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I signed up for SoFi Money, now I love 3 other features too

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  • I signed up for a SoFi Money account for a cash signup bonus and a good interest rate, but I’m sticking around because the company offers an impressive suite of other products, too.
  • SoFi Invest lets you buy stocks, ETFs, cryptocurrencies, and offers a managed portfolio (robo-adviser). Stocks and ETFs trade for free and are available in fractional shares.
  • SoFi also offers student loans, home loans, and personal loans with competitive rates.
  • The free budgeting and money tracking features, called SoFi Relay, help you stay on track for your financial goals.
  • Get a personal loan from SoFi today. Interest rates start at just 5.99% »

SoFi, short for Social Finance, is a unique lending, banking, and investment company focused on people with strong education and income prospects. I first got to know the company as a non-traditional lender that was ideal for people with MBA or medical school loans, for example. 

The company quickly grew to offer a suite of financial products, and in 2019 I signed up for a SoFi Money account, SoFi’s bank account, for a signup bonus and to give the bank a try. So far, I’m impressed. Here’s a look at the major products SoFi has to offer and whether they might make sense for you.

SoFi Money

Because this is where I started, let’s look at SoFi Money first. SoFi Money is essentially a checking and savings account in one. The account has no recurring fees and reimburses you for all ATM fees charged by other banks. It features an interest rate that’s on par with high-yield savings accounts at popular online banks.

sofi money


SoFi


One cool feature is called Vaults. Vaults work as sub-savings accounts to put money away for specific goals. Vaults are still a part of SoFi Money and earn the same great interest rate, currently 1.60% as of December 30, 2019.

SoFi Invest

SoFi Invest is, as the name implies, the investment arm of a SoFi account. With SoFi Invest, you can buy and sell stocks and ETFs with no fees. 

Through what it calls Stock Bits, you can purchase fractional shares in your SoFi Invest account. That means you don’t need to have the full share price for supported stocks or ETFs. You could buy $100 of Amazon or Apple stock even if the shares are above $100 per share, for example.

sofi bits


SoFi


For those who don’t want to manage their own portfolio, you can buy into SoFi’s instant diversification collections or let SoFi investment pros handle things with automated investing.

SoFi Invest also supports cryptocurrencies like Bitcoin, but they are incredibly high risk and probably not a good use of your money.

SoFi Loans

Loans from SoFi include student loans, student loan refinancing, home loans, and personal loans

SoFi uses some non-traditional credit information and will look at your school and degree, for example, in addition to your credit score when approving a loan. The company understands that someone with $200,000 in med school loans might have bad credit but will likely be able to pay back their loans in the future due to a high income, for example.

You can start the application process for some loans in as little as two minutes. Depending on the loan, you can get an idea of your approval odds and interest rate without a hard hit to your credit report.

Get a personal loan from SoFi today with rates starting at 5.99% »

SoFi Relay

Relay is SoFi’s answer to money-management products like Mint and Personal Capital

SoFi Relay is a virtual money dashboard that summarizes account balances and transactions, including accounts outside of SoFi. It helps you manage your budget, credit score, and understand your monthly cash flow.

sofi relay


SoFi


Relay isn’t as fully featured as apps like Mint, but it does a decent job at giving you the basic info you need. If you are already using another SoFi product, it adds other vital money info at your fingertips in the SoFi app or online at SoFi.com.

Does SoFi make sense for you?

SoFi is a viable choice to keep all of your finances under one roof, but it isn’t perfect for everyone. You’ll get the best experience if you are tech-savvy and have a basic understanding of what you want to do with your money. It’s clearly geared toward millennials who have common financial needs and goals, but that isn’t a bad thing in any way.

The app and website are easy to use and the financial products hold up well. Expert stock traders and people who want more granular control over their finances might be best off looking to a traditional brokerage. But for people who are okay with a modern experience, SoFi definitely fits the bill.

Learn more about refinancing your student loans or getting a personal loan from SoFi today »

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How Does a Car Loan Impact My Credit Right Away?

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An auto loan does impact your credit, right from the beginning all the way to your last payment and beyond. To understand how a car loan impacts your credit score you’ve got to know the five categories that make up your credit score – new credit (10%), payment history (35%), amounts owed (30%), length of your credit history (10%), and credit mix (10%) – and how your loan impacts them.

Car Loans and How They Affect Your Credit Score

How Does an Auto Loan Impact My Credit Right Away?Your credit score is a three-digit number that expresses your creditworthiness, and auto loans impact all five of the parts of it. From the moment you apply for the loan, it affects the many parts of your credit right away, but it can take some time before you see a boost in your credit score.

When you first apply for a car loan, it can lower your credit score a little bit. This is because the category new credit keeps track of how many times you inquire to a lender about taking on a new account (where the term hard inquiry comes from). Typically, a hard inquiry can lower your credit score around five to 10 points, but this damage only lasts for up to 12 months.

If you’re approved for the auto loan, you now have an installment loan on your credit reports! This has many benefits to your credit score, maybe just not initially. Installment loans are those you pay off over time in increments (usually monthly), so this has the potential to build a really strong payment history, which carries the most weight out of the five credit score categories. If you make your payments on time, every time, it heavily influences your credit score.

Car loans can impact amounts owed, too. The amounts owed category compares the total amount you owe on the loan to the amount that you originally took out (as well as many other things). If you manage to keep paying off the auto loan consistently, it improves your credit because you’re proving you can manage large amounts of credit.

As far as the length of your credit history, this takes time to improve your credit score, too. Credit length considers the average age of all your accounts. The longer you’ve had credit, the better. So, when you take on a new car loan, it can lower your length of credit history category a little bit at first. Time heals this pretty easily, though, as long as you’re paying on the loan and the account doesn’t get closed. This category is more passive than the others, because simply leaving your credit accounts open helps improve it.

For credit mix, installment loans add variety if you’ve only had revolving credit, like credit cards. The credit scoring models rate you higher if you prove that you can handle different kinds of credit well. The more variety on your credit reports, the higher your credit score can soar.

Repairing Poor Credit

Many borrowers start their credit history off with an auto loan. Some also use bad credit car loans to dig themselves out of a lower credit score, as installment loans have lots of potential for credit repair. Other installment loans, like mortgages, aren’t nearly as frequent as auto loans, so borrowers tend to start their credit history off with a vehicle instead of a house.

When you get your car loan, it’s imperative that you make all your payments on time. It’s the best way to improve your credit score. It can take some time to really build a long-standing payment history, but auto loans are a great way to establish time in the credit bureaus.

Getting a Car Loan

Ready to rebuild your credit, or start your borrowing journey for the first time? Then start right now with us at Auto Credit Express. We’ve created a nationwide network of dealerships that assist bad credit borrowers, and we’ll look for one in your area at no cost after you complete our car loan request form. It’s secure, quick, and there’s an obligation to buy anything, so let’s get to work!

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LexinFintech Holdings: All Eyes On Regulatory Risks (NASDAQ:LX)

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Elevator Pitch

I assign a Neutral rating to Chinese online consumer finance company LexinFintech Holdings Ltd. (LX).

LexinFintech is differentiated from most of its online consumer finance peers in multiple ways, such as its customer base, consumption focus, funding sources, and proprietary technologies. However, the interest rate cap on consumer lending in China has been lowered, which could potentially hurt LexinFintech’s profitability, and this brings regulatory risks for the company and its peers into the spotlight. LexinFintech trades at 10.7 times consensus forward FY 2020 P/E and 4.0 times consensus forward FY 2021 P/E.

Company Description

Established in October 2013 and listed in December 2017, LexinFintech refers to itself as a “leading online consumption and consumer finance platform for new generation consumers in China” offering various services, including “financial technology services, membership benefits, and a point redemption system through its ecommerce platform Fenqile and membership platform Le Card,in its press releases.

Business Overview And Key Metrics

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

The company is differentiated from most of its online consumer finance peers in multiple ways, which is discussed in greater detail in subsequent sections of this article.

Targeting Young Adults

LexinFintech targets young adults in China, more specifically, students studying at tertiary institutions, recent graduates or those who recently entered the workplace.

As of June 30, 2020, the company has 95.3 million registered users, of which 22.7 million users have a credit line, and 6.8 million of them are active users. Active users are “users who made at least one transaction during that period through our platform or through our third party partners’ platforms using credit line granted by us,” as defined by LexinFintech.

It is noteworthy that the average age of LexinFintech’s customers is 25 years old as of end-2Q 2020. Arguably, young adults are the best customers that online consumer finance companies can have, since they are the stage of their lives where they will be spending a lot (yet do not have the income to match that) and need to maintain a good credit rating (i.e., no defaults) for future borrowings.

At the business update call on September 16, 2020, LexinFintech stressed that its customers “are fundamentally different” and “younger”, and “we typically offer better credit limits, higher amounts to these customers.” The company’s average credit limit for customers in the second quarter of 2020 was a relatively high RMB10,000.

A Diverse Range Of Products Focused On Consumption

LexinFintech offers a diverse range of products focused on consumption, and this is closely linked to the company’s customer base comprising mainly of young adults who have a strong desire to spend.

Rather than simply offering loans and credit, it has an e-commerce platform (Gross Merchandise Value of RMB2.6 billion in 1H 2020) and mobile app called Fenqile which offers various products for sale which can be paid in installments. In addition, the company has a two million-strong membership base (membership fees are another source of revenue), and its virtual credit card Lehua Card which contributed RMB22.2 billion in loan originations (or close to 30% of total loan originations) in the first half of this year.

LexinFintech’s Products And How They Are Linked To Daily Consumption Activities

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

LexinFintech noted at the 2Q 2020 earnings call on August 18, 2020 that its consumption-focused product strategy is to cover “all the consumption scenarios is that it enables us to literally see how our customers eat, sleep, live” with the aim of improving “the stickiness of the customers.” The company also emphasized at the earnings call that there is still room for growth in terms of providing more products and services focused on consumption, as “the amounts that we can provide financial services to is probably limited at this point to just over 20%” of its 95.3 million registered users.

Relatively Low Funding Cost Relying On Institutional Funding

LexinFintech’s funding cost has been declining over the past few years, and it reached a new record low of 7.7% in 2Q 2020. This is mainly attributable to the fact that it is able to access relatively cheaper wholesale funding from institutions such as banks and insurance companies with its micro-finance license. In contrast, most peer-to-peer lenders are reliant on more expensive funding from individuals. Also, LexinFintech has continued to optimize its funding mix over the years. While the company used to source two-thirds of its funds from individuals in 2016, institutions now contribute substantially all of its funding.

Funding Cost

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

Funding Source

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

Looking ahead, LexinFintech guided at its recent 2Q 2020 earnings call that it expects its funding cost to continue to decline going forward, but the pace of decline might slow in the near term, as “we certainly already have one of the better funding costs and better deals from the banks out there.”

Proprietary Technologies

In a recent book on the Chinese fintech sector published by Columbia Business School in August 2020 titled “China’s Fintech Explosion”, authors Sara Hsu and Jianjun Li make special mention of LexinFintech. In the book, it is noted that the company “uses proprietary technology to trace back bad credit and identify risks” and artificial intelligence “helps firm managers assess risks properly using location information and social network activity as fraudulent users tend to congregate.”

Company’s Credit Risk Management And Credit Approval System Referred To As Hawkeye Engine

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

Company’s Funding And Capital Allocation System Known As Wormhole

(Source: LexinFintech’s September 2020 Investor Presentation Slides)

The numbers speak for themselves. Hawkeye Engine, LexinFintech’s credit risk management & credit approval system, processes 99.8% of loan applications automatically, while Wormhole, its funding & capital allocation system, boasts a 93% success rate with respect to matching of funds.

Regulatory Risks And Interest Rate Cap In The Spotlight

Similar to many online consumer finance companies operating in different parts of the world, LexinFintech faces significant regulatory risks in its home market, China. A recent Bloomberg report on interest rate caps in China has brought regulatory risks for LexinFintech and its peers into the spotlight again.

Bloomberg reported on September 6, 2020 that China’s Supreme Court has issued a new interest rate cap on consumer lending equivalent to “four times the benchmark Loan Prime Rate,” or approximately 15.4%, as compared to “a range of 24% to 36% under a previous judicial interpretation in 2015.” It is uncertain if this new interest rate cap, which will hurt the profitability of lenders, will be applicable to online consumer finance companies such as LexinFintech.

Specifically, online consumer finance companies could face issues with charging overdue fees. Overdue fees have been an effective deterrent against late payment in the past, when overdue fees were charged at significantly higher rate compared with existing lending rates. This might not be possible going forward given the narrow difference between online consumer finance companies’ average lending rates and the new interest rate cap.

In response, LexinFintech organized a business update call for analysts and investors on September 16, 2020 to address such concerns.

At the call, LexinFintech highlighted that its current numbers are below the new interest rate cap. The company’s average interest rates were 13.6% and 14.5% for 1Q 2020 and 2Q 2020, respectively, based on the court’s definition of nominal Annual Percentage Rate, or APR. LexinFintech stressed that “we don’t see any particularly significant impact from this (new interest rate cap),” and “we are pretty confident in terms of our ability” to meet “the financial goals for this year.”

However, the company did acknowledge that it needed to make changes to certain products with higher rates, and it also mentioned that fee-based income (e.g. membership fees) could help to offset some of the negative impact of reduced rates.

Nevertheless, it is noteworthy that LexinFintech noted at its recent call on September 16, 2020 that the Supreme Court’s decision to lower the interest rate cap was made with the aim to “lower the cost of funding for the society as a whole.” This suggests that the Chinese authorities are determined to lower interest costs to boost consumer spending and economic growth, and online finance companies such as LexinFintech could be subject to further regulatory risks going forward.

Valuation And Risk Factors

LexinFintech trades at consensus forward FY 2020 and FY 2021 P/E multiples of 10.7 times and 4.0 times, respectively. Sell-side analysts expect the company to achieve ROEs of 16.8% and 32.1% for FY 2020 and FY 2021, respectively.

As per the peer valuation comparison, LexinFintech is the most expensive among its peers based on consensus forward FY 2021 P/E, but this is justified by the company’s high consensus forward ROE of 32.1% for FY 2021 and its differentiating factors highlighted above.

Peer Valuation Comparison For LexinFintech

Stock Consensus Current Year P/E Consensus Forward One-Year P/E Consensus Current Year ROE Consensus Forward One-Year ROE
Yiren Digital (YRD) 5.1 3.7 10.6% 12.1%
Qudian (QD) 30.7 2.9 0.7% 6.7%
FinVolution Group (FINV) 2.8 2.9 18.4% 15.5%
360 DigiTech (QFIN) 4.3 2.9 33.9% 30.2%
Jianpu Technology (JT) 3.2 1.1 17.4% 31.1%

(Source: Author)

The key risk factors for LexinFintech are weaker-than-expected economic growth in China leading to lower-than-expected consumption demand, and new regulations which are negative for the Chinese online consumer finance sector, such as the recent lowering of the interest rate cap.

Asia Value & Moat Stocks is a research service for value investors seeking value stocks with a huge gap between price and intrinsic value, leaning towards deep value balance sheet bargains (i.e. buying assets at a discount e.g. net cash stocks, net-nets, low P/B stocks, sum-of-the-parts discounts) and wide moat stocks (i.e. buying earnings power at a discount in great companies like “Magic Formula” stocks, high-quality businesses, hidden champions and wide moat compounders). Sign up here to get started today!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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Installment Loans Online: A One-Stop Guide

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People opt for various types of loans to meet personal and career needs. However, the working pattern of such loans can be very different. Installment Loans are quite popular, and they are preferred by people from literally all walks of life. An installment loan is a type of loan that is meant to be reimbursed with regular and fixed scheduled payments. Every single repayment, which is called an installment, includes both interests on the principal amount and a part of the principal amount borrowed. The factors that should be considered while opting for such a loan are the interest rate, loan repayment duration, and loan amount.

Before you learn how to get approved for an installment loan, you must get your facts clear on this type of loan. Both commercial and personal loans can fall under this category. Mortgage loans and car loans are also offered in the form of installment loans. The majority of installment loans have a fixed rate of interest. The mortgage loans, however, can have varying interest rates. As the regular payment amount collected every month stays the same, the borrower finds it convenient.  A payday loan is a different story since this type of koan  has one payment rather than multiple ‘installments’.

Some installment loans require collateral, while others do not need it. Mortgage and car loans are collateralized, or secured loans. The property and the car are kept as collateral in these cases. The personal loans do not require any collateral mostly. However, in these cases, the credit history of the borrower is assessed thoroughly. His/ her income status is also considered. Generally, non-collateralized loans have a steeper rate of interest compared to collateralized loans since there is nothing of value available to the lender should the borrower default on the loan.

The procedure of installment loan application and processing

The application and processing of installment loans are not very different from the other type of loans. The borrower may apply for loans online or at the lending company’s branch. The form fills up part with vital details of the borrower is essential. The lender discusses topics like down payment, terms, extra charges, fees and a payment schedule, etc. The borrower has to make a down payment at times as well. The lender will also assess the creditworthiness of the borrower before loan sanctioning. Employment details of the applicant and his/her sources of income are also carefully evaluated. Usually, the entity offering the loan imposes a processing fee.

Once the loan is sanctioned, the borrower is required to repay the amount in fixed monthly amounts. However, they may also choose to prepay the loan in some cases. Every entity offering an installment loan does not keep penalty-free prepayment options, though. This is an issue you have to check with the lender at the time of applying for the loan.

Advantages of installment loans
Mentioned below are the benefits of taking installment loans over other kinds of loans:
  1. Easy process of application – For customers’ convenience, installment loans can be applied online and in person. Whatever be the mode of application, the process is smooth and straightforward. Along with filling up the application form, the customer will need to furnish proper loan processing documentation. Generally, loan processing and sanctioning take place instantly until and unless there are some significant issues.
  2. Borrowing a large  amount – If you are making plans for borrowing a heavy sum as a loan, installment loans come across as the best option. The money can be used for purchasing something expensive or for any personal purpose.
  3. Fixed interest rates providing predictable monthly repayments – This is probably the most significant advantage of an installment loan. The interest rate at the beginning of the loan continues throughout the loan repayment period. If there are fluctuations in the interest rate, the borrower might have to pay more monthly repayments. With fixed rates of interest, the borrower knows exactly what needs to be repaid every month.
  4. Repayment terms are generally longer – When there is a longer repayment term for any loan, it means that you have ample time in hand for making the loan repayment. As the loan runs for an extended period, the monthly repayment installment amounts tend to be low and manageable. Keep in mind the longer the term can also mean more interest, so try to pay down quickly.
  5. Credit ratings matter less – Installment loans are a favorite with people who don’t have a very healthy credit score and history. Despite a low credit score, you may still be able to get an installment loan without too many difficulties.

When you need money in a hurry, there is no better alternative than applying for installment loans.  Even with bad credit they can be an option for many.

Disadvantages of installment loans

No loan is perfect, and installment loans also come with their share of drawbacks. These are:
  1. The borrower may have to pay a higher rate of interest for the fixed interest loans. In a mortgage loan, this can be disadvantageous.
  2. This type of loan locks the borrower into a long term monetary commitment. For long term loans, this can be tedious. If the borrower suffers a dip in income or runs into financial hardship, repaying in time can prove to be challenging for him/her. This can lead to forfeiture of the collateral as well.
  3. If the lender is skeptical about the borrower’s repayment capability, a steep rate of interest is offered. The borrower has no option than to accept it.

Duration of an installment loan

The duration of an installment loan can vary widely. It depends on what type of loan you are applying for. Personal loans are usually offered for short terms. It can be for 1-5 years. Car loans generally have longer repayment tenure. Mortgage loans can have extended repayment tenure, which can be up to 30 years in some instances.

Summing it up

Installment loans can be convenient in many instances. These loans make repaying the borrowed amount easier. You know exactly how much you have to pay per month and so you can plan finances accordingly. However, factors like rate of interest, prepayment charges, and down payment must be analyzed carefully. Top-notch lenders clarify these aspects at the time of applying for such loans. 



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