Posted by: Kimberly Howard, CFP®, CRPC®, ADPA® | April 16, 2014

Need To Know About Loans

loanBorrowing money is a necessity for nearly everyone, even those who may be considered affluent need to establish a credit history. From the lender’s vantage point, different types of borrowing have varying degrees of risk no matter what level of income the applicant has. Unsecured lending is riskier with no collateral to collect, if the account goes into default; while a secured loan is less risky for lenders. This is one reason why interest rates fluctuate; the others being inflation, monetary policies and economic forces in the market place that impact the bottom line, requiring an increase to recoup lost or dwindling revenues.

With the tightening of lending restrictions, consumers of all income levels may find it more difficult to secure the money they need. The smart consumer knows in advance of applying for a loan the average lending rates for that particular need. With the information in hand, they will be able to recognize a good loan offer from one that will cost more. Here are the most recent average rates for various types of lending.

  • Mortgage rates are at an all-time low, making it the perfect time to buy or refinance to reduce your current mortgage payment. Fixed rates are the standard term for most lenders. As of August 16, the average rate for a 30-year fixed was 3.56%; while a 15-year fixed-rate mortgage stood at 2.88%.
  • Auto loans are the second largest debt for most consumers after mortgages. The rates fluctuate from seller to seller, depending on whether the dealer is taking the risk of lending you the funds or they bundle multiple accounts and sell them to an investor. The current average rate for a 48-month new car loan is at a record low of 2.25%, with the longest available loan of 72 months at 3.74%. In the market for a used car for model years 2005-2008, the average for a 36-month loan is currently 2.25%.
  • Student loans backed by the Fed (Stafford loans) are fixed at 3.4%; while private institutions with variable interest rates traditionally are higher but currently range from 3.25% to 9.25%.
  • Credit cards have maintained a consistent interest rate during the last few months, with the average rate of just short of 15 percent at 14.97%. In addition, current offers include generous long-term introductory rates of up to 21 months that can save consumers hundreds of dollars in interest.

Tracking Rates

The Wall Street Journal’s Market Data Center posts the prime rate for 30 financial institutions. Mortgages, auto loans and credit card rates adjust in step with changes in this rate. To track current rates for mortgages, auto loans and market funds, check your local newspaper; most publish a list at least weekly. Another online source that may help consumers who are looking to borrow is, a website that projects future rates.


Posted by: Kimberly Howard, CFP®, CRPC®, ADPA® | February 18, 2014

Real World Credit Tips for College Students

college 2Every parent hopes for a better life for his or her kids and for many it starts with helping to furthering their education after high school. Along with newfound independence come new experiences and unknown responsibilities. One of the most important talks that should be had before young adults venture out on their own is how to manage money and especially how to handle credit. An in-depth conversation will prepare them for the eventual struggles that we all experience and help them set the stage for a secure financial future.

Many of the tips you should share may seem obvious but don’t make the mistake of leaving them unsaid because you think it’s simply common sense. Common sense is defined as a basic ability to perceive, understand and judge things, much of which is acquired through the experiences of others. Share mistakes you’ve made and explain how easy it can be to get into trouble but encourage them that there are corrective measures, if they’re committed to turning a bad decision around to protect their financial future.

Teach your young people that cash should be the main source of funding, if at all possible. Living within their means will prevent the accumulation of debt that will be difficult to pay off on a fixed income and a burden when they move into the real world after graduation. If a credit account becomes a necessity, limits must be put in place to only use it to finance absolute necessities when sufficient cash is unavailable or cannot be secured in any other way.

When Credit is a Necessity
The fact that borrowing on credit can be costly is a fact that everyone needs to understand but especially young people who may be more impulsive in their spending. How monthly interest is calculated should be demonstrated using simple math equations and how interest compounds should be explained. The importance of having a lengthy credit history and a high credit score should be stressed.

Lesson #1: How you handle a credit card will affect your future in ways that may not be obvious now. Over time everyone establishes a credit history that reflects how well they handle money. This information is collected into credit reports that are used to calculate your credit scores.

Lesson #2: Handled with care a credit card can have a positive effect on your credit scores.
Lenders use your credit scores to decide whether to approve an application for a mortgage, automobile loans, personal or other types of loans. Mismanage a credit card by maxing out your credit limit and making late payments, and the often, repeated advice to young people to avoid using credit will prove true. If, however, you’re responsible and conscientious in paying the balance in full each month and on time, the benefits to your credit scores and the ability to get credit in the future will be vastly improved.

Lesson #3: The financial success of life on your own lies in taking a genuine interest in the details. Whether you’re choosing a bank, investment firm, employer, credit card or anything other situation that deals with money, what are vital to understand are the details in the fine print. With credit cards, the terms and conditions of each agreement vary and can mean the difference between reasonable and outlandish charges incurred for the privilege of borrowing. Fees and rates can add up quickly.

Factors that should be examined to make a wise decision when choosing a credit card:

  • Annual Percentage Rate (APR): Look for a low rate; a high one will cost more.
  • Annual Fees: Rates range from $25 to $300. Look for a no or low fee card.
  • Penalty Fees: Pay late and you’ll be charged a maximum $25 fee. Go over your credit limit and pay another fee. A penalty rate increase can be imposed for late payments of more than 60 days and remain in effect for six months. Make three late payments and you’re stuck with the penalty rate.

Lesson #4: Using a credit card responsibly takes discipline and commitment. Limit yourself to one card for purchases you can pay off when the bill comes due. Never use a credit card for an impulsive purchase; if you can’t afford to pay with cash, you simply can’t afford it. Frivolous spending will result in an out-of-control balance that may be hard to pay down. Carefully examine every billing statement for errors before making the each payment on time.

Anyone under the age of 21 is required to have a co-signer or proof of sufficient income to make the payments before being approved for a credit card in their name. Sit down together and compare a number of student card offers and teach them how interest is calculated and the debt trouble that can ensue if care isn’t taken.

The Last Word
If your child pays attention to even half of the advice you offer, they’ll be ahead of their peers trying to navigate without any guidance. The right information and your willingness to oversee their efforts in learning to manage their own finances will help them avoid the hardship of learning the hard lessons on their own.

Noreen Ruth is a contributor to and numerous financial-related blogs and websites. She specializes in providing information on credit card services and debt-related issues along with educating consumers about the latest rules and regulations, as well as ways to build, improve and maintain good credit.

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