WHAT ARE 12-MONTH LOANS?
12-month loans are a type of short-term loan that has become increasingly popular in recent times. These are designed so as to last for only a year or 12 months to be precise. They are extremely helpful as they help one to accurately budget for the concerned money that they have borrowed as it is known that it must be fully repaid within a year or 12 months. This is the main difference that makes it stand out from other types of short-term loans offered by various direct lenders.
These types of loans allow one to borrow a wide range of different sums of money and these types of loans help break up the borrower’s loan into 12 manageable repayments that must be repaid on a monthly basis. Small loans are a good way of allowing one to budget for anything unexpected.
DESCRIPTION OF 12-MONTH LOANS
The approximate calculated interest for borrowing 100 pounds under such a scheme comes around 13 pounds per month. There are many people who may suffer from bad credit history and there are many lenders available who are willing to provide loans to people who have a bad credit rating and who may have been denied loans elsewhere. Most lenders have eligibility checkers that help check the individual’s likelihood of being fully approved for a 12-month loan for bad credit before applying.
One can improve his or her credit score by being accepted for a 12-month loan and keeping up to date with the necessary repayments for the concerned loan. This makes it easier for the individual to be accepted for any sort of credit in the near future. Missing out on payments has the opposite effect and can damage the borrower’s credit profile making it difficult for him or her to be accepted in the future for bad credit loans.
There are many UK lenders offering 12-month loans with no guarantor as not everyone may have access to that facility. These 12-month loans have become extremely popular in recent years as direct lenders have started offering these types of loans which do not require a guarantor.
GETTING APPROVED FOR A 12 MONTH LOAN
One is eligible for such loans only if he or she is above 18 years of age and is a citizen of the UK. Having a good income source is advantageous but not necessary. One also needs to have a good credit score to increase approval chances for the borrower. Lenders always prefer people with a good credit score as they can be trustworthy and reliable and are more likely to repay back the loan amount in the stipulated 12 months or 1 year.
If the borrower’s credit score is not enough for gaining approval for a 12-month loan, then the borrower can obtain loans by getting into a joint agreement which can be done by convincing a friend or family member to become your guarantor for the 12-month loan. In this case, if the borrower fails to make a repayment to the lender then the guarantor can pay in place of the borrower.
Asset pawning is also a good solution for the concerned individual or borrower. In case he or she is unable to find a guarantor then he or she can pawn any asset which may be a land, property or even a vehicle. This asset should have a value equivalent to the value of the loan.
BENEFITS OF 12 MONTH LOAN
Many lenders often provide people with 12-month loans even though they do not have a guarantor to furnish. This type of loan also helps those who are in need of emergency money. These loans are hassle-free and usually, do not carry any extra hidden charges and are also comparatively easier to repay when compared to personal loans or payday loans which have higher interest rates.
Most lenders nowadays have an easy loan process that allows them to assess the financial situation of the borrower within a short period of time and since most of the systems are now online, this has reduced a lot of paperwork involved. These lenders offer personalized loans to the borrower depending on their financial situation and state of living.
These lenders offering 12-month loans also provide competitive rates of interest to the borrower for people with a poor credit score and this helps a person from any strata of society with any economic background opt for a loan without being financially distressed due to the various competitive rates of interest offered to the borrower by the lender.
One can opt for a 12-month loan in case of any financial emergency or an unexpected expense that may be necessary to be cleared immediately. They provide quick loan approval processes and also credit the concerned loan amount directly into the borrower’s bank account making the loan obtaining process smooth and hassle-free. The borrower can easily repay the loan to the lender in simple instalments every month for the 12 months time period of the loan.
Even if the borrower has a poor history of credit and is in need of emergency money at the earliest, many lenders exist offering a wide variety of instalment loans for all types of credit score borrowers.
CHOOSING A 12 MONTH LOAN
One of the top reasons for more and more people opting for 12-month loans is the fact that it offers competitive APR, hassle-free and reliable loans with options for bad credit too, the lack of the need for a guarantor, availability of small and big loans as required, repayment of loans in easy instalments, ensuring that people from all economic backgrounds have a fair chance at securing a loan and many other reasons.
Carefully compare and choose the best suited 12-month loan option for your needs.
DEFINITION OF PERSONAL AND PAYDAY LOANS
Most people feel that payday loans and personal loans are one and the same thing, but this is not at all true. They may seem similar, but they have many big differences which set the two options at opposite poles. One should consider the credit and the amount one needs to borrow to know what one qualifies for before one applies for it.
Personal and payday loans are both useful when one requires an extra boost in finances, but this is the only similarity between them. The factors that vary are the term, cost and the amount among other different finances.
The loan amount also differs when it comes to a comparison between the two. Most banks in the UK do not lend less than 1000 pounds for a 12 month period in case of personal loans.
When it comes to cost comparison, personal ones are considerably cheaper with a maximum APR of 29.9% but one needs to have good and excellent credit. Payday loans can be usually more expensive, but it does not require any strict credit requirement.
When it comes to loan term, personal loans offer around 5 years maximum as the loan tenure. Payday have a shorter term of around two to maybe four weeks that can go upto 12 months.
When it comes to eligibility, personal loans which are offered by credit unions and banks have very strict criteria for eligibility. They generally require borrowers to have a good credit along with a fairly strong financial background. Payday loans seem much more flexible in comparison as lenders only require that the borrowers have a proper and regular source of income for qualifying.
Personal loan lenders are online lenders, banks, peer to peer lenders and credit unions whereas payday loans are offered by those lenders who specialize in check cashing services and short term lending.
PAYDAY OR SHORT TERM LOANS
Payday loans, auto title loans and instalment loans have high fees and rates which could trap a person in a debt cycle. The person could be forced to take a second or even third loan just because they couldn’t pay the first one in the stipulated time limit. Alternatives to short term loans like local resources such as local charities, government agencies and non-profits offer relatively free services for financial needs and also help with rent, food and utilities for those people who are in dire need of it.
One can also get payment extensions by talking with the concerned bill providers regarding an extension or a longer time frame or payment plan if one is behind on his or her payments. One can also take side jobs to catch up on the payment.
COST FOR EACH OPTION
The payment cost varies when it comes to payday loans versus personal loans. The interest rate that you will receive along with the terms is based on the individual’s credit history and if one has collateral or not along with the amount you borrow and the stipulated loan term.
Payday loans whereas have APRs of three or four digits (100%-1000%). The actual total cost depends on the state of living of the borrower. APR represents the yearly cost which is important to note.
DECIDING THE RIGHT TYPE OF LOAN
Deciding whether to opt for a payday loan or a personal loan depends on the amount of money that the individual intends to borrow and it also depends on the person’s credit. If one needs to borrow around 50 pounds to 1000 pounds, he or she can opt for a short term loan as personal loans require the person to borrow a minimum of 1000 pounds to around 2000 pounds.
One must also consider the time factor. Short term loans offer faster times for the turnaround when compared to personal loans as it involves less approval process. Nowadays, more and more personal loan providers are shifting online hence they have almost the same processing speeds similar to short term loans like payday loans.
Credit history is also an important factor. If the borrower has excellent credit scores, they are more likely to save money by obtaining a personal loan at lower interest when compared to a payday loan which will be available at higher cost.
The total cost of the loan depends on the borrower’s monthly payments and also depends on the total amount to be repaid which depends mostly on the interest rate. One should always compare and consider various different options and check on online calculators offered by the lender to see which mode of loan is best suitable for your needs and how much one will need to repay.
There are many alternative options available to personal loans and payday loans which can be beneficial to the borrower. One can borrow a small sum or amount of money without the need for the borrower taking on a payday loan.
Another short term loan is an installment loan in which the borrower repays the amount in a single lump sum. Thus, personal loans and payday loans for bad credit can be beneficial only when one carefully examines which loan type is best suited for his or her needs.
One can carefully choose among personal loans for bad credit versus payday loans for bad credit depending on one’s financial status and the credit one possesses. The borrower must carefully examine the various options available and then decide which type of loan is best suited for his or her needs. Warning: Late repayment can cause you serious money problems. For more information, go to MONEYADVICESERVICE.ORG.UK
Property owners sometimes focus almost exclusively on the interest rate and the period for which it is fixed when choosing a new commercial real estate loan or multifamily loan. However, other factors have a significant impact on the “total cost of capital” and can limit or expand owner options later on. Before signing on the dotted line, be sure you have answered these nine questions.
1. What are your plans for the property and your objectives in refinancing?
Choosing the most advantageous financing solution for your apartment or commercial property involves weighing tradeoffs between the terms and conditions of alternative loan options. Making sound choices begins with a clear understanding or your plans for the property and objectives in refinancing. Is it likely that the property will be sold in the future and if so when? Are you reliant on income generated from the property now or are you looking to maximize income from the property in the future, perhaps after retirement? Is there deferred maintenance that needs to be addressed now or in the near future? Is remodeling or other major upgrades or repairs expected in the next 5 to 10 years? Will you need to access the equity in your property for other investments, for example, to purchase another property?
2. What happens after the fixed period?
Some commercial property or multifamily loans become due and payable at the end of the fixed period and others. These are often called “hybrid” loans and they convert to variable rate loans after the fixed period. A commercial real estate loan or multifamily loan that becomes due after the 5, 7 or 10 year fixed period may force refinancing at an unfavorable time. Financial markets may be such that refinancing options are expensive or unavailable. Or local market conditions may have resulted in increased vacancies or reduced rents, making your property less attractive to lenders. Frequently the lowest interest rate deals are for loans that become due at the end of the fixed period and include more restrictive pre-payment penalties (see question #4). Hybrid loans convert to an adjustable rate loan with the new rate being based on a spread over either LIBOR or the prime rate and adjusting every 6 months.
3. What is the term of the loan and the amortization period?
The term of the loan refers to when the loan becomes due and payable. The amortization period refers to the period of time over which the principal payments are amortized for the purpose of computing the monthly payment. The longer the amortization period the lower the monthly payment will be, all other things being equal. For apartment or multifamily properties, 30 year amortizations are generally available. For commercial properties, 30 year amortizations are more difficult to come by, with many lenders going no longer than 25 years. A loan with a 30 year amortization may have a lower payment than a loan with a 25 year amortization even if it carries a slightly higher interest rate. In most cases the term of the loan is shorter than the amortization period. For example, the loan may be due and payable in ten years, but amortized over 25 years.
4. If loan converts to a variable rate after the fixed period, how is the variable rate determined?
The variable rate is determined based upon a spread or margin over an index rate. The index rate is generally the six-month LIBOR or, less often, the prime rate. The interest rate is computed by adding the spread to the index rate. The spread varies but is most often between 2.5% and 3.5%. The rate adjustment most often occurs every 6 months until the loan becomes due. There is generally a cap on how much the rate can move at an adjustment point. However, some lenders have no cap on the first adjustment. This leaves the owner open to a large payment increase if rates have moved significantly.
5. What are the prepayment penalties?
Almost all fixed rate commercial property loans and apartment loans contain some form of pre-payment penalty, meaning there is an additional cost to you if you pay off the loan early, which may occur if you want to refinance or you are selling the property or if you want to make payments greater than the scheduled monthly payments. Prepayment penalties generally take the form of a set prepayment schedule, a yield maintenance agreement or, defeasance. A set prepayment schedule predetermines the penalty expressed as a percentage of the loan balance at payoff and declines as the loan ages. For example, the prepayment schedule for a 5 year fixed loan might be quoted as “4,3,2,1” meaning the penalty to pay off the loan is 4% of the balance in year 1, 3% in year 2, etc. A yield maintenance agreement requires a penalty computed using a formula designed to compensate the lender for the lost interest revenue for the remaining term of the loan over a risk-free rate and discounted to a present value. The formula can be complex, but the result is almost always a more punitive penalty than a set prepayment schedule and will generally make early pay-off financially unviable. The third type of penalty, defeasance, is used less often. It works like a yield maintenance agreement in that its intent is to keep the lender whole for the lost interest revenue but it accomplishes that by requiring the borrower to substitute other securities that would replace the lost revenue instead of making cash payment. Often the most attractive interest rates offered are associated with loans with either a yield maintenance agreement or defeasance. There is generally a window starting 180 to 90 days before the loan is due when the penalty expires to allow time to arrange refinancing. These loans generally become due at the end of the fixed period.
6. What are all the fees and charges associated with closing the new loan?
Refinancing can be costly and knowing all the costs is essential to evaluating if refinancing is the right choice. The biggest costs are for appraisals, title insurance, escrow fees, environmental review, points, and processing and/or loan fees. Appraisal fees will run $2,000 and up. Phase I Environmental Assessment cost $1,000 and up. Processing and/or loan fees charged by the lender begin about $1,500 and rise from there. Points may or may not be charged by the lender. Some lenders, particularly on apartment or multifamily loans, will cap the expenses at $2,500 to $3,000, excluding title and escrow. It is important understand the total costs in comparison to the monthly savings in debt service resulting from refinancing. How many months will it take to recoup the costs of refinancing?
7. Is the loan assumable and at what cost?
Many, but not all, commercial real estate loans are assumable. There is generally a fee, often 1% of the balance, and the assuming party must be approved by the lender. Assumability is critical for loans with significant pre-payment penalties, like those with yield maintenance or defeasance clauses, if there is some chance you will sell the commercial or apartment property during the life of the loan.
8. Are there impounds and if so what are they?
Some commercial real estate loans and apartment loans will require impounds for property taxes or for insurance. A monthly amount is determined and then collected in addition to each principal and interest payment sufficient to cover the property tax and insurance bills as they come due. Such impounds will affect your cash flow from the property because monies for property taxes and/or insurance are collected in advance of when they are actually due. Impounds increase the effective interest rate on the loan because they amount to an interest free loan the owner is making to the lender.
9. Does the lender allow secondary financing?
Finding secondary or second lien financing has become quite difficult and many lenders do not allow it under the terms of the loan. However, market conditions may change, making this type of lending more available. If you have a relatively low loan to value and there is a chance you might want to access the equity in your property to pay for major repairs or remodeling, to acquire additional properties, or for other purposes, a loan that allows secondary financing can be beneficial.
Securing a letter of interest from a lender can be time consuming. Many owners approach only their existing lender or a well-known commercial bank lender in their area and assume that the offer they get is the best available. This is not always the case. In many cases, smaller or lesser known lenders offer the most aggressive or flexible terms. There is no way of knowing without getting multiple quotes. A good commercial loan broker can be very beneficial in securing for you multiple letters of interest and helping you compare the terms and conditions of each and select the solution that best meets your goals and plans.
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