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Smart Money Podcast: Buying Local, and Emergency Loans – Business – The State Journal-Register

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Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions. This week’s episode starts with a discussion about how to help small, local businesses, which have been hit

Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions.  

This week’s episode starts with a discussion about how to help small, local businesses, which have been hit much harder by the pandemic than the big online shopping sites. One way is to seek out local sources for products you might otherwise buy from the online megastore. Another is to order directly from local restaurants rather than using delivery apps. If money is tight, a social media shoutout or five-star review can help others discover local gems.

Then we pivot to this week’s question from Michelle. She says, ‘I recently got into a fender-bender that left the back of my car pretty messed up. It still drives, but one of the doors doesn’t open, and a window is cracked. I want to get it fixed, but I don’t have enough cash to cover the repair. I’m thinking of getting a small loan, but I don’t have great credit. What do you think would be the smart thing to do?’

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Check out this episode on any of these platforms:

Apple PodcastsSpotifySoundCloudOur take

Many people aren’t prepared for unexpected expenses, including car repairs. If they don’t have savings or good credit, a so-called ‘small-dollar loan’ may seem like a good option.

Small-dollar loans are usually for amounts of $2,500 or less. Banks, credit unions and reputable online lenders typically don’t make loans this small, so people often turn to payday lenders or unsavory online outfits. Interest rates can be extremely high and you may have only days or weeks to pay off the loan, increasing the chances you’ll have to renew the loan or borrow elsewhere to pay it off. This is known as a debt trap.

Some credit unions offer ‘payday alternative loans’ that allow people to borrow small amounts at reasonable interest rates. Borrowers can pay off the balance over 6 to 12 months, reducing the chances they’ll have to borrow again.

Michelle’s car is still drivable, so she may have time to save up the cash she needs. If not, she has time to check with local credit unions to see if any offer these alternative loans. A co-signer also could help her get a loan at a reasonable interest rate, or she could look for lenders willing to make secured loans ” personal loans backed by an asset, such as a car or home ” at a reasonable rate.

Our tips

Explore your options. You may be able to borrow from your local credit union, or from family and friends.

Bad credit equals higher rates. If your credit isn’t great, you may be able to qualify for a lower rate by getting a co-signer or a secured loan backed by an asset you own, such as a house or a car.

Know the risks. Some small-dollar loans, including payday loans, can carry astronomically high interest rates, which can lead to a cycle of debt.

Have a money question? Text or call us at 901-730-6373. Or you can email us at podcast@nerdwallet.com. To hear previous episodes, return to the podcast homepage.

Episode transcript

Liz Weston: Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I’m Liz Weston.

Sean Pyles:   And I’m Sean Pyles. As always, be sure to send us your money questions, call or text us on the nerd hotline at (901) 730-6373, that’s (901) 703-NERD, or email us at podcast@nerdwallet.com. I am continually impressed by how insightful and smart all of your questions are, so please keep them coming, and we will keep answering them.

Liz: Also, hit that subscribe button if you want more Nerdy goodness delivered to your device every Monday. And if you like what you hear, please leave us a review. On this episode, Sean and I discuss small-dollar loans, their uses, risks and alternatives. But first, in our This Week and Your Money segment, we’re talking about how to help local businesses stay afloat during the pandemic.

Sean:  This has been something I’ve been thinking about since the pandemic began and everything shut down. One, as I talked about a couple of weeks back, I was doing some impulse shopping and I was trying to see how I could make that be more productive for my local economy and help smaller businesses. But what recently got me thinking about this as well is that there was an article I read in The New York Times that found that a third of all of the small businesses in New York City may never reopen. That was according to a report by the Partnership for New York City, a business group. So that’s really staggering if you think about how many local shops you go to for a cute houseplant or a cup of coffee or clothes for your kid ” all of these places that you know the owners and you rely on their specialty goods for. A third of them being gone is heartbreaking, and there are things that we can do to make sure that some of them survive.

Liz: And one of the things you should think about is which businesses do you want to be able to go to when this is all over. Those maybe are the ones that you target. But overall, your local economy is going to be stronger, the more money that you can spend locally. When you spend with local businesses, more of the money stays in your community and helps people that you know, and also helps you because these businesses survive.

Sean:  Right, and then they end up paying taxes and that goes to your city government, and that helps pave the streets and keep the lights on the road, and it keeps your bridges working as bridges should. All of these important things, and again, local is really where you can make the most impact, whether it’s in an election or in an economy.

Liz: I recently wrote a column after interviewing the behavioral economist, Dan Ariely, and he and his colleagues are doing something I thought was really cool. There’s 50 of them at the lab where they work, and they basically pick a local business and every week each of them spends $100 there. And that’s $5,000, which wouldn’t be a drop in the bucket to the bigger stores, but it could be enough to keep a smaller place going. And I mean, you don’t have to do this by spending $100 every week. But if you can talk to some of your coworkers or your friends and neighbors, and pick a different company or a different local business every week and put some money there, that could keep them going until the pandemic is over.

Sean:  I really love that idea because that way you ensure that you’re getting money into your local economy, helping a smaller business right in your area. I found one way to do that that isn’t as expensive for some people who maybe don’t have $100 to spend. One way was kind of a pay-it-forward gift card option where you buy a $10 gift card for a friend for a local store, and then you encourage them to do the same for someone else, And $10 is enough where you can get something small, like a succulent from your local plant store or a face mask from a local craft store. And then someone else can do that as well. So you keep supporting other smaller businesses while also connecting with your friends, which is really hard to do right now as well, so it’s a win-win in different areas.

Liz: That’s a great idea. Another thing I like to do is frequent our farmer’s market, ” and not just because there’s always celebrity sightings there, I live in Los Angeles, that’s part of it. Sometimes smashing into a paparazzi is the first indication I have that anybody famous is standing next to me. But anyway, farmer’s markets, obviously, these are all local farmers ” this is money, again, that stays in your community. And you tend to have, at least the ones I’ve been to, there’s a pretty wide variety of stuff that you can buy. It’s not just food. It can be crafts, it can be clothes, so that’s something to check out.

Sean: Yeah. I think one thing that has been really helpful for me when trying to shop local is thinking about one, all of the new things that we have to buy in this pandemic economy, like hand sanitizer or face masks, and then thinking about the ways that local companies have been adapting to fill those needs. Obviously, people know that in Portland, we have tons of breweries and distilleries and we can’t really go to them in the same way we could before. But a lot of them are actually making hand sanitizer now that you can purchase from them, so even though I’m not going to my favorite brewpub for a beer the way I would have maybe 12 months ago, but I can get hand sanitizer from them. So that way I’m filling a need that I have while also supporting a company that I know I want to support, but can’t in the way I would want to.

Liz: That is so cool.

Sean:  Yeah, and a lot of times they come in the alcohol bottles, which makes it even more fun in a way.

Liz: Ah, I love that, I love that.

Sean:  Yeah, yeah.

Liz: And that’s a great gift, by the way. Hint, hint.

Sean: Yeah, and even for places that aren’t local in your community, that you do want to support, there’s a really easy way that you can support them while avoiding directing your money to those big online stores. Say that you’re looking for a face mask and you found a little dealer that was either at Walmart or Amazon, somewhere online, and you didn’t really want to spend your money at that shop. Google the name of the company that is listed on that website, find their direct website, and then purchase whatever you’re going to get from them. That way you can ensure that all of your money is going to support a local business and not some mega-corporation that doesn’t need that money anyway.

Liz: That’s a great idea.

Sean: And even beyond spending money, it’s really easy to promote a local business after you have maybe already purchased something or you see something that you like online by sharing it on social media. I’ve seen a lot of people tweet out local businesses, especially as we’re trying to support more black-owned businesses. That’s been one of the key ways that I’ve been able to get connected with local businesses that I want to support that I didn’t even know existed.

Liz: Yeah, those kinds of shoutouts can make a huge difference. And also, you know, the business owner appreciates it.

Sean:   Mm-hmm, and again, it’s free, free marketing, and you’re also making a difference in connecting with your network, too.

Liz: Yeah, and a lot of people right now are dealing with, money is really tight, so they don’t have a lot of extra to spread around, but that’s something that anybody can do to help out.

Sean: And one last thing I wanted to mention for people that are maybe buying takeout. I’ve been getting a decent amount of takeout lately since I can’t go to restaurants. I found that if you order directly from the restaurant, you don’t go through one of those apps that has it delivered to you. That way, you, again, you similarly make sure that all of the money that you’re spending is going directly to that company because, as we know, these apps take a big chunk of what you’re spending and put it in their pockets. And a lot of restaurants don’t even make that much, but they feel like they have to be on these servers to get any business at all. So if you want a pizza or there’s a really good pho place in my neighborhood, we just call them up. And yeah, I have to drive down the street to get the food, but it makes me feel better knowing that I’m supporting them and not some other company.

Liz: Oh, that is huge. I mean, I was using all those apps because they give you free delivery for a while, and I always like free. But then I started reading about how much of the dollar that you spend, they take, and a lot of times, the business is just barely breaking even. That doesn’t really help. So if you really want to help, call them directly.

Sean:  Mm-hmm.

Liz: All right, I think that about covers it, but I would love to hear our listeners’ ideas if they have some for how they support local businesses. So you can email us at podcast@nerdwallet.com or send us a voice memo at the number we’ll say later. We’d love to hear what you think.

Sean: Yeah, please do. I know there’s always new ways to support local businesses, so please let us know what you’re doing so we can all make an impact together. Let’s get to this episode’s money question.

Liz: This episode’s money question is from Michelle. She says, ‘I recently got into a fender-bender that left the back of my car pretty messed up. It still drives, but one of the doors doesn’t open, and a window is cracked. I want to get it fixed, but I don’t have enough cash to cover the repair. I’m thinking of getting a small loan, but I don’t have great credit. What do you think would be the smart thing to do?”

Sean: Man, Michelle, that is a really tough place to be in. To help us talk through a few different small loan options on this episode of the podcast, we’re talking with Annie Millerbernd, a Nerd who knows a lot about small loans and ways to fund expenses like this.

Liz: All right, sounds good. Hey, Annie, welcome to the show.

Annie Millerbernd: Glad to be here. Thanks for having me.

Sean: Hey, Annie. Let me set you up here. Our listener Michelle needs to fix her car, but she’s short on cash and her credit is not great right now. She’s thinking of getting a small personal loan to cover the cost, but she’s not sure that is the smartest choice. So to start, can you explain what a small-dollar loan is and how it’s different from other kinds of loans?

Annie: Small-dollar loans are loans typically under $2,500. Usually, they’re a few hundred dollars to a few thousand dollars, and because they have the small amount, banks and reputable online lenders don’t typically offer them ” it’s hard for them to make them profitable. So instead, these payday lenders and unsavory online lenders will fill in the gap, and those lenders typically offer APRs that are super high with short repayment terms that make them difficult to repay on time.

Liz: Those short repayment terms ” talk about what those are and why they’re dangerous.

Annie: The short repayment terms, they can be two weeks, maybe more, maybe less. They’re usually around a month or under for payday lenders. Short repayment terms are risky because they make it difficult for a person to pay that loan back on time. So if you have a combination of a high APR and a short repayment term, you have to pay back a lot of money in a small amount of time. And that’s a difficult thing for a lot of people who need the small amount of money to do, so they end up having to basically get another loan to repay that loan on time.

Sean: And that’s what can create the cycle of debt, because if you had a hard time scrounging up a few hundred bucks for a car repair, chances are, in a few weeks when that loan is due, you’re going to have a hard time paying back that base amount, plus the APR, which can be upwards of 300%, right?

Annie: That’s right. They have exorbitant APRs and, like you said, the short repayment terms make it really difficult to pay back all of that extra money in addition to what you borrowed.

Liz: A lot of these loans don’t require credit checks, and I know some people think that that is a positive. But actually, that can be a negative, right, Annie?

Annie: Right, so if you’re a person who needs a small amount of cash or any amount under a thousand or a couple thousand dollars, you might think that maybe you don’t have great credit or maybe you don’t have any credit at all, and having a lender not look at that would be better for you. But actually, if a lender isn’t checking their credit and income and debt and basically assessing your ability to repay, then they aren’t probably basing the APR that you’re getting on your ability to repay.

Sean: And at the same time, if you want to improve your credit by having on-time payments on your credit report, these loans aren’t going to help you get there. So you’ll be responsible for an expensive loan, and then you also won’t be getting the benefit on your credit report of making on-time payments, so that doesn’t make you any better off at the end, either.

Annie: That’s right.

Liz: So, with all these disadvantages, though, we know a lot of people are in the situation where they don’t have access to, really, any substantial amount of money to take care of an emergency expense.

Sean:  Right, but there are some alternatives to these riskier loans, ways to get some cash. Annie, can you talk about what a few of those might be?

Annie: Credit unions are one of the best options most people have for a small-dollar loan, and there are some requirements around membership for a credit union personal loan. But credit unions offer a small-dollar loan called ‘payday alternative loans,” and they’re far and few between, but these loans typically have amounts of less than $1,000 or $2,000 and they have longer repayment terms ” so one month to six or 12 months and APRs of 28% or lower, so that’s going to be your best option for a small loan. Small-dollar loans aren’t only from payday lenders and deceptive online lenders. That’s a really good option.

Sean:   Mm-hmm.

Liz: And Annie, I know that regulators were trying to get banks into this space to do these smaller dollar loans. Is that actually happening?

Annie: There used to be this suggested rate cap from the FDIC, which is the main regulator for banks, and the rate cap was at 36%. Earlier this year, the FDIC, with other regulators, issued some guidance that omitted that APR cap ” and that really was to encourage banks to start offering small-dollar loans to bring some competition to the small-dollar lending space. And there’s some research that says that banks could be well-positioned to offer these loans at sub-100% APRs while also having that existing consumer relationship where they can assess your ability to repay, and they can report your payments to credit bureaus.

Liz: Yeah, because that’s been the problem with payday loans is the lenders say they have to charge these outrageous amounts of interest because the lending isn’t profitable otherwise. They can’t do the kind of underwriting that a typical lender would do. But your bank already has all the information pretty much it needs to make these loans, right?

Annie: Yes, and banks would struggle to make a 36% APR on a $400 loan profitable. That’s not probably realistic is what some of the research says, so we’re looking at $50 to $60 on a $400 loan with a three-month repayment term which, according to some key research, consumers think would be a fair loan, and it is an APR of less than 100% that the bank can still make profitable.

Liz: OK. One of the things Michelle said is that her car is still drivable, which tells me that she has some time, so that if she does want to check out the credit union option, she has time to go online, to look for a credit union where she could be a member to sign up. She can do all those things and get a loan. That’s kind of different from an emergency situation where you need the money right now.

Sean: Annie, are there any other alternatives you think besides credit union loans that people should be aware of?

Annie: Yes. If you can borrow from a friend or family member, that’s going to be one of the safest options. Of course, it doesn’t help you build credit. But it is a way to ensure that you understand the terms of the loan and you have the opportunity to build in interest or whatever terms you and that person would like to. Of course, you’re securing it with your relationship with that person and if you don’t repay, you might get yourself in a tough spot in a personal matter.

Sean:  Yeah. One really interesting idea for funding small dollar amounts are lending circles. So if you get together with maybe a dozen or so people in your local community and you each put in, let’s say like a hundred dollars every two weeks, and then at the end of the month, one person gets that pot of money and then you do it again next month and then you rotate who gets the money so that eventually everyone gets that pot of money. So, back to Michelle, let’s say Michelle doesn’t really have any options to get money from friends or family or a lending circle. I’m wondering what you think are the best ways to get a loan when you don’t have a great credit score?

Annie: Well, if you don’t have a great credit score, there are reputable online lenders that pair their product to bad- and fair-credit borrowers. These lenders might have higher APRs, but they do tend to stick to the 36% or lower range, which is helpful for consumers who are trying to build credit and want a reasonable repayment term. They typically have one year or longer repayment terms, so those are one of the better options if you don’t feel like you can turn to a bank or credit union for that kind of loan.

Another alternative would be to add a co-signer to your loan. Some banks and online lenders let people add co-signers, which is a person who has maybe a better credit profile, less debt and a higher income. And if you add a co-signer, not only could you get a loan that you might not otherwise qualify for, you might even get reasonable rates and a higher loan amount. The downside of adding a co-signer is that that person is essentially on the hook for the loan if you can’t repay it, and so their credit is also on the line when they co-sign your loan.

Sean:   Is there one of these that you think would maybe be the best option or does it depend on your own individual circumstances?

Annie: It really depends on your individual circumstances. I would say if you can find a co-signer and the lender that you’re working with allows co-signers, that’s a really good option if you and the person you have that relationship with are both comfortable with it. You can also do a secured loan, which is typically using your car, certificate of deposit or your savings account. And those are good options, but you have to weigh the benefit of getting the loan with the potential cost of losing whatever it is you’re securing the loan with.

Liz: Yeah, you don’t want to put your car up as collateral if you need that car to get to work ” that could be a disaster.

Annie: Definitely.

Sean:   One thing that seems like a really big draw with these loans is that people can get them fast, right, so I’m wondering, how fast exactly people could expect to get this money from the time they apply to the time the money is in their account?

Annie: That really varies. It depends on the lender you’re working with. It depends on if you’re using a bank, online lender, a community bank or a credit union. Some banks will say that they can do a loan the same day that you apply for it ” they could fund it as soon as the same day or the next business day, but more often I’ve seen it where large national banks will take a few days and up to a week. With online lenders, you have the option of fast funding often, so reputable online lenders pride themselves on being able to fund a loan really quickly after you apply for it, and you may pay for that with a higher rate. So be sure to compare your options between banks and online lenders and credit unions to find the lowest rate, and then determine whether the fast funding option is a priority.

Sean:  OK, so I have one final question for you: Besides the obvious pitfall of potentially entering a cycle of debt if you get a really expensive loan, are there any other things you think that Michelle should be looking out for?

Annie: One of the things that she should look out for is her credit. Just be sure that wherever she’s looking for this loan, her credit will either come out the other side better, or at least not worse. If you get a loan from a reputable lender that does report your payments to credit bureaus, then what you’re doing is you’re getting your credit in better shape so that next time you have to turn to a personal loan or a credit card or some other credit product, you’re better positioned to get a lower rate. And the expense is a really important factor because even if your credit isn’t involved, if you get a very expensive loan and you end up having to repay that very quickly, you could slip into the cycle of debt that we talked about earlier.

Liz: Well, that was super helpful, Annie. Thank you for joining us today.

Annie: Thanks for having me.

Liz: With that, let’s get to our takeaway tips. First, explore your options. If you need cash in a pinch, ask family and friends before taking out a small-dollar loan. If you do need a loan, see what your local credit union offers, since they’ll likely have the best rates.

Sean: Next, if you have bad credit, understand your options. You might qualify for a loan, but it will likely have a higher interest rate. In that case, look into potentially co-signing with a trusted friend or family member, or look at a secured loan.

Liz: Finally, know the risks of small-dollar loans. Some, like payday loans, can carry astronomically high interest rates, which can lead to a cycle of debt.

Sean: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373, that’s (901) 730-NERD. You can also email us at podcast@nerdwallet.com and visit nerdwallet.com/podcast for more info on this episode, and of course, remember to subscribe, rate and review us wherever you’re getting this podcast.

Liz: And here’s our brief disclaimer thoughtfully crafted by NerdWallet’s legal team: Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes, and may not apply to your specific circumstances.

Sean: And with that said, until next time, turn to the Nerds.

 

More From NerdWallet

6 Emergency Loans: Where to Get a Fast Loan How to Take a High-Interest Loan and Skip the Debt Cycle How to Take a High-Interest Loan and Skip the Debt Cycle

Liz Weston is a writer at NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

Sean Pyles is a writer at NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

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Bad Credit

Ask the Fool: All about stock multiples

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A: It’s a ratio of two measures of a company. One of the most common multiples is the price-to-earnings (P/E) ratio, which is the stock’s current price divided by its earnings per share. Imagine Scruffy’s Chicken Shack (ticker: BUKBUK), trading at $80 per share. If it earned $4 per share over the past year, its P/E is 20 (80 divided by 4). It’s trading at a P/E ratio of 20.

There are also price-to-sales multiples, book-value multiples, cash-flow multiples and more. It can be helpful to compare a company’s multiples with those of its peers, to see whether its stock appears to be undervalued or overvalued. Nike, for example, recently sported a P/E ratio that was over 82, while Adidas’ was not quite 41. That suggests that Adidas is more attractively priced, though of course you’d want to assess many more factors.

Q: What’s the difference between a private company and a public one? – C.B., Bozeman, Mont.

A: Public companies have shares of stock available to trade on the open markets. They’re required to file quarterly earnings reports with the Securities and Exchange Commission, detailing revenue, expenses, debt loads, cash levels, taxes, income or losses – and much more. These reports are publicly available.

MORE FROM MOTELY FOOL

Privately held companies are not public – meaning average investors can’t buy shares of them. They also don’t have to reveal much about their operations and financial health. According to Forbes, the 100 biggest private companies in America include Koch Industries, Cargill, Deloitte, PricewaterhouseCoopers, Publix, Mars, H-E-B, Pilot Flying J, Enterprise Holdings (parent of the car-rental company), Bechtel, Cox Enterprises, Fidelity Investments, Bloomberg, SC Johnson, McKinsey & Company, Staples and Amway.

Fool’s School

Prepare for disasters: It’s fine to prepare for unlikely disasters, perhaps by buying earthquake insurance in a low-risk region, or keeping garlic on you in case of vampire attack. But be sure that you’re preparing for more likely disasters, too, such as these:

Having a bad credit score: A bad credit score will doom you to high interest rates when you’re looking to borrow money, such as for a home or car. Start beefing up your score by paying down your debts and paying bills on time.

Losing your job: As the ongoing pandemic has made clear, unexpected job losses happen, and they can put you in financial peril. Make sure you have an emergency fund stocked with at least several months’ worth of critical living expenses, such as food, housing, utilities, taxes, transportation and so on. It’s also good planning to make yourself more hirable by learning new skills or getting new certifications or degrees.

Needing long-term care: Long-term care is an important issue everyone should consider. If you’re wealthy, you can pay for any care you might need; if you’re poor, you probably won’t be able to pay for it at all. But if you’re in between, consider long-term care insurance. Learn more at LongTermCare.gov.

Not being able to retire: This is a big disaster awaiting millions of people who haven’t socked away enough money to retire on. The best way out of this problem is to read up well in advance, make a plan and act on it. Good strategies include working for a few more years, saving as much as possible in IRAs and 401(k)s, cutting back on spending, taking on a side gig or two and perhaps cashing out a life insurance policy if it’s no longer needed. One of your best moves might be to invest long-term dollars in the stock market, perhaps via a low-fee index fund (such as one that tracks the S&P 500).

My smartest investment

Widened Horizons: My smartest investment ever was leaving my hometown and broadening my horizons. – M.I., online

The Fool responds: That’s a terrific investment indeed. There are countless benefits of traveling: By exposing yourself to other regions and countries, you can get a sense of how other people live – which may help you appreciate just how good you have it compared to billions of others. Getting to know people in other places can help you get over any fears of outsiders or foreigners, and enjoying their hospitality can make you feel like a citizen of the world, not just your state or country. You may even end up making some very good friends around the country or the world.

Trying a wide variety of foods from various cuisines can introduce you to flavors and dishes that become lifelong favorites.

Travel abroad can be greatly enhanced if you take the time to learn the language spoken at your destination – and knowing at least one other language can also be an effective career booster, as lots of companies have (or want to have) international operations and may send employees to other countries.

Travel can boost your self-confidence, as you navigate unfamiliar locations and successfully deal with unexpected events (such as missing a train in Japan). Finally, travel can simply be fun and exciting, and it creates memories to look back on for the rest of your life.

Foolish trivia

Name that company: Back in 1833, two men – a miller and a druggist who grew herbs – decided to make and sell drugs and essential oils. Their company ended up a part of me, along with many others. I got my current name after the 1958 merger between Polak & Schwarz and van Ameringen-Haebler. Today, based in New York City and with a market value recently near $13 billion, I’m a worldwide force in scents, tastes and ingredients. In 2019, I raked in $5.1 billion from about 38,000 customers. I’m merging with DuPont’s Nutrition & Biosciences division. Who am I?

Last week’s trivia answer: I trace my roots back to 1904, when a son of Italian immigrants founded the Bank of Italy in San Francisco, which morphed over time to become the world’s largest commercial bank by the 1930s. I’ve gobbled up lots of companies, including credit card giant MBNA, U.S. Trust, FleetBoston Financial (which traced its roots to 1784) and even Merrill Lynch. Today, based in Charlotte, N.C., I sport a market value recently near $262 billion. I serve about 66 million customers via roughly 4,300 retail financial centers, and about 31 million customers bank with me using mobile devices. Who am I? (Answer: Bank of America)

The Motley Fool take

Tech Dividends: Cisco (Nasdaq: CSCO), the world’s largest producer of networking routers and switches, has posted declining revenue for four straight quarters. Its infrastructure business, which generates over half its revenue, struggled with sluggish network upgrades, competition from rivals, the loss of Chinese contracts during the ongoing trade war and pandemic-related disruptions. Its smaller security business continued growing, but couldn’t offset its other weaknesses.

Cisco’s revenue declined 5% in fiscal 2020, but its adjusted earnings grew 4% as it cut costs and repurchased more shares. Analysts expect both its revenue and earnings to dip by about 1% this year. Those growth rates might seem dismal, but Cisco’s core business should heat up again after the pandemic passes. Warmer relations between the U.S. and China under the Biden administration could stabilize Cisco’s Chinese business, and it might pull customers away from Huawei as the Chinese tech giant struggles with trade blacklists and sanctions. A growing need for cloud and data center upgrades should also spark fresh orders for its routers and switches worldwide.

Cisco’s stock isn’t likely to rally anytime soon, but its low forward-looking price-to-earnings (P/E) ratio of 14 and its recent dividend yield of 3.2% should limit its downside risk. It’s raised its dividend every year following its first payment in 2011, and is likely to keep doing so. Consider Cisco for your long-term portfolio.

Copyright 2021 the Motely Fool
Distributed by Andrews McMeel Syndication

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Subprime Auto Loans: The Basics You Should Know

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Before you dive head-first into the world of subprime auto financing, it’s a good idea to know what you’re getting into and what to expect. We’re covering the common requirements of subprime lenders and the items you need to prove that you’re ready for a car loan.

What is a Subprime Lender?

Subprime lenders are also called bad credit auto lenders. They specialize in assisting borrowers with poor credit, those who’ve gone through bankruptcy, and those in other challenging credit circumstances. Subprime can also refer to the credit rating as well, typically defined as a credit score around 501 to 600, or those with a credit score below 660. Borrowers with credit in this credit score range are typically referred to as bad credit borrowers and may need the help of subprime lenders to get an auto loan approval.

Getting into a subprime car loan means finding a dealership that’s signed up with these lenders. Many dealerships are signed up with third-party lenders that can finance borrowers with lower credit scores. The finance manager at these dealerships acts as the middleman between you and the lender. Locations that are signed up with subprime lenders are called special finance dealerships.

Subprime lenders differ from traditional auto lenders (think banks, credit unions, online lenders, and some automaker’s captive lenders) in that a poor credit score isn’t enough to get turned down for financing. They know that your credit isn’t going to be perfect when you’re seeking a subprime car loan. So, they look at your credit history as a whole, your income, living situation, and many other factors to determine your creditworthiness and eligibility for vehicle financing.

Requirements of Subprime Auto Loans

Since every lender varies in their specific requirements, we can’t provide an all-encompassing list of requirements – but we can provide some of the more common ones you’re likely to encounter. At Auto Credit Express, we’ve created a network of dealerships that are signed up with subprime lenders. Thanks to our dealer network, we know the commonly requested documents you need to prepare for a trip to the dealership.

Subprime Car Loans: The Basics You Should KnowCommon requirements of subprime financing typically include:

  • Income – To qualify for any car loan, you need income. Subprime lenders usually require around you to have $1,500 to $2,500 of minimum monthly income (before taxes). Prove your income with 30 days of computer-generated check stubs that show year-to-date income. This requirement typically needs to be met by a single source, but some subprime lenders may allow multiple sources of income to meet this requirement in certain circumstances.
  • Residency – Subprime lenders require proof of permanent residence. This can be proven with a recent utility bill in your name, or a recent bank statement.
  • Down payment – Having bad credit almost always means needing a down payment to qualify, and subprime lenders typically require at least $1,000 or 10% of the vehicle’s selling price.
  • Working phone – Subprime lenders may need to contact you, so they require a working contract cell phone or landline phone. Proven with a recent phone bill in your name.
  • Valid driver’s license – To drive the car off the lot, you need a valid driver’s license. This also proves your identity. Your license can’t be revoked, expired, or suspended.
  • Personal references – This isn’t a requirement to qualify for financing, but it’s likely the lender will ask you for a list of references. Typically, they ask for five to eight references with complete contact information. The only requirement with references is that they don’t share your address.

Remember that these are only general guidelines for what to expect from a subprime lender, but it’s definitely a good place to start!

Your personal situation may require the need for more or different documents to qualify you for auto financing. For example, if you had a bankruptcy that was recently discharged, then you may need your discharge papers to prove you’re in the clear. Another common situation is if your income isn’t W-2 and you don’t receive check stubs. If you’re a 1099 worker, then you’re likely to need two to three years of tax returns to prove you have the income for an auto loan.

Letting the special finance manager know what your situation is can make the process easier, and help move it forward without too many snags.

Finding a Special Finance Dealership

Subprime lenders are third-party, so locating one without finding a special finance dealership isn’t likely to be easy, but we want to help. Let us get you connected with a dealership that’s signed up with subprime lenders in your area.

Here at Auto Credit Express, we’ve created a nationwide network of dealers that are ready to assist borrowers in all sorts of tough credit situations. Get started right now by filling out our free auto loan request form. There’s never an obligation to buy once you get matched to a dealer, it’s completely free, and we do all the hard work of looking for the bad credit resources for you.

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How can I refinance my mortgage with bad credit?

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If you have poor credit but want to take advantage of the current low interest rates and refinance your mortgage, make sure first it makes good financial sense, and don’t forget to factor in closing costs and other fees. (iStock)

Bad credit happens. This may be especially true for the thousands of people out of work due to the coronavirus pandemic. Even so, you can refinance your mortgage with bad credit. It may be more challenging, but it’s possible.

The coronavirus pushed interest rates to record lows. Such low rates are the driving force behind the surge in mortgage refinances — up 89.54% from last quarter and up 297.3% from just one year ago, according to US Mortgage Originations.

Take a look at your options and your limitations, and visit Credible to compare rates from multiple lenders all in one place.

How to refinance your mortgage with bad credit

If you have bad credit, you may qualify for private-sector programs, options backed by the federal government, or you can try co-signing with a stronger borrower. If you’re considering using a cosigner or want to see if you’re eligible for a refinance on your own, Credible can help. Click here to learn more about refinancing your mortgage and whether you’d be approved today.

Here are four mortgage refinance options for potential borrowers with bad credit.

  1. FHA Streamline Refinance program
  2. FHA rate-and-term refinance
  3. VA refinance 
  4. Portfolio loan

1. FHA Streamline Refinance program

If you have an existing FHA loan, you may qualify for the FHA Streamline Refinance program, which can permanently lower your monthly payments. Most lenders won’t check your credit or demand an appraisal because you already have an FHA loan. You may qualify for current refinance rates, but you’ll likely have to show you’ve made six consecutive monthly payments on-time, in-full.

2. FHA rate-and-term refinance

A rate-and-term refinance is for anyone who already has an FHA loan. It’s meant to help you refinance your current mortgage and reduce monthly payments. A new home appraisal and credit check are part of the application process, and like the Streamline Refinance program, you must show six months of consecutive on-time payments, paid in full.

3. VA refinance

If you currently have a VA loan, you can refinance with the Interest Rate Reduction Refinance Loan (IRRRL). Generally, lenders won’t require a credit check or home appraisal to qualify. The VA allows you to refinance up to 100% of the property’s value, but there is an upfront funding fee that may be added to the loan amount.

4. Portfolio loan

A portfolio loan is originated and retained by your mortgage lender. Because your mortgage lender is 100% responsible if you default on your loan, your credit history and finances will be reviewed. There are likely closing costs and other fees due at the time of closing or added into your loan payment.

HOW TO DECIDE IF YOU SHOULD REFINANCE YOUR MORTGAGE 

What are today’s mortgage rates?

The COVID-19 pandemic pushed interest rates lower than they have been in many years. That’s why it’s such a good time to refinance your mortgage — even if you have bad credit.

These are current mortgage rates, according to Freddie Mac:

  • 30-Year Fixed-Rate Mortgage (FRM): 2.79%
  • 15-Year FRM: 2.23%
  • 5/1-Year Adjustable Rate Mortgage (ARM): 3.12%

Mortgage interest rates fluctuate with supply and demand in the secondary market. If the supply of money goes up and the demand for money goes down, interest rates will go down as well — exactly what has happened due to COVID. If you want to take advantage of today’s low mortgage rates, make sure you use Credible’s free online tools to refinance and start saving today.

The Federal Reserve doesn’t set mortgage rates, but it can influence rates. This past August, Federal Reserve Chair Jerome H. Powell stated that interest rates would likely stay low for some time to recover from the recession the COVID-19 pandemic caused.

Compared to the current rate of 2.65% for a 30-year FRM, on January 2, 2020, the 30-year mortgage rate was 3.72%, and on December 26, 2019, the rate was 3.74%. On the same date in 2018, the rate was 4.55%. Even one percentage point can make a big difference in your monthly payments.

If you have bad credit, but you want to take advantage of the current low-interest rates, use an ​online mortgage refinance calculator to determine new monthly costs. Credible can also help you crunch the numbers and determine what your monthly payments and total costs would be.

REFINANCING YOUR MORTGAGE? 5 QUESTIONS YOU SHOULD ASK FIRST

Should I boost my credit score first?

Banks, credit unions, and many online lenders offer better interest rates to people with good credit. Although the required credit score to qualify for a refinance varies from lender to lender, most mortgage loans require a minimum credit score of 620, according to Experian.

To get the best rates (and pay less interest over the term of your loan), it makes sense to boost your credit score before applying for a mortgage refinance. Accordingly, interested borrowers should visit Credible​ to get prequalified without impacting their credit score.

THE MORTGAGE REFINANCE WINDOW COULD END SOON: WHY YOU SHOULD ACT NOW

How to increase your credit score

  1. Make all your payments on time. Payment history accounts for a large chunk of your credit score—35%. 
  2. Pay down debt. Paying down all credit card balances to less than 30% can improve your credit utilization ratio (the percentage of credit you’re using compared to your available credit) and boost your credit.
  3. Don’t close old credit accounts. Even if you’re not using an old credit card, keep it open to improve your credit history.
  4. Don’t open too many accounts. Lender’s inquiries into your credit can hurt your score, and carrying too much debt is never a good idea. 
  5. Keep a close eye on your credit score. Checking your score doesn’t hurt your credit. It can also give you an idea of where you stand when applying for a mortgage refinance
  6. Make sure your credit report is error-free. When you look at your credit report and find the information you’re not sure about, contact the three major credit bureaus and report your findings. 

If you’re thinking of refinancing, consider using Credible. You can ​use Credible’s free online tool​ to easily compare multiple lenders and see prequalified rates in as little as three minutes.

REFINANCING YOUR MORTGAGE? DON’T MAKE THIS MISTAKE

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