get approved for you loan: tell the truth! A good explanation of the worst situation is better than a good lie. Most bankers will read you and find out about your lie instantly. Then again, lying to a financial institution will definitely not get your loan approved!Comments: 0 Read More
Small business owners have several options when it comes to raising working capital – they can get a traditional small business loan with fixed payments, raise money from investors by selling shares of equity in the company, run up balances on credit cards, or get a revolving line of credit. A revolving line of credit is an important tool for small business finance, but this type of working capital is often misunderstood. There are several reasons why a revolving line of credit should be a key part of your financial management strategy.
A Revolving Line of Credit Offers Flexibility
Revolving lines of credit give business owners a great degree of flexibility. Unlike a traditional business loan with fixed terms and fixed payment amounts, a revolving line of credit can expand and adapt to meet the changing needs of your business over time. A revolving line of credit works like a credit card: you get approved for a certain credit limit (based on your creditworthiness) and then you can borrow as much or as little money, within that limit, as you need.
A revolving line of credit also enables you to have flexibility in regards to repaying the loan. Instead of a fixed term loan where you have to make the same payment every month, a revolving line of credit (like a credit card) gives you the option of making minimum payments that are more tailored to your monthly cash flow – although, of course, you need to be mindful of the added interest costs and fees that can accrue from only making your minimum payments.
A Revolving Line of Credit is More Convenient Than a Traditional Loan
A line of credit offers great convenience because you don’t have to apply and get approved for a new loan every time you want to borrow money. Also, many online lenders offer lines of credit with approval processes that are much faster than a traditional bank’s loan approval process. This makes a line of credit the ideal choice if you need cash quickly or if you have ongoing needs for working capital that need to be addressed with regular infusions of cash.
Once you are approved for a line of credit, you can continue to use that account with all the convenience of a credit card in your pocket (but without carrying the piece of plastic). As an added bonus, business lines of credit also typically offer lower interest rates than credit card accounts.
A Revolving Line of Credit is Ideal for Online Banking
More business owners are getting comfortable with the idea of online loans, and revolving lines of credit are well suited to online banking and mobile banking. Just like people use their smartphones to check their bank account balances or shop online or make payments, more bank customers are starting to be interested in borrowing online as well. For example, the Adobe 2015 Mobile Consumer report found that more than 20 percent of Millennials (and 14 percent of Gen Xers) want to be able to apply for banking products online, and more than 50 percent of U.S. and U.K. mobile consumers say they would like to use mobile-only banking. A revolving line of credit – depending on your choice of lender – can be applied for online and then you can check your line of credit details at any time from a mobile device. This spirit of flexibility, adaptability and convenience that is powered by mobile banking technology is a good fit for the current trends related to how more small business owners are expecting to access financial services.
A Revolving Line of Credit Can Help with Ongoing Expenses and One-time Investments
A revolving line of credit can be used for any type of business expense, but most financial experts recommend that your business line of credit should mainly be used for ongoing operational costs – paying bills, covering cash flow shortfalls, and so on – with a smaller percentage dedicated to one-time contingencies. By striking the right balance in regards to how to use your line of credit, you will be sure to have enough working capital available to pay your bills each month while still having flexibility to invest in growth – and if you realize that you need more money, you can always apply to increase your line of credit to a larger credit limit.
A line of credit is an essential financial management tool that can help your business survive, thrive and grow. Before applying for a line of credit, make sure you do your research: understand the fine print and calculate any fees or costs, and make sure you have a good strategy in mind for how you want to utilize the line of credit. Whether it’s for ongoing expenses or one-time investments, a line of credit can help you have a flexible source of cash to keep your business moving forward.Comments: 0 Read More
During my last coaching session in Norway, I had discussed with my sales coach how being a financial planner was a great job:
#1 You enjoy a flexible schedule.
#2 You have the feeling of helping people with good financial advice.
#3 You get paid well ;-).
#4 And one of the most important things; you get to meet and know very interesting people.
One of the things I like the most about being a financial planner is the opportunity to develop great relationships. On the other hand, the thing I hate the most about my job is when people think I am there to take orders and that I can’t help them. Sorry… I don’t deliver pizza!
I truly believe that clients have all the reasons in the world to get to know your banker personally and work together for the long term. While he will be in a better position to explain things and provide you with solid financial advice, you will also be in a better position to understand what he is doing and getting a better grip over your personal finances.
Another advantage? Who do you think is gets better service? The guy calling for a rate and doesn’t want to hear about any strategies and doesn’t care about the relationship with the banker or the guy that makes an appointment and explains his whole situation to his banker? I’ll let you guess…
In order to develop a great relationship with your banker, I thought of providing a few good tips:
#1 Pick the right one
Dealing with money is dealing with a person first. So you need to find someone who understands you and that you feel comfortable with. Since he needs to be one of your closest confidents (financially 😉 ), I think it is only normal to meet with a few bankers before making your decision.
#2 Chose him for the right reasons
While personality is very important, you should also look for a banker with an impeccable sense of integrity and professionalism. You want someone who will take your calls and get back to you within the very same day. Drop anyone who can’t do that. Financial background or diplomas are important too. While they are not a guarantee of competency, it is still better than nothing ;-).
#3 Work with him
Some people go see their banker and think that hiding things is a good idea. They think that he won’t find out or that it will slow down their application. In fact, if you don’t work with your banker, you are just making his job harder… and getting something approved harder to get too!
#4 Talk numbers – learn his language
Bankers evolve in a world of numbers and ratios. While he must teach you how it works in a bank (how we calculate stuff, understand your investment statements, etc.), you should also answer his requests with your numbers. Bring statements with you, it will help to establish a greater strategy with real numbers.
#5 Meet him twice a year
You probably see your mechanic a few times per year for oil changes and car maintenance, you should see your doctor and dentist for an annual check-up. This is the same thing for your banker. Twice a year is just enough to keep track of your plan and financial goals. You can take the time to review your financial situation and if there are any better products to improve your balance sheet.
Developing a relationship with your banker is a really good financial move as you will now be part of his priority when there is important news that comes out.Comments: 0 Read More
Last week, I mentioned that I applied for a low interest rate balance transfer credit card. I need some temporary financing and I think that such credit cards can give me a nice cash advance for a low rate. I had been looking around to see what my options were. Sadly enough, there are no 0% balance transfer offers available in Canada at this time! The cheapest one I have found was at 1.99%. All right, 1.99% on $10,000 only makes $199 of interest after a year. So in the end, it’s not that bad (especially if you compare it to a 8% loan or a 15% credit card!). Since I have had a positive experience with MBNA in the past (I once had a Montreal Canadiens credit card 😉 ), I decided to go with them once again.
After applying online, I decided to call MBNA to see if they had received my application (the last page of my application didn’t refresh properly). Interesting enough, I waited less than 2 minutes on the line before speaking to a human being.
The lady was really helpful and found my application right away. She asked me if I wanted to review the application on the spot so they can issue an immediate approval (thinking that my credit card bill was due in mid-June, I jumped at the offer!).
The MBNA process is quite straight forward. They validate your identity, the information that you filled in the application and go a little bit deeper (they asked me if I was a home owner, the amount of my mortgage payment, they looked at my credit bureau with me and validate all debt there are).
The nice thing is that they take your word for it. For example, she asked for more info on my salary but never asked for any proof. I just had to describe what percentage of my income was base salary and how much was variable.
After she had validated my application, she was able to give me my authorized limit… drum roll please…. $13,000! I was quite happy because this means that I will be able to pay off my parents in full 2 weeks from now!
I have noticed that there is one huge catch to making a balance transfer to another credit card. The catch is that we are human! What does this mean? It means that while I might only need to transfer 8 or 9K, I will likely transfer 12,000$ to my regular credit card to ensure I have enough room to pay everything. The problem is that I have just created a $12,000 debt at 1.99% payable in full 10 months (or pay through the nose)… I will have to be very careful to pay it off on time!
How the credit card balance transfer works
Once I get my card, I simply have to call to activate the card. Then, they ask me how much to transfer and to which credit card. They make the payment for you so you don’t have to worry about anything. The most important thing is to make sure that your credit card bill is not due on short notice. If you are planning to get a 1.99% balance transfer credit card, I would suggest that you start the process just after you paid your credit card bill. Therefore, it will give you about a month to complete the transfer. In my case, it will take about 2 weeks to have everything completed (the card approved, receive it and transfer the credit card balance over to MBNA).
I received my card only a few days after calling. When I called to activate the card, they were quite fast to complete the whole process. A big thanks to Trevor and Ticker for the comment on my previous posts about the credit card terms and balance transfer fees. This gave me the occasion to ask the guy what the exact process was. Here it is:
– The balance transfer is done within a week. They send the money to the other credit card company by electronic transfer.
– If you miss a payment on your credit card, the 1.99% rate disappears and you jump to the killer regular credit card rate.
– If you go over your credit card limit, the balance transfer deal ends as well and you go back to a normal credit card rate.
– You have 10 months at 1.99%, after that, it’s over. So you are better off not fooling around with this debt!
– There is a fee of 1% of the amount transfered to organise the balance transfer
– The payment to my credit card took 3 days (they say 2 to 5 business days).
– The card is platinum but doesn’t look like one. The design is not that great 😉
– But, the fact that the card is platinum doubles your warranty on your purchases up to 2 years.
Overall, the credit card balance transfer won’t cost me too much and it will help me paying off the loan from my parents faster than expected. On the other hand, I will shortly setup a payment plan to make sure I pay off and remove this debt from my balance sheet by the end of the year!
So if you are thinking about doing a balance transfer, I truly suggest to try the 1.99% MBNA Platinum credit card:
I don’t know about you but I am growing tired of the media telling us how high interest rates will become in a year or two. They keep writing in the papers about interest rate calculations affecting your mortgage payment if the prime rate goes up by 5%. Some of them even push the limit saying that the prime rate will be 7% within 5 years… how the hell would they know? Did they tell the world in 2003 that prime rate would it 2.25% for 18 months in 2008? Who was right back in 2003? Please, give at least one name!
So today, I’ll do something different. I’ll use the very same math to perform interest rate calculations that affect your mortgage payment, but on the other hand. Since the mass media always tend to show you how much you *might* pay if the prime rate goes up by 2% compared to a fixed rate, let’s take a look at how much you *paid* in excess since 2008 compared to a fixed rate.
So let’s take an easy example:
Amortization: 300 months (5 years)
Negotiated 5 year Fixed rate: 3.85%
Negotiated Variable rate: P+0 = 2.25% for the first year, now at 2.50%
Before I start with my calculation, you can argue that you were been able to lock your 5 year rate at 3.69% or even lower, but I could argue back that some of my clients are paying way less than P+0, so let’s keep it this way.
So during the first year, you would pay $12,430.08 in mortgage payments if you had taken the 3.85%. With the variable rate of 2.25% during the first year, you would have paid $10,454.64… so 2K less for the first year.
Let’s assume that the prime rate will go up during the next 12 months with an average of 3% (which includes that it increases from 2.50% to 3.25%). Your mortgage payments will go up to $11,357.88 for the year. So you will be saving another 1K during this year.
So you start year 3 by paying 3K more in interest with your fixed rate or by applying the very same 3K on your mortgage to create a safety net. Let’s assume that you just took the 3K in your pocket and you keep the same strategy (either paying 3.85% fixed rate or 3.25% variable rate). And let’s imagine that the prime rate goes up to 4.50% (with an average rate of 4%). Your mortgage payment with this new interest rate increase would be $12,624.48.
So after 3 years, and a lot of interest rate increases, you have still saved a total of $2,853.32. So let’s push the interest rate higher to 5.5% with an average of 5%. Mortgage payments for the year totals $13,958.52.
So after year 4, your overall mortgage payment is still lower and you have still saved $1,324.88.
When we look at this scenario, you will be a loser if interest rate keeps increasing for 5 years in a row which is unlikely to happen. And if it does, you will have lost about $1,000 compared to the fixed rate. Then, if you keep with the variable rate for another 5 years instead of locking a very high 5 year term fixed rate (because if Prime = 5%, the 5 yr fixed rate could be around 7 to 8%). You are almost sure to see a decrease in interest rates during the next 5 years since we always go through economic cycles.
Final thoughts on interest rate calculations and mortgage payments
Based on these calculations, I am a firm believer in the variable rate but by simulating 5yr fixed rate mortgage payments. i.e. , you pay low interest rates (prime) but you make higher payment (simulate it a 4%). Therefore, you are building a huge safety net to compensate if the variable rate goes higher.
See, the future is not always black when we talk about variable rates 😉Comments: 18 Read More
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