Loan

What Are Secured Loans? Secured loans are business or personal loans that require some type of collateral as a condition of borrowing. A bank or lender can request collateral for large loans for which the money is being used to purchase a specific asset or in cases where your credit scores aren’t sufficient to qualify for an unsecured loan. Secured loans may allow borrowers to enjoy lower interest rates, as they present a lower risk to lenders. However, certain types of secured loans—including bad credit personal loans and short-term installment loans—can carry higher interest rates.  Understanding the Types of Secured Loans Loans that are secured can be found in different types, each one made to fit particular money requirements and situations. One common type is the mortgage loan, where the property being financed acts as an assurance. Usually, this kind of loan is used for buying houses or real estate properties. Another well-known secured loan is the auto loan. In this type of lending, the security is provided by the vehicle that you are buying. For people who want to borrow money and have assets such as savings accounts or investment portfolios, they can choose a secured personal loan where their possessions act as collateral. Two more common choices for using assets as security are secured lines of credit and secured credit cards. Additionally, the borrower must understand that the kind of secured loan they select might influence how the borrowing agreement is structured. For example, mortgage loans usually come with lengthier repayment periods and lesser interest rates in comparison to alternative kinds of secured loans. Conversely, secured credit cards might provide a greater degree of flexibility when it comes to credit caps and potential expenditures. Features of Secured Loans How Do Secured Loans Work? Debt products backed by an owned asset are known as secured loans. The assets you intend to use as collateral for a secured loan must be disclosed to the lender when you apply. A secured loan allows you to pledge an asset as collateral, such as your house, vehicle, or boat. The lender will put a lien on your until you repay the loan.  Lenders may seize and sell the collateral to make up for losses in the event of a loan default. The majority of secured loans are instalment loans, which means you get your entire loan amount all at once and have to pay it back over time in EMIs. Mortgage loans have 30-year repayment terms, while secured personal loans have shorter terms of one year. Types of Secured Loans Secured loans can be used for a number of different purposes. For example, if you’re borrowing money for personal uses, secured loan options can include: As mentioned, vehicle loans and mortgage loans are secured by their respective assets. Share-secured or savings-secured loans work a little differently. These loans are secured by amounts you have saved in a savings account or certificate of deposit (CD) account at a credit union or bank. This type of secured loan can be useful for building credit if you’re unable to get approved for other types of loans or credit cards. In the case of a secured credit card or line of credit, the collateral you offer may not be a physical asset. Instead, the credit card company or lender may ask for a cash deposit to hold as collateral. A secured credit card, for instance, may require a cash deposit of a few hundred dollars to open. This cash deposit then doubles as your credit limit. Business Loans Business loans can also be secured, though unsecured ones can be had. An equipment loan, for instance, is a type of secured business loan. Say you own a construction business and need to purchase a new dump truck. You could use an equipment loan, secured by the dump truck you plan to purchase, to pay for it. As long as you pay the loan on time, you wouldn’t be at risk of losing the equipment you purchased. One thing to note about secured business loans is that you may also be required to sign a personal guarantee. This means that you agree to be personally liable for any debts taken out by your business if the business defaults on the loan. So if your business runs into cash flow issues, for example, you could be personally sued for a defaulted loan. Car Title Loans and Pawnshop Loans Other types of secured loans include car title loans and pawnshop loans. Car title loans allow you to borrow money using your car title as collateral. Pawnshop loans can use anything from tools to jewelry to video game consoles as collateral, depending on what you’re willing to pawn. These are generally short-term loans that allow you to borrow small amounts of money. Life Insurance Loans A life insurance loan lets you borrow money against a life insurance policy using its cash value as collateral. You could then repay the loan during your lifetime or allow the loan amount to be deducted from the death benefit paid to your beneficiaries when you pass away. This type of loan is available with permanent life insurance policies, such as variable or whole life insurance. Bad Credit Loans Bad credit personal loans are another category of secured loans. These are personal loans that are designed for people with poor credit history. Lenders can offer bad credit personal loans, but they may require some type of cash security, similar to share-secured loans, secured credit cards, and secured lines of credit. Note that a lower credit score can translate to a higher interest rate and/or fees with a bad credit secured loan. Tips for Securing a Secured Loan For a secured loan, you must think carefully and get ready to make sure that your application is approved and you receive good loan conditions. One important thing is to keep up a good credit score because lenders frequently look at the credit history when they evaluate applications for loans. Making sure that information in your credit report is correct by checking it often can assist in enhancing eligibility for a secured … Read more

When considering a loan, it’s important to understand the repayment terms—including details like how the principal and interest are paid over time. Doing so may help borrowers better manage their loans. But there may be times when the total loan balance owed increases during the repayment process. While this may not be something a borrower expects, there are a few common factors that could explain a balance increase. Read on to learn about the factors that can cause a total loan balance to increase and ways to decrease it. Key takeaways How to understand your loan balance In many cases, the amount a borrower owes on an installment loan will end up being higher than the amount they borrowed. That’s because most lenders charge borrowers interest on top of their principal loan payment. With that in mind, it can be helpful to understand some of the most common concepts that can affect the total cost of a loan. These may include the following:  Understanding these terms can come in handy when evaluating the factors that could increase a loan balance. 6 Factors That Increase Your Student Loan Balance Here are a few reasons why your student loan balance might be going up, even if you’re making monthly payments: 1. Loan interest Most student loans charge interest from the date your loan is disbursed. Student loan interest accrues daily based on your loan interest rate. Loans with higher interest rates will accumulate interest faster and come with higher monthly payments as a result. Your loan payments are typically deferred until you graduate. That means you might not make student loan payments for four or more years. However, interest usually accumulates during this deferment period, so your loan balances will continue rising until you make payments. For example, if you have $30,000 in student loans with a 7% interest rate, you could accumulate $2,100 in interest during your first year in school. This means your loan balance is now $32,100 after one year. If you don’t make any interest payments while pursuing your undergraduate degree, upon graduation, your $30,000 loan balance would be $38,400. 2. Unsubsidized vs. subsidized loans Subsidized federal student loans do not charge interest while you’re in school or during the grace period after you graduate. The interest is paid by the government and does not accrue while your loans are deferred while attending school at least half-time. Unsubsidized loans are federal student loans that accrue interest daily while you are in school. If you have unsubsidized loans, your balances will increase as interest accrues. Private student loans are similar to unsubsidized loans, and interest will accrue when the loan is dispersed. 3. Interest capitalization Interest capitalization adds your accrued interest to your student loan balance. This usually occurs at the end of the grace period, typically after graduation. If you have unsubsidized loans and don’t make any payments during school, the accumulated interest will be added to your principal loan balance. This means you will now pay interest on a larger balance, causing interest to accumulate even faster. To avoid interest capitalization, you can choose to make interest payments while you’re in school or during any grace periods where interest is still accruing. This will prevent the interest from being added to your overall loan balance. 4. Student loan fees In addition to interest charges, several fees may be assessed as part of your student loan application or repayment process, and these fees may be added to your loan balance. Some common fees include: 5. Income-driven repayment plans If you’re on an income-driven repayment plan (IDR), you may end up with negative amortization. In this instance, your monthly payment is smaller than the interest charged on your loan, so interest accumulates over time. For some plans, the interest will be added to your total loan balance periodically increasing the amount you have to pay off. As of July 1, 2023, students who elect the SAVE income-driven repayment plan no longer capitalize interest after leaving the plan. The only IDR plan that still capitalizes interest is the Income-Based Repayment (IBR) plan. 6. Deferment or forbearance Most loans will accumulate interest if you defer your student loan payments (either while enrolled in school or for another reason). And entering a period of forbearance means you won’t make monthly payments, but interest will still accrue. In both cases, interest will be added to your principal balance after restarting a regular payment plan, increasing your overall loan balance. Assessing the impact & reducing loan costs You came here wondering what increases your total loan balance for student loans. Now you know that student loan debt has multiple factors that contribute to its growth overtime—and while interest is the most discussed, they all add fuel to the fire. “All of these factors have a similar financial impact and add to your total loan balance,” Group says. “That’s why you need to understand what debt is and how it works before you assume any.” Group emphasizes that the worst way to increase your total loan balance is to simply not pay your loans. “Interest will continue to accrue each month and, depending on the terms of your loan, you might also be subject to late fees,” he says. “It’s incredibly important to pay back any debt you owe and adhere to the specific terms of the loan, including the payment due dates.” In terms of where to start, Group suggests repaying early and have a regimented payback plan in place. “Many people don’t realize that student loan interest starts accruing the day the loan is disbursed to your school,” he says. “The smartest borrowers will do their best to start repaying their loans back as soon as possible. If that’s not possible, I’d say be diligent with your repayment plan and automate all payments to ensure you stay on track.” How can you reduce your total loan cost? Several factors can cause the total balance of a loan to increase. But there may be ways to reduce the overall cost of … Read more

Debt Consolidation enables customers to consolidate all the debt obligations into a new loan and repay the loan comfortably at a lower interest structure, without causing any financial burden. Read further to know more. Every individual opts for a loan to fulfil their aspirations and dreams, during this lifetime. Whether you have taken a Home Loan, Car Loan, Personal Loan, Business Loan or are using a Credit Card, such funding options are available at attractive interest rates; however, the repayment part can be a huge financial burden. If you are one of those who have multiple loan liabilities and are struggling to keep track of the same, then Debt Consolidation may be the right option for you. A facility that helps you streamline multiple financial dues and other existing loans. Let’s get to know more about it in detail. What is Debt Consolidation Loan? ICICI Bank offers Personal Loans for Debt Consolidation for easier management of debts, such as multiple loans and other borrowings. One of the benefits is that you get to repay the loan at a lesser interest rate, which helps you save money on EMIs, therefore, helping you manage your finances better. As a borrower, you are required to make a single payment instead of making multiple payments, to other creditors. Below are some of the benefits of Debt Consolidation. Features and Benefits of Personal Loans for Debt Consolidation A few key features and benefits of Personal Loans, which can make them an ideal option to consolidate your debts, are as follows: How Debt Consolidation Works You can roll old debt into new debt in several different ways, such as by taking out a new personal loan, a new credit card with a high enough credit limit, or a home equity loan. Then, you pay off your smaller loans with the new one. If you are using a new credit card to consolidate other credit card debt, for example, you can transfer the balances on your old cards to your new one. Some balance transfer credit cards even offer incentives, such as a 0% interest rate on your balance for a period of time. In addition to the possibility of lower interest rates and smaller monthly payments, debt consolidation can be a way to simplify your financial life, with fewer bills to pay each month and fewer due dates to worry about. An Example of Debt Consolidation Suppose you have three credit cards and owe a total of $20,000 on them, with a 22.99% average annual interest rate. You would need to pay about $1,048 a month for 24 months to bring the balances down to zero, and you’d pay about $4,601 in interest during that time. If you consolidated those credit cards into a lower-interest card or loan at an 11% annual rate, you would need to pay about $933 a month for the same 24 months to erase the debt, and your interest charges would total about $2,157. With a 0% credit card, your payments would be even lower, at least while the promotional period was in effect. Consolidating three credit cards with an average interest rate of 22.99% Loan Details Credit Cards (3) Consolidation Loan Principal $20,000 $20,000 Interest % 22.99% 11% Payments $1,048 $933 Term 24 months 24 months Bills Paid/Month 3 1 Total Interest $4,601 $2,157 Risks of Debt Consolidation Debt consolidation also has some downsides to consider. For one, when you take out a new loan, your credit score could suffer a minor hit, which could affect whether you qualify for other new loans. Depending on how you consolidate your loans, you could also risk paying more in total interest. For example, if you take out a new loan with lower monthly payments but a longer repayment term, you may end up paying more in total interest over time. Types of Debt Consolidation Loans You can consolidate debt by using different types of loans or credit cards. Which will be best for you will depend on the terms and types of your current loans as well as your current financial situation. There are two broad types of debt consolidation loans: secured and unsecured loans. Secured loans are backed by an asset like your home, which serves as collateral for the loan. Unsecured loans, on the other hand, are not backed by assets and can be more difficult to get. They also tend to have higher interest rates and lower qualifying amounts. With either type of loan, interest rates are still typically lower than the rates charged on credit cards. And in most cases, the rates are fixed, so they won’t rise over the repayment period. With any type of loan, you’ll want to prioritize which of your debts to pay off first. It often makes sense to start with the highest-interest debt and work your way down the list. Here are a few more details about the most common ways to consolidate your debt. Personal Loans A personal loan is an unsecured loan from a bank or credit union that provides a lump sum payment you can use for any purpose. You repay the loan with regular monthly payments for a set period of time and with a set interest rate. Personal loans generally have lower interest rates than credit cards, so they can be ideal for consolidating credit card debt. Credit Cards A new card can help you reduce your credit card debt burden if it offers a lower interest rate. As mentioned earlier, some credit cards offer an introductory period with 0% APR when you transfer your existing balances to them. These promotional periods often last from six to 21 months or so, after which the interest rate can shoot up into double digits. So it’s best to pay off your balance, or as much of it as you can, as soon as possible. Note that these cards may also impose an initial fee, often equal to 3% to 5% of the amount you are transferring. Home Equity Loans If you are a homeowner who has built up equity over the years, … Read more

Taking out a student loan is a significant decision that can have long-lasting financial implications. Whether you’re considering a loan for yourself or a family member, it’s crucial to understand what you’re committing to. One of the most important aspects to grasp is the total loan balance, which goes beyond the initial amount borrowed. This balance includes the principal amount plus any accrued interest, impacting how and when you’ll pay off your loan. What is the Total Loan Balance? The total loan balance refers to the principal amount you borrowed plus any interest that has accumulated over time. According to Ian Group, a lawyer and money coach who successfully paid off $230,000 in student loan debt, understanding the difference between the principal and the total loan balance is crucial. The principal is the initial amount borrowed, while the total loan balance increases as interest accrues. Example: If you take out a $40,000 loan with a 5.50% interest rate, you need to understand that this interest starts accruing from day one. Over a standard 10-year repayment period, this loan would accrue $12,092.61 in interest, bringing the total amount to $52,092.61. This assumes you make every payment on time and in full, which many find challenging. Factors That Increase Your Total Loan Balance Several factors contribute to the growth of your total loan balance. Here’s a detailed look at each: 1. Loan Interest Interest is the most significant factor that increases your total loan balance. Both federal and private student loans come with interest rates. Example: For a $40,000 loan at 5.50% interest over 10 years, your monthly payment would be $434.11. Even as you pay, interest accumulates, adding up to $12,092.61 in interest over the life of the loan. 2. Recapitalized Interest If you face financial difficulties, you might request a forbearance, which temporarily pauses your payments. However, interest continues to accrue during this period and is added to your principal once the forbearance ends, leading to a higher total loan balance. Example: If you have a $40,000 loan and enter a 12-month forbearance with a 5.50% interest rate, interest continues to accumulate, increasing your principal when the forbearance ends. 3. Origination Fees Origination fees are processing fees charged by your lender. These fees are usually a percentage of your loan amount. Example: For a $20,000 loan with a 4% origination fee, $800 is deducted as the fee, leaving $19,200 disbursed to your school, but you still owe the full $20,000. 4. Variable Interest Rates Federal loans typically have fixed interest rates, providing stability over the loan term. Private loans, however, may have variable interest rates, which can fluctuate based on the market. This can lead to unpredictable increases in your total loan balance. Example: If the Federal Reserve raises interest rates, your variable rate loan could see increased monthly payments and a higher total cost over the loan’s life. Managing and Reducing Your Loan Costs To effectively manage and reduce your loan costs, consider the following strategies: 1. Pay Early and More Than the Minimum Start repaying your loan as soon as possible, even before graduation, if allowed. Paying more than the minimum amount each month reduces the principal faster and saves on interest. Example: On a $40,000 loan at 5.50%, paying an extra $50 per month can save you thousands in interest over the loan’s life. 2. Avoid Forbearance Use forbearance only as a last resort. Interest accrued during this period is capitalized, increasing your total loan balance significantly. 3. Choose Fixed Interest Rates Opt for loans with fixed interest rates to avoid unexpected increases in your total loan balance. 4. Plan and Automate Payments Create a detailed repayment plan and automate payments to ensure timely and consistent contributions toward your loan. This helps avoid late fees and additional interest accrual. FAQ Q1: Will my insurance cover the full cost of braces? A1: Most insurance plans do not cover the full cost of braces. They usually cover a percentage, and you’ll be responsible for deductibles, co-pays, and costs exceeding your plan’s maximum benefit limit. Review your specific plan for details. Q2: Are braces covered for adults? A2: Coverage for adult braces varies by insurance plan. Many plans focus on orthodontic coverage for children, but some do extend benefits to adults, especially for medically necessary treatments. Q3: What does “medically necessary” mean in terms of orthodontic coverage? A3: “Medically necessary” refers to orthodontic treatment required to correct significant functional or structural issues with your teeth or jaw, necessitating documentation and X-rays from your orthodontist. Q4: Can I choose any orthodontist, or do I need to stay in-network? A4: You can choose any orthodontist, but staying in-network typically provides better coverage and lower costs. Out-of-network providers may result in higher expenses and less insurance coverage. Q5: What if I don’t have dental insurance? A5: If you don’t have dental insurance, consider dental discount plans, payment plans offered by orthodontic practices, or seeking treatment at dental schools, which often provide lower-cost services. Conclusion Managing student loan debt effectively requires a thorough understanding of what increases your total loan balance. Interest rates, recapitalized interest, origination fees, and variable interest rates all contribute to the growth of your debt. To mitigate these costs, consider paying early and more than the minimum, avoiding forbearance, choosing fixed interest rates, and automating payments. By staying informed and proactive, you can manage your student loan debt efficiently and work towards financial stability.