Debt Consolidation ? Watch out for Payday Loans
Most any large city has a number of small shops offering payday loans. They?re often found in strip centers; sometimes they double as pawn shops. They have a simple business ? they lend you money until your next paycheck. The system is pretty convenient; you write them a postdated check for the amount you?re borrowing plus interest. On your next payday, they cash the check and your loan is paid off. What many people who use payday loan services fail to realize is that the interest rates charged by these firms are substantial, often reaching the equivalent of four hundred percent per year!
The interest rates charged by payday loan stores varies from state to state, but a rate of 15-17% for two weeks is not unusual. This translates to 390-440% per year, which is a staggering amount of interest to pay on a loan. The lenders say that these amounts are fair, and are necessary to cover the overhead associated with running a business and to account for a substantial number of borrowers who fail to repay the loans. That may be true, but that high of an interest rate can turn the ?convenience? of a payday loan into a nightmare. Many borrowers are relatively low paid blue-collar workers who live from paycheck to paycheck. Someone who is a ?bit short? this week may also find themselves short again on their next payday. If
they fail to pay back the payday loan, the interest continues to accrue and additional penalties, such as returned check fees, may apply. It is quite common to see loans of $300 or so turn into debts of several thousand dollars, especially if the borrower compounds the problem by borrowing funds from a second payday loan store to pay the loan from the first one.
Several states have already passed laws capping the interest rates that may be charged on payday loans. Others will undoubtedly follow. A good alternative to the payday loan would be to take a cash advance on a credit card. There is usually a fee associated with a cash advance, but the annual interest rate, combined with the fee, is still a lot cheaper than a loan at 400%. Anyone who is considering taking out a payday loan should read the terms carefully. Otherwise, that ?loan until payday? could be there to haunt you for a long time.
About the Author
?Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a site devoted to debt consolidation and credit counseling, and StructuredSettlementHelp.com, a site devoted to information regarding structured settlements.
Debt Consolidation ? Watch out for Payday Loans
Conventional Financing For Wholesale Deals
This info is very important for both new and experienced wholesalers, AND buyers of fixer-uppers, to carefully read and understand. We learned it painfully, hopefully you won't have to :-)
Often times we are asked by investors about using conventional financing for their investor deals. In other words, they want to go through a bank or other similar lending institution to purchase a fixer-upper from us, or another wholesaler. The obvious advantage is that rates are cheaper, and the loan origination fees (many times referred to as ?points?) are both much less than ?hard money? (loans from individuals or small institutions specifically for investor type properties, with rates ranging from 5 points and 15% interest to 10 points and 18% interest). There are, however, some obstacles to using conventional financing of which you must be aware.
First of all, these banking institutions will only loan on inhabitable, decent condition property. So if the property you are considering needs major repairs, forget this type of financing for the most part. Next is how you have structured the deal. Because of all of the recent frauds cases where banks have been burned, we have been unable to locate any conventional lenders willing to loan on a deal that has been ?assigned? from the Buyer listed on the Purchase and Sales Agreement to a third party. They require that the Borrower be the Buyer named in the Agreement. And they absolutely will not fund the Assignment Fee.
You can get around this if you can live with either of these solutions:
1. The wholesaler re-writes the Agreement with the Seller listing the new Borrower as the Buyer. This solves the paperwork issue. The Buyer will still have to fund the Assignment fee with some other source of funds. The wholesaler in this scenario is not protected because none of the paperwork demonstrates his right to purchase the property, nor the assignment fee to be paid. A separate agreement would have to be established with all of the parties. You see how this can get very complicated and cumbersome. By the way, even if you have a cooperative Seller you can not just list the inflated price (original sales price plus Assignment Fee) on the Agreement with a stipulation that the Assignment Fee portion will be paid to the ?Wholesaler? at closing, because then the wholesaler?s fee will show up on the Seller?s side of the Settlement Statement appearing as if he acted as a Real Estate Agent. Note: This may be
OK if the ?Wholesaler? is in fact an agent. They?d need to check with their Broker.
2. The wholesaler must become the owner of the property and in the chain of title. Then he can legitimately write an Agreement with the Buyer listing the full price of the property including the assignment fee. The wholesaler can accomplish this with a cooperative Seller using short term Seller financing, ?subject to? financing, or a short term bridge loan from a home equity line or private lender (usually friend or family). As long as the loan-to-value (LTV) still fits their requirements, the banks will loan on the new purchase price ? thus funding the assignment fee.
The other item to keep in mind when considering conventional financing is that it is relatively slow. Many mortgage brokers will tell you that their loans will be ready to close within 10 days to 2 weeks from submission. The reality is that they can only guarantee that they will process the loan and get it to a lender within a short period of time. With the current rush for refinances, most lenders? underwriting departments are backlogged ? and applications can get stuck there for a week or more. They will also issue conditions that must be met, then submitted back to underwriting for final approval. Then add another couple of days for the loan package to be prepared and sent to the attorney.
To be safe, you should count on three weeks to a month for a loan to close. If it closes sooner, you?ll be pleasantly surprised. If the deal doesn?t allow for that much time, you may want to consider alternative funding sources so you don?t lose it all because time has run out and the loan isn?t ready.
Conventional financing does have a place in wholesale deals. We?ve closed several ourselves ? but it doesn?t work in all cases. You need to understand the process, and what will fly, and what will just kill the deal.
Best of success & abundance,
Lou Castillo
About The Author
Lou Castillo
FREE! Real Estate Investing Secrets To Earning $100,000 Your 1st Year! -- 11 Overlooked Real Estate Statregies That Will Turn Your Investing Business upside Down And On The Fast Track TO Success...Guranteed! Plus A Bonus Track With A Secret So Successful It Can Double Your Investing Income Overnight!
http://www.InvestorSuccessTactics.com
josh@joeandlou.com
