Year: 2021

Loans Versus Lines Of Credit: Which Is Better?

Both loans and Lines of Credit (LOC) are financial sources. They allow individual clients and businesses to withdraw money for making essential purchases or ventures. They encompass personal loans, credit cards, home loans, business loans, credit cards, and mortgages.

So, which one of the two is better for me? For this, you need to know how a loan differs from the line of credit? Well, the major difference is how you get the cash and how you then repay it. Let’s explore the differences in this post so that you can choose the best financial source.

Loans versus LOC: In Terms of Meaning

Regarded as an installment account, a loan means requesting an amount, which is received only after approval. However, you then start paying the rate of interest on the full amount per annum. A fixed term is preset for payments, which then decreases as the loan is repaid.

An LOC in the financial world is a revolving account from which you borrow up to a certain limit and then pay it back. On the other hand, a loan is a lump sum amount that is paid back over a fixed period.

The former is similar to a credit card, as it is a flexible source for borrowers. A borrower only needs to withdraw money via a cheque. After repaying the borrowed sum of your credit line, the borrower can withdraw again. Until you use the line, there is no need to pay.

Possessing a credit line makes sure that a borrower can access funds and pay the borrowed sum back within a fixed period.

Loans versus LOC: In Terms of Interest Rates

Loans, regardless of the type and lender, tend to have a fixed rate of interest across its full term. For example, if you have taken a loan for bad credit at an interest rate of 6%, this rate remains fixed throughout the loan’s tenure. Unlike loans, the various lines of credit are likely to have different interest rates.

In case of a loan, the interest starts accruing on the full loan amount. If the loan is approved and you accept it, an origination fee is likely to be levied. It is a percentage of the total amount that is deducted from the cash you obtain or added to the repaid amount.

However, when it comes to lines of credit, the interest is charged on the unpaid balance until you borrow on the line. It is likely to be higher than the interest rate on loans.

Loans versus LOC: In Terms of Application

Loans are ideal if you wish to make a big, one-time deal or purchase. For example, it is better to take a loan for buying a new home or car, starting a new business or going for further education.

On the other hand, lines of credit are ideal if you wish to withdraw a small amount or are likely to come across unexpected expenses. For example, if you need to buy a device such as a laptop that you need to use but do not have sufficient cash, then you should buy it using a credit card.

As a loan is a lump sum amount with unchangeable terms of repayment, it is ideal to go for it when you know how much you want for the targeted need and what is the budget set for that need.

A line of credit allows selecting how much and when to withdraw. It gives access to cash when required instead of reapplying for another loan.

Conclusion

So, which is better? Well, the deciding factor is your need. It depends whether you are looking for a small or a big amount for a short- or long-term. It also depends on your ability to repay within the stipulated time frame.

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5 Financial Resolutions To Make For 2021

Making a new year resolution is what most people do on the 1st of January apart from wishing each other. For 2021, most people have gone ahead to make resolutions to make their financial position stronger than before, by learning a lot from the COVID-19 pandemic. So, do you also want to be one of them?

Well, it is not late yet. You can still add to your list of resolutions made for 2021. It is wise to have some financial goals or resolutions so that you do not get anxious when economies fall or recession strikes.

Each one of us has to consider their plans, decisions, and actions taken in the former year to know what went well and what should be changed. These can be personal and/or professional. Well, the professional ones are based on a strong but flexible financial plan that can adapt to changing situations.

For making such a plan, here are five resolutions to make this year:

Resolution 1: Pay All Dues on Time

This is the most important resolution to make if you have been defaulting or delaying your payments. To make it successful, start by making a list of such pending payments and writing the reasons of delay against each. Even if the fear of insufficient funds later is the reason, state it!

Then, assess how you will get rid of these reasons and prevent them from recurring. This will take you far from the impression of being a defaulter. Keep in mind that every delayed payment affects your credit score negatively.

Resolution 2: Minimize Debt

If your debt of last year is not cleared, promise yourself to pay it off this year. If you feel that it is impossible to pay off completely this year, at least, make a firm resolution of reducing it to a possible extent.

You should plan on minimizing the number of credit lines you go for in this year. This is because the more credit lines you choose, the more is its reflection of a credit-hungry trait. So, do list the credit lines that you could have escaped for better credit history.

Resolution 3: Set a Rational Spending Limit per Month

If you have never tried setting a monthly expenditure limit, it is the right time to do so. Thanks to the COVID-19 pandemic and ongoing recession! Now, you should plan how to save by putting a limit on monthly expenses. This will help you save you significantly, which you can add to your emergency fund.

Resolution 4: Use Credit or Get a New Credit Card Only if Necessary

Chances are high for you to get new credit card offers with generous credit limits and other perks. Well, do not succumb to such temptations, especially if you already have one or more credit cards. This is because being unable to repay can give a bad impression to lenders.

However, this does not mean that you should not get a new credit card. You can do so only if you feel it is required. The reason should be to fulfill your ‘need’ not ‘want.’

Further, if you already have a credit card with a generous credit limit, it is unwise to use it all. This is especially true if you cannot then repay the due on time.

Resolution 5: Add to Emergency Funds

Very few people think of building an emergency fund. However, the recent pandemic of COVID-19 has made more and more people to do so seriously. Initially, you may have to part with some monthly income portion to make this fund despite having dues. However, this will be fruitful in the near future when you would need some cash in an emergency.

Conclusion

So, which resolution you will be making? One, two, more, or all?

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6 Things COVID-19 Teaches Us For Being Financially Strong Even In Tough Times

Although COVID-19 has shaken the whole world with its awful impact on human life and economies, it has inherently awakened many people to learn how to be financially strong. Most of us are now alert to make more savings and spending only when required.

Due to job insecurity or job termination, financial anxiety or instability makes it tough to make judicious decisions when it comes to managing with whatever money is there with us. To keep its impact at bay, here are the dos to consider in the time of crisis:

Terminate Less-important Digital Memberships

Lockdown imposed due to the pandemic and the recession stress may tempt or push you towards different entertainment subscriptions such as HBO Max, Netflix, Disney Plus and Amazon Prime. However, when the income goes down or when in ‘no-job’ situation, these subscriptions are extra items or frills.

Thus, to save more during tough times, you should consider terminating such subscriptions. Wisely, you can choose a free online platform such as YouTube and Kindle, and stick to the standard digital TV subscription.

Look for More Earning Opportunities

Whether you have a job or not, this is an essential action to take. While a pandemic or a recession can bring economies to a standstill, it is not a permanent impact.

So, be wise to keep anxiety at bay and look for small opportunities to earn extra. For example, you can consider making and selling food, selling your things that are no longer needed, or some freelancing work of your caliber. You may earn less from such opportunities but the amount you get can give you good earnings over time.

Inform Creditors about Your Plan for Payments

One of the biggest mistakes people do in tough times is to stop making payments or installments without informing the creditors. This behavior naturally triggers suspicion in their minds of being a cheater.

If you know that you cannot make payments on time, inform the lenders about the same and seek guidance.  The lenders may provide a suspension offer due to which you can make your payments later after some days or months or until everything is back to normal.

Increase Your Emergency Fund

Loss of job or reduction in work pay triggers a situation of emergency, as you then may not have sufficient income to pay your bills or dues. This is when you need to consider adding to your emergency fund. Most experts suggest having an emergency fund that can help you for three to six months.

A simple way to boost this fund is to add waived or declined expenditures. For example, if you have become a freelancer, you can add the money saved on traveling, outside meals and purchase of new formals to the fund.

Hold Your Stocks

It is a common habit to respond to the stock market volatilities by selling the held stocks. Well, this is not the right way to react. This is because history has many tales revealing how markets have recovered after a recession or any other tough time.

Panic-oriented sales are likely to give you capital loss. So, do not sell your stocks during the recession to gain more cash. If you do, you are at loss, as then you will no longer have a chance to earn more during the recovery phase.

Stop Buying More Stocks

Another common trait seen during recession is investing in an increasing number of stocks due to low prices induced by a market crash. Investing in stocks in such a time is good but only if it is done by considering the financial position, the ability to bear risks and without the fear of missing a chance.

Conclusion

The period of financial crisis marks the time to make sound as well as smart decisions for securing finances for the future. The aforementioned dos will certainly help!

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