4 Ways To Finance A Home Renovation

family renovating their houseHome Equity Line of Credit
A Home Equity Line of Credit (HELOC) is an open credit line that is secured by your home’s value. HELOCs offer flexible terms and lower upfront costs than most other loans.

Home Equity Loan
A Home Equity Loan (HE) allows you to borrow a fixed amount of cash, which you receive in one lump sum. However, upfront fees can be high.

Credit cards
Credit cards can work for minor touch-ups, but funding bigger projects this way can leave you with steep interest payments and end up costing much more than planned.

Personal loans
Personal loans are short-term loans that sometimes have high interest rates and upfront fees.

Do your research and talk with us at Advantage One to help find the best option for your needs.

Your Turn:
How did you fund your home renovation? Share your choice with us in the comments!

Mortgage Rates Are Dropping; Should I Refinance?

a young couple refinances their house at the credit unionQ: I’ve heard that mortgage rates have dropped dramatically since the start of 2019. Should I refinance my mortgage loan to take advantage of these lower rates?

A: Refinancing a mortgage is essentially paying off the remaining balance on an existing home loan and then taking out a new mortgage loan, often at a lower interest rate. It may sound like a no-brainer, but there are many factors to consider before moving forward with a refinance.

Is it a good time to refinance?
Mortgage rates have been falling steadily over the last few months. During the last week of March this year, rates took their biggest one-week nosedive in more than a decade, and mortgage applications rose 39%, as thousands of homeowners sought out their lenders for a refinance.

However, the downward trend has already reversed as of the beginning of April, when rates hit 4.29%. That’s up from 4.17% just one week prior. If you’re thinking of refinancing in the near future, it’s best to do move quickly so you can lock in the lowest possible rate. You may be able to save hundreds of dollars a month if you refinance a loan that currently has a relatively high interest rate.

Is a refinance right for you?
While this is definitely an excellent time to take out a new mortgage, that doesn’t mean a refinance is the right fit for everyone.

Here are two reasons a refinance might be a good fit for you:

  • Your credit is strong and you’d like to lower your monthly payments
    The first, and most obvious, reason homeowners refinance their mortgage is to take advantage of a lower interest rate. The drive behind this reason might be a change in finances, personal life or simply the desire to save money. As mentioned, the current mortgage rates make this an excellent time to refinance into a lower interest rate.

    Don’t try a refinance unless your credit is in good shape, though. Taking out another mortgage with a less-than-desirable credit score can mean getting hit with a high interest rate, even if national rates are dropping.

    Aside from reducing your monthly payments, a lower interest rate can also help you build more equity in your home sooner.

  • You’d like to shorten the life of your loan.
    People sometimes choose to refinance their mortgage because they want to finish paying off their loan sooner. If you have a mortgage that has a really high interest rate but you can easily meet these payments, consider refinancing into a shorter-term option. You may be able to pay off your loan in half the time without changing your monthly payment much at all

When refinancing your mortgage is a bad idea
In the following three circumstances, refinancing your mortgage may not make sense.

  • You’re in debt.
    If you’re looking for the extra stash of cash each month to pull you out of debt, you probably shouldn’t be refinancing. Most people who refinance for this reason end up spending all the money they save, and then some. Without making any real changes to your spending habits, giving yourself extra money is only enabling more debt. While the intention is rooted in sound logic, unless you make an equally sound change in your spending habits, you’ll be right back to your present situation in very little time.
  • A refinance will greatly lengthen the loan’s terms.
    If you’ve only got 10 years left on your mortgage and you want to refinance to stretch out those payments over 30 years, you won’t come out ahead. Any money you save on lower payments will be lost in the cost of the refinance and the extra 20 years of interest you’ll be paying on your mortgage.
  • You don’t plan on living in your home much longer.
    If you plan on moving within the next few years, the money you save might not even come close to the costs of a refinance.

How much will it cost?
Homeowners are often eager to get started on a refinance until they see what it will cost them.

Remember all those fees and closing costs you paid when you first bought your house? Prepare to pay most of them again. Broker fees will vary, but a typical refinance will cost anywhere between 3-6% of the loan’s principal.

Before proceeding with your refinance, make sure you’ll actually be saving money. You can do this by procuring a good faith estimate from several lenders. This will get you your projected interest rate and the anticipated loan price. Next, divide this price by the amount you’ll save each month with your anticipated new rate. This will give you the number of months that will have to pass before you break even on the new loan. If you don’t plan on staying in your home for that long, or you can’t afford to wait until then to recoup your losses, refinancing may not make sense for you.

Rates are still low, and if your finances are in good shape, a refinance can be a great way to put an extra few hundred dollars into your pocket each month. [If you’re ready to talk to a home loan expert about refinancing, call, click or stop by Advantage One today to ask about getting started on your refinance. We’re always happy to help you save money!]

Your Turn:
Have you refinanced? What drove your decision? Was it the right decision for you? Let us know in the comments!

SOURCES:

https://www.myfinance.com/5-reasons-to-refinance/?utm_source=Millennial+Money&utm_campaign=millennialmoneycru&utm_medium=mfCRU

https://www.consumersadvocate.org/mortgage-refinance/a/best-mortgage-refinance?matchtype=e&keyword=should%20i%20refinance&adpos=1t2&gclid=CjwKCAjww6XXBRByEiwAM-ZUILOeJrx3aTigcckJXeQcxYZ5KC-gPj1HDcbQYQlprrg3zX08LqGaohoCL14QAvD_BwE

https://www.investopedia.com/mortgage/refinance/when-and-when-not-to-refinance-mortgage/

https://www.investopedia.com/mortgage/refinance/7-bad-reasons-to-refinance-mortgage/

https://www.bankrate.com/mortgages/analysis/

https://www.wkbn.com/news/local-news/with-mortgage-rate-drop-many-buyers-consider-refinancing/1897961701

5 Ways To Pay Off A Loan Early

Young couple plans out payments at kitchen tableIf you’re like most Americans, you owe money toward a large loan. Whether that means carrying thousands of dollars in credit card debt, having a hefty mortgage in your name or making car loan payments each month, loan debt is part of your life. This means you’re looking at hundreds of dollars in interest payments over the life of the loan(s). There’s also the mental load of knowing you owe perhaps tens of thousands of dollars and that you’ll be paying back the loan for years to come.

It can all get kind of depressing—but it doesn’t have to be that way.

Did you know there are simple, but brilliant, tricks you can employ to lighten the load? With a carefully applied technique, you can pay off your mortgage, auto loan, credit card debt and any other debt you’re carrying quicker than you thought possible. These tricks won’t hurt your finances in any dramatic way, but they can make a big difference to the total interest you’ll pay over the life of the loan and help you become debt-free faster.

You can free up more of your money each month, use your hard-earned cash for the things you want instead of forking it over in interest and live completely debt-free sooner than you’d dreamed. It’s all possible!

A note of caution before we explore these tricks: Check with your lender before employing any approach, as some loan types have penalties for making extra or early payments.

1. Make bi-weekly payments
Instead of making monthly payments toward your loan, submit half-payments every two weeks.

The benefits to this approach are two-fold:

  • Your payments will be applied more often, so less interest can accrue.
  • You’ll make 26 half-payments each year, which translates into an extra full payment on the year, thereby shortening the life of the loan by several months or even years. If you choose this method with a 30-year mortgage, you can shorten it to 26 years!

2. Round up your monthly payments
Round up your monthly payments to the nearest $50 for an effortless way to shorten your loan. For example, if your auto loan costs you $220 each month, bring that number up to $250. The difference is too small to make a tangible dent in your budget, but large enough to knock a few months off the life of your loan and save you a significant amount in interest.

For a potentially even bigger impact, consider bumping up your payments to the nearest $100.

3. Make one extra payment each year
If the thought of bi-weekly payments seems daunting but you like the idea of making an additional payment each year, you can accomplish the same goal by committing to just one extra payment a year. This way, you’ll only feel the squeeze once a year and you’ll still shorten the life of your loan by several months, or even years. Use a work bonus, tax refund, or another windfall to make that once-a-year payment.

Another easy way to make that extra payment is to spread it out throughout the year. Divide your monthly payment by 12 and then add that cost to your monthly payments all year long. You’ll be making a full extra payment over the course of the year while hardly feeling the pinch.

4. Refinance
One of the best ways to pay off your loan early is to refinance. If interest rates have dropped since you took out your loan or your credit has improved dramatically, this can be a smart choice for you. Contact [credit union] to ask about refinancing. We can help even if your loan is currently with us.

It’s important to note that refinancing makes the most sense if it can help you pay down the loan sooner. You can accomplish this by shortening the life of the loan, an option you may be able to afford easily with your lower interest rate. Another means to the same goal is keeping the life of your loan unchanged and with your lower monthly payments, employing one of the methods mentioned above to shorten the overall life of your loan.

5. Boost your income and put all extra money toward the loan
A great way to cut the life of your loan is to work on earning more money with the intention of making extra payments on your loan. Consider selling stuff on Amazon or eBay, cutting your impulse purchases and putting saved money toward your loan, or taking on a side hustle on weekends or holidays for extra cash. Even a job that nets you an extra $200 a month can make a big difference in your loan.

Triumph over your loans by using one or more of these tricks to make them shorter and pay less interest. You deserve to keep more of your money!

Your Turn:
Have you used any of these methods or a different approach for paying off a loan early? Tell us about it in the comments.

SOURCES:
https://www.thebalance.com/how-to-pay-off-debt-early-315571

https://www.google.com/amp/s/www.huffpost.com/entry/top-6-ways-to-pay-off-any-loan-faster_b_1624242/amp

https://www.payoff.com/life/money/6-ways-to-pay-off-your-car-loan-early/

4 Reasons To Get Preapproved For A Loan

key fob with tiny car laying on top of auto loan paperwork with "Approved" stamped in large red lettersAre you in the market for a large loan-dependent purchase like a new home or a new set of wheels? Don’t forget to get your pre-approval first!

Here’s why
1. You’ll know what you can afford.
A pre-approval will tell you exactly how much house or car you can afford, simplifying and quickening your search.

2. You won’t get taken for a ride.
When you’re unsure how much you can spend on a car, the dealer may try to sell you one that costs more than you can really handle.

3. You’ll be taken seriously.
A car dealer or realtor will take you more seriously when you wave that pre-approval in their face.

4. Secure the rate and financing terms you desire.
When you’re making the deal for your purchase, there are bound to be some confusing moments as things come together. Some dealers use this as an opportune time to upsell warranties, insurances and other add-ons. While these things require consideration, it’s too easy to tack the costs onto a loan without considering how it will impact payment and overall cost.

Your Turn:
Based on your own experiences, why do you think it’s important to get pre-approved for a loan? Share your thoughts with us in the comments!

How to Know if You Need a Cosigner

A look into what a cosigner is, why you might need one and the risks serving as one presents

close-up of a person's hand as they are signing a legal documentLoans are an economic staple in most people’s lives; they can help pay for education, transportation or living arrangements. Of course, getting a good loan from the bank or some other financial institution can be quite difficult for some people. This is especially true for buyers who are just starting out and don’t yet have a sound credit score.

For these individuals, seeking out a cosigner might just be the way to go. A cosigner allows people to receive a loan or transaction they otherwise wouldn’t have access to. Being a cosigner can be quite risky financially, so it’s important to know exactly when you need to ask somebody to serve as one on your behalf.

What is a cosigner?
Investopedia defines cosigning as “the act of signing for another person’s debt which involves a legal obligation made by the cosigner to make payment on the other person’s debt should that person default.” While the person requiring the cosigner isn’t always in debt, a payment due is always involved.

In summary, a cosigner is someone who agrees to make payments on a loan if the primary recipient of said loan is unable to do so. Oftentimes, the person who takes out the loan is more than able to pay it back, but is unable to receive the original loan without someone else backing them.

By having someone serve as a cosigner, individuals can gain access to much larger loans than they would have been able to by themselves. However, the Consumer Financial Protection Bureau notes that interest rates are usually much higher for individuals with a cosigner.

When do you need a cosigner?
Justin Pritchard of The Balance explains that the most common reason people require a cosigner to receive a loan is due to their credit score. If the individual has a poor credit score and history, they will be unable to receive stronger loans without the guarantee that someone with a better credit score is backing them.

Several different transactions often necessitate the need of a cosigner. Some of the most common are purchasing a car and renting or buying a house.

A cosigner is not necessary for just any transaction, though. Consigners should be found for important financial endeavors that are required to meet basic needs, like the aforementioned lodging or transportation.

Who can serve as your cosigner?
The individual who signs up to be a cosigner is required to have a strong credit history more often than not. They should have enough money saved up and have a strong enough credit score that signing up to cosign shouldn’t negatively affect them. Nevertheless, simply by serving as a cosigner, they do run the risk of hurting that credit score. For this reason most cosigners are people close to the person applying for the loan. The Consumer Financial Protection Bureau notes that most cosigners are family members and most often parents.

Your lender does not designate who must be your cosigner, but will accept anyone who meets their credit standard and guidelines.

What are the risks of serving as a cosigner?
Signing up to be a cosigner is a decision that requires a lot of forethought. If something goes wrong with payments, it will be the cosigner’s responsibility to cover those payments. Cosigners are held to an equal amount of responsibility for paying the loan as the original person who applied for it. Despite this, Kristy Welsh noted in USA Today that lenders will often take legal action against the cosigner first if payments are not made, knowing that the cosigner probably has a larger, more reliable amount of money.

Your lender will provide your cosigner with a disclosure that summarizes their obligations.

Before you consider seeking out a cosigner, it’s important to consider whether the loan you are looking to sign up for is for something that’s absolutely necessary. Settling for a smaller loan might mean settling for a smaller home or car, but it often means that neither you nor your potential cosigner will suffer serious financial burdens down the road.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

What You’ll Need for an Auto Loan

Make sure you have these things before you go into an office for a car loan

Car keys, calculator, and loan paperwork on a deskWhen buying a new car, getting a loan to cover the cost is an increasingly popular option chosen by new drivers. In fact, data from the Federal Reserve Bank of New York and reported by CNN Money shows that a record 107 million Americans currently have auto loan debt, a number which has been growing rapidly over the past 5 years.

If you plan to take out your own loan for your next vehicle, you are definitely in good company. However, first-time buyers may be surprised that getting an auto loan requires bringing along a certain number of items.

Proof of income
According to CarsDirect, proof of income is the first document that the lender will want to see, and the reasoning for it is fairly self-explanatory: whether the lender is a bank or an automaker, it wants to know that you are employed and therefore capable of paying back the loan. CarsDirect adds that proof of income generally would take the form of your last two pay stubs, or your direct deposit receipts if your employer prefers that payment method.

These pay stubs offer a good deal of information about your employment history, including how much money you have made to date, how much you pay in taxes, how long you have been with this employer and whether you have any wage garnishments.

If you are self-employed, you will need to provide at least a year’s tax returns, although it’s a good idea to bring more just in case.

Credit and banking history
According to LendingTree, the next thing a lender will want to see is your credit history. This may include mortgage or lease agreements, statements from credit cards or banks and records from any alimony or child support payments.

This also means that a lender will be looking at your credit score. This three-digit number encompasses the above information, plus other factors, to show how much risk would be involved in giving you a loan. As such, a good credit score would show a potential lender that you are trustworthy, and you’ll have a better chance of securing a loan and setting better terms for that loan.

Since holding a good credit score is so important to this process, the U.S. Consumer Financial Protection Bureau (CFPB) offers a few rules for doing so.

First, pay your bills and loans on time and take care of any missed payments as quickly as possible to stay current. Then make sure you’re not too close to your credit limits, since credit scoring models check to see if you are close to maxing out. On a related note, you should only apply for credit that you need. Many credit applications in a short amount of time signal that you are in dire economic straits and may not be able to pay back a loan.

In general, the CFPB adds, a long, consistent credit history is the end goal to achieving a strong credit score. The longer you continue paying on time (and catching any mistakes), the better the effect will be.

Proof of residence
According to CarsDirect, proof of residence confirms to the lender that you live where you say you do. This information is needed so you can be contacted by mail or, in a worst case scenario, so your vehicle can be located for repossession. This document can be a bill or driver’s license, showing both your name and the address given on the loan application.

Vehicle information
This refers to the vehicle you want to buy, not any trade-in that may be involved. For a new car, LendingTree says that you will need the dealer’s sheet or buyer’s order for the vehicle, including purchase price and vehicle identification number, as well as its year, make and model. If buying a used car, you will need the same information from the seller, along with the mileage, original title and disclosures of any loans currently on the car, called liens.

Proof of insurance
According to CarsDirect, you need to prove that the vehicle has current, valid insurance. This should take the form of a document showing the specific vehicle is insured, and not simply proof that you have insurance with a particular company.

With these documents (and a good credit score) in hand, securing an auto loan can be turned into a streamlined and easy process. However, LendingTree explains that all lenders are different, so it pays to call ahead to see what specific information they want you to bring to help speed up the process.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Four Mistakes People Make With Student Loans

Stay smart with a student loan strategy
Going to college is a life-changing experience that can open doors to new careers and increase your lifetime earning potential. If you are looking for a new student loan or are trying to make the best out of the repayment period, make sure you are avoiding these common student loan mistakes.

Not considering private loans
Many would-be-students shy away from private loans because they have heard that they lack the protections and benefits that come with federal loans. While it’s true that federal loans offer a fixed interest rate in contrast to most private loans, it is often possible for a student to get a lower interest rate with a private loan, particularly if a parent cosigns. If you are able to obtain a much lower rate with a private loan, then it’s worth seriously considering whether the security of a fixed rate with a federal loan is worth it.

Ignoring retirement savings
It is understandable, and even laudable, to want to repay student loans as quickly as possible, but undertaking an ambitious repayment plan at the expense of completely ignoring retirement savings isn’t wise.

“A recent report from Morningstar Inc. subsidiary HelloWallet found that someone with a starting salary of $50,000 who pays off a $20,000 student loan ahead of schedule but skimps on retirement savings—by contributing only enough to an employer-sponsored 401(k) plan to receive half the employer’s 3% matching contribution—will wind up with a net worth at age 65 that’s $150,000 below where it would have been had he or she contributed enough to receive the full match and repaid the loan over a longer period, by making the minimum required payment,” states The Wall Street Journal Reporter Anne Tergesen in an article from Sep. 2016.

Not making automatic payments
One of the best steps you can take to make sure the student loan repayment process goes as smoothly as possible is to set up automatic payments. Some people delay setting up automatic payments because they have ambitious goals of paying more than the minimum each month, and want to wait to see what their bank account balance is before determining the payment amount. While it’s great to pay more when you can (as long as you aren’t sacrificing retirement savings), it’s not worth the risk of making a late payment or missing a payment all together. Setting up automatic payments that you can afford each month is the safest bet, and if you find you have extra money after the payment is made, you can always make a supplemental payment.

Paying for assistance
If you are having trouble affording your payments, you may have been tempted by ads that offer to help you figure out your options for paying on a different schedule or seeking loan forgiveness on your federal loan.

“If someone asks you to pay for these services, you are not dealing with the U.S. Department of Education or our loan servicers,” according to Nicole Callahan, a Digital Engagement Strategist at Federal Student Aid in an article for HomeRoom, the official blog of the U.S. Department of Education. “We don’t charge application or maintenance fees. If you’re asked to pay, walk away (or hang up).”

The cost of an education that can help you start a profitable career or get a better job in your current field is money well spent, and you can make sure you are getting the best return on your investment by avoiding these four common student loan mistakes.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Why You Should Avoid Personal Lending

A loan from a financial institution is best
Avoiding paperwork and getting low or no interest makes a loan from a friend or family member seem like a great idea, but the complications that arise in personal lending situations make them seldom worth the trouble.

Firstly, if the money is lent interest-free, that can create problems with below-market interest legislation. This is a big deal because avoiding interest is one of the main reasons people seek loans between family members. This is an issue because the IRS wants to ensure that people don’t try to get out of paying taxes on financial gifts by disguising them as loans. In order to remain in compliance with the IRS and make it clear that the transfer of money is a loan and not a gift, it may be necessary to calculate the interest that would hypothetically be paid on the sum at the current applicable federal rate (AFR), even if that interest is never actually paid. This is known as imputed interest.

“Then you get to pay real, live income taxes on the imaginary interest,” states Bill Bischoff of MarketWatch. “The imaginary interest payments can also trigger imaginary gifts from you to the borrower, which may eat into your valuable federal gift and estate tax exemption.”

There are differences in the ways that loans between family members are treated depending on whether the repayment is achieved through a set term schedule or it is considered a demand loan, which means that the lender may demand the money back at any time. The need to calculate imputed interest and make income tax payments on the interest is dependent upon the amount of the loan. Those interested in making a loan between family members should therefore talk to their tax professional to determine if below-interest tax rules may be an issue and if interest needs to be charged or imputed interest calculated.

While these legal and financial issues can definitely create their share of problems, the main reason to avoid lending between family members is the personal and emotional impact it can cause. Money owed between family members can cause tension in the relationships and even tempt people to avoid social interactions and family gatherings. If the borrower is not able to repay on a timely schedule, the relationship can be seriously compromised.

Furthermore, if the loan is for a new business or home, it may be especially problematic to get the money from a family member. When a family member lends money to cover a down payment or business startup costs, he or she may feel entitled to become part of the decision-making process, giving you input on how to run the business or which type of home is the best deal. People may do this because they feel their advice can make it more likely you will succeed in repayment, or because they feel their investment has bought them a stake in the home or business venture.

“One of the disadvantages of owing money to loved ones is that it may open up unwanted dialogue about your spending habits,” states April Maguire, writer for the QuickBooks Resource Center. “Whereas a bank won’t tell you to stop going out to dinner or discourage you from buying a new car, lenders who are also friends or family may criticize you for spending money on extravagances when you have yet to repay your debt.”

It can be hard to set up and maintain a clear separation between the financial agreement and the relationship when dealing with a personal lending situation. On the other hand, once a financial institution deems you worthy of a loan, it gives you autonomy to make your own business, home-buying and budgeting decisions.

Sticking with your financial institution helps you avoid all the hassles associated with personal lending and ensures that your relationships are never put at risk. Furthermore, it allows you to build a solid credit history with your timely repayments.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Do You Need a Co-signer for Your Auto Loan?

If you don’t have enough income or good enough credit, you may need a co-signer

As with any type of loan, your income and credit history will be major determinants of whether you are approved for an auto loan application. If you’ve been denied for an auto loan, you may want to consider using a co-signer.

Understanding how a lender determines loan approval
According to a January 2016 article in The Balance by author of “The Everything Improve Your Credit Book” Justin Pritchard, the lending company or financial institution must have reason to believe you will pay back the loan in order for you to be deemed worthy to receive the auto loan. A financial institution looks at two factors to determine whether you are credible: your credit score and your income.

Your credit history is a true indicator of how well you repay your loans; if you’ve borrowed money through loans previously and have successfully paid them off, or are making on-time payments, the lender will be more likely to believe you are a safe bet and will approve your loan application. On the other hand, if you have a poor credit score from defaulting on loan repayments, or don’t have any borrowing history, the financial institution may not want to approve you for a loan, explains Pritchard. To the financial institution, such a person is a bad investment, as the likelihood of the financial institution being repaid decreases.

Lenders also consider the income of the individual in deciding on a loan application, says Pritchard. In fact, the financial institution often calculates a debt to income ratio to determine if you make enough income to cover the expense of the loan payment each month.

Larger vehicles are generally more expensive than smaller ones, but smaller cars can also be more costly depending on the make and the engine build. The price of the vehicle and its calculated monthly payments under a loan in comparison to your monthly income will determine whether you have a low enough debt to income ratio to afford the monthly payments.

When to bring in a co-signer on your auto loan
If you have poor or no credit history, or your debt to income ratio is deemed too high by the lender, you will likely not be approved for a loan. In essence, the financial institution has determined you are too risky and will likely struggle to repay the loan, so it is unwilling to work with you.

A co-signer can help you meet the income and credit score requirements of the financial institution, as the financial institution considers the added income and credit history of the co-signer to the loan terms, explains Pritchard.

“Co-signing happens when somebody promises to pay a loan for somebody else. This happens when a [financial institution] won’t approve a loan (or it won’t approve the original application, but it’s willing to lend if a co-signer is involved),” says Pritchard in an October 2016 article in The Balance.

To the financial institution, the co-signer acts as a backup plan to collect payment if you default on the loan repayment. And if the co-signer has good credit history, the financial institution knows that at least one person on the loan has experience borrowing and repaying loans on time, adds Pritchard.

“The co-signer (who presumably has strong credit and income) promises to ensure that the loan gets repaid by signing the loan agreement with you. In other words, the cosigner takes full responsibility for the debt — if you don’t pay off the loan, your co-signer will have to do it.

“As a borrower,” Pritchard explains, “you need to have sufficient income and good credit to qualify for a loan. Using a co-signer therefore boosts your appeal as a borrower to the financial institution if you can’t meet the loan application requirements on your own.”

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Three Things You Need to Do to Your Student Loans Right Now

Stay ahead of this big expense

Recent college graduates already have enough on their plates worrying about getting a job and supporting themselves — the last thing they want to do is stress over student loan repayment. For most, paying off student loans takes a long time, so no matter where you are in that process, there are three things you should stop and do right now.

1. Get organized
Take an inventory of your student loans. You can get a list by signing up at http://www.nslds.ed.gov/. After a short enrollment process, you will have a handy list of all guaranteed loans that were issued to you by the government, as well as those made by private lenders through June 2010. If you have a private nonguaranteed loan, those should all be present and detailed on your credit report, which you can find for free online.

Create a spreadsheet chronicling the name of each lender, the web address, your username and password (ensure your device is locked or encrypted), the loan balance, and the interest rate. The latter will be helpful if you opt to consolidate or pay off any interest early down the road. But be sure to keep your list up to date, as interest rates on student loans can be fixed or variable.

2. Know your repayment options
“The standard repayment schedule extends your loan payments over ten years, or 120 payments,” explained Maggie McGrath of Forbes. “However, if the standard monthly payments aren’t manageable on your budget — or if you’re unemployed or otherwise unable to repay your loans — the federal government has some alternative repayment plans for you, as well as some deferral options.”

Income-based repayment (IBR) and income-contingent repayment (ICR) extend your payment period to 25 years, capping your monthly payments at a fixed percentage of your income. The income on which payments are based and the actual percentage differ between the two plans. Pay-as-you-earn is a 20-year repayment period, with yet another varying percentage of your discretionary income.

You can read about other repayment options from the government here: https://studentaid.ed.gov/sa/repay-loans/understand/plans. Be wary, as these types of programs can cause your interest costs to increase over time, so always pay as close to your original amount due as you can.

3. Be aware of loan forgiveness opportunities
There are three primary programs that forgive the balance of your loan: Public service loan forgiveness, teacher loan forgiveness and Perkins loan cancellation.

“To qualify for forgiveness, your loans can’t be in default, meaning they’ve gone unpaid for more than nine months,” noted higher education expert Brianna McGurran of Nerdwallet. “Also, private student loans don’t offer forgiveness, though some lenders will let you make interest-only payments or take a temporary interest rate reduction if you’re having trouble affording your bill.”

Public service loan forgiveness requires you to have been working for a nonprofit or the government for at least 10 years in roles including, but not limited to, firefighting, teaching, the military and nursing. In the teacher-specific program, you must work full time as an educator for five consecutive years. The Perkins loan forgiveness also cancels the balance of that loan if you’ve worked as a teacher, firefighter, nurse, police officer, school librarian or public defender for about five years or more. For a complete description of eligibility requirements, visit https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation.

If you take the time to do your homework and gather yourself before — or even while — you are repaying your student loans, the process will seem a lot less scary, and a lot more manageable.

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