Income Share Agreements Vs. Student Loans. Which is Better?

Does the idea of an ‘Income Share Agreement’ send a cold shiver down your spine? On the face of it, you are signing away a portion of your income for a long period of time with no limitations on your earnings. On the other hand, you might not have to go into debt to fund your higher education dreams.

Income Share Agreements: The Details and Downsides

Firstly, an income share agreement is not a loan. In a traditional loan structure, a party is given a lump sum with the agreement that they will pay it back over a certain time period under certain conditions. However, with an income share agreement, an individual is given a lump sum and agrees to pay the lender a set portion of their income for a set time period.

For example, Lender X agrees to give you $20,000 for your schooling. In return, you agree to give them 5% of your earning for the next 10 years. In 2016, graduates were earning an average $50,000 per annum, right out of college. If you never get a pay raise, then you would end up paying the lender $25,000.

However, it’s unlikely you won’t have a pay rise in ten years. If you were receiving bonuses, cost-of-living pay raises, and promotions, then you’ll likely have to pay up more at the end of ten years. Assuming you got a five or ten percent raise year-over-year, an ISA agreement would look like this:

  Five Percentage Increase Ten Percentage Increase
  Earnings Lender Repayments Earnings Lender Repayments
Year One  $  50,000.00  $                     2,500.00  $    50,000.00  $                     2,500.00
Year Two  $  52,500.00  $                     2,625.00  $    55,000.00  $                     2,750.00
Year Three  $  55,125.00  $                     2,756.25  $    60,500.00  $                     3,025.00
Year Four  $  57,881.25  $                     2,894.06  $    66,550.00  $                     3,327.50
Year Five  $  60,775.31  $                     3,038.77  $    73,205.00  $                     3,660.25
Year Six  $  63,814.08  $                     3,190.70  $    80,525.50  $                     4,026.28
Year Seven  $  67,004.78  $                     3,350.24  $    88,578.05  $                     4,428.90
Year Eight  $  70,355.02  $                     3,517.75  $    97,435.86  $                     4,871.79
Year Nine  $  73,872.77  $                     3,693.64  $  107,179.44  $                     5,358.97
Year Ten  $  77,566.41  $                     3,878.32  $  117,897.38  $                     5,894.87
Total    $                   31,444.73    $                   39,843.56

 

If you had borrowed $20,000 on a 6.8 percent student loan, then in ten years you would only repay $28,000.

But Wait, There’s Benefits

If you had taken out a $20,000 loan, then you repay $28,000. If you took up an income share agreement as above, then you could pay anywhere from $3,500 to $12,000 more. However, this assumes that you are earning consistently for ten years with pay raises and no breaks in employment.

If you took work in a lower paid profession, then you won’t be spending as much at the end of ten years even with 10 percent annual raises. However, if you struggle to find work, take a break for maternity leave, or maybe take a gap year under an income share agreement, then you won’t be required to make any payments.

If you stop earning for a few months, student loans still accrue interest and demand to be paid. However, with an income share agreement, you only pay when you are earning. While you are at a risk of paying more for an income share agreement than if you took out a loan, you also have massive flexibility of knowing there is no debt looming over your head.

Whether you want to start a business, change careers, take a gap year, or start a family, you can do it with the confidence that you won’t have debt collectors knocking on your door.

Knowing What a Cosigner Is and How It Can Help You

Have you struggled to get a loan in the past? Despite having a good credit rating and reasonable income you weren’t ticking some of the boxes that the banks required. Or maybe you have a great credit rating and poor income, or vice versa. A cosigner can help you get over this hurdle and back on your feet.

Mortgages

Mortgages are the most likely place you’ll go searching for a cosigner. A mortgage is one of the biggest loans you’ll ever take out, and banks like to make sure that you have the ability to pay them back before the lend you hundreds of thousands of dollars. If you fail to tick even one of the boxes for a mortgage, a cosigner may be the only way you can go to get the paperwork over the line.

A cosigner is equally responsible for the loan. While you might agree with one another that you will be fully responsible for the payments, the banks can knock of the cosigners door if payments start to fall through. However responsibility goes both ways, the cosigner may come along many years later and demand their rights to the property, either to live in or perhaps a portion of the value.

Cosigners may be used for other loan types as well. If you want to take out a car loan, personal loan, student loan or even a business loan –you can have a cosigner in any case.

Risks for the Cosigner

Cosigners are at a large risk with loans. While they have rights to any assets purchased through the loan (such as a home, or a car) the risks to the cosigner are likely to outweigh the benefits.

While the primary signer of the loan has primary responsibility, the cosigner agrees to take on all those debts if the primary signer of the loan defaults. Not only will the cosigner need to cover repayments, they can also be slugged with late fees and collection fees. In this case their credit score will suffer as well.

Even if you make all the payments, the cosigner will still have their finances affected. If the cosigner wants to take out a loan of their own, then this loan will be taken into account when calculating their liabilities.

Releasing a Cosigner

A cosigner for your loan shouldn’t be there for the life of the loan. A cosigner is needed to get you past the first hurdles of taking out that loan. Once you have been repaying it for a few years, you should have built up a better work history, better income, or a more stable job history. Even if you haven’t improved your situation dramatically, the loan balance should be reduced after a few years.

Once you have cleared these hurdles you can and should release the cosigner. In most cases this can be done directly with your creditors, sometimes you will need to finance, but other times the cosigner can simply be removed from the loan.

At this stage the cosigner will no longer be on the hook if you default from the loan, but they will also forfeit any claims to your assets. It’s a win win, and a good way to thank them for their support in the early days.

Using Technology to Organize Your Personal Finances

Using technology to help your personal finances is one of the best ways to get ahead financially. Gone are the days of ledgers and checkbook registers. Even many coupons are digital now.

Having helpful apps on your cell phone is an excellent way to track spending, save on purchases, and monitor investments. A quality iPhone or Android personal finance app can be addictive, which is a good thing.

If you have an easy-to-use app that you love to spend time with, you’ll be more likely to stick to your budget and become obsessive about saving money on items such as groceries or plane tickets.

In this article, we’ll look at some interesting and useful apps and desktop software you can use to help plan, save and invest for your future.

Budgeting Apps and Templates

Having a budgeting app handy on your cell phone will allow you to budget at any given moment of the day. You could plan your finances during a television commercial, log in your food receipt while waiting in line, or set up next month’s expenses while waiting for your dinner to cook. It’s so easy, that planning, tracking and saving could become a habit.

Here are two excellent apps and software:

  • Mint. Mint software comes from Intuit, the makers of Turbo Tax and Quickbooks. The software is available as an app and as online cloud software. It’s easy to use and comprehensive, with features like budgeting and bill pay. It also offers alerts on things you want to avoid, like paying fees, going over your budget, and being late on paying a bill. And best of all, Mint is free.
  • You Need a Budget. This app is a favorite of ours because it gives you more control over your budget. It allows you to account for every dollar of your income and lets you create savings goals for things like Christmas or a family vacation.

Sometimes you have a special project or need a document like a personal financial statement or a debt list template. Vertex 42 has a wealth of templates that may fit your needs. All templates work with Microsoft Excel, Open Office, and Google Sheets.

Be sure to choose an app or software that you like and understand so that you’ll be more likely to use it.

Apps that Save you Money on Purchases

You don’t have to do much clipping any more to use coupons and get discounts on household items. With apps, you can easily look up items that you consume to see if there’s an available discount.

Technology makes it easy to save because you can use search functions. One of the most useful apps is the Skyscanner, which tracks cheap flights for you and tells you when to purchase.

Two great apps that will help you save money on local activities like the movies and restaurants, are LivingSocial, and Groupon. Both apps make it easy to have fun locally while getting a deal on outings you like.

GasBuddy will help you find the cheapest gas closest to you. This can be helpful if you’re on the road in a new town and have no idea where to stop. BestParking will do the same, but with finding cheap parking when you want to go out or travel somewhere you’re unfamiliar with.

Savings and Investments

Technology has taken stock investing to a whole new level. Now you can learn how to trade for free with virtual money on apps like Stash and Stock Market Simulator. They’re both easy to use and excellent for people who want hands-on learning before investing with real money.

Stash will help when you’re ready to take your investing to the next level too. All you need is $5 to get started with an account.

Another outstanding savings and investment app is Acorns. Once you connect your debit and credit cards to the system, it rounds up every purchase you make and invests the spare change across 7,000 stocks and bonds. You can elect to invest more money automatically or make a one-time payment into your investment account.

Conclusion

Using technology for personal finance will help you budget, save, and invest wisely. Using personal finance apps can be fun and entertaining, and will help you focus more on your money.

Do you have a personal finance app, software, or template that helps you save, track, or invest your money?

How to Choose the Right Mortgage for You

If you’re shopping for a home mortgage loan, you can definitely save time and money by choosing the right lender and loan terms. First, you need to spend time looking for that right lender.

The process of buying a house can be confusing to many first-time homeowners. It’s not only about choosing a good real estate agent, a pleasant neighborhood, and a home you’d enjoy. It’s also about securing a home loan that will give you a solid financial foundation.

Working with a reputable mortgage lender and getting good loan terms will make a big difference to your finances. It could also mean the difference between paying off and keeping your home or being trapped in a house you can’t afford.

In this post, we’ll look at how to choose the right mortgage before you look for a home, so you can make a smart loan decision and eventually become financially independent.

What is the Best Type of Mortgage Lender?

When you’re looking to borrow money to buy a home, one of the first things you should do is find the best people to loan you the money.

You have choices when you’re shopping for a home loan. Here is a general list of the types of companies to help with your loan:

  • Big Bank. The industry classifies banks like Chase, Wells Fargo, and Bank of America as direct lenders. Pros of dealing with a big bank are that there are plenty of people who can get your questions answered. Large direct lenders like these are also more likely to have resources and be a one-stop shop. However, working with a large staff isn’t always good. Your file could end up on several desks, and this could increase your closing time.
  • Small Local Lender. You may want to use this type of direct lender if your home purchase requires special attention. They may offer more flexible lending or approve an irregular income situation such as self-employment. A small local lender may be more willing to work with you if you have unusual needs.
  • Mortgage Broker. A mortgage broker acts as a middleman between you and the lender. He or she will gather information about your budget, credit score, how long you intend to own the house, and other details. A mortgage broker may be able to find you a lower rate than normal because they’re shopping for you with experience. The downside is that using a third party could mean that your file will get passed through several hands, and you may experience a lack of control. You might also find a less-than-reputable broker.

Ultimately, you want to choose a reliable lender who will give you the best rate. Contact each of these types of companies for a rate quote and to get a feeling of how they treat you as a customer. Make sure they’re organized and that they specialize in residential properties. You’ll want someone who can help you understand the application process and who won’t take longer than 45 days to close.

Should You Choose a Fixed or Adjustable Rate?

One of the first questions that will arise is whether you want a fixed or variable interest rate. The answer depends on how long you intend to live in the house.

Fixed rate mortgages have only one interest rate that will not change for as long as you have the loan. These loans are excellent for people who plan to live in the home long term. The fixed rate loan carries no surprises and is easy to work into a budget and retirement plan.

Variable rates can vary during the life of the loan. They may offer an attractive low rate at the beginning of the loan, but they could grow higher and leave you in financial distress. These types of loans are best for people who don’t intend to live in the house very long. If you think you’ll sell the house by the time the rate rises, this loan could be a good option for you.

Conclusion

The type of lender and the terms you choose have a major effect on your financial future. If you consider that the money you put toward your housing cost is about 30%, you’ll want to have the cheapest loan possible from the most reliable lender.

Having control over your house payment and getting terms that fit your budget is a major step to becoming financially secure. Signing a loan with the right terms can save you from being behind on bills and being able to save for other things like your children’s education.  It also means you can rest assured knowing you can make payments without risking repossession of the home you’ve worked hard to get.

Are you thinking about buying a home soon? Which kind of mortgage and lender will you choose to finance your home?

How to Find the Best Car Insurance Online

Finding car insurance can seem like the biggest hassle. It’s tempting to put it off, sign up for the first deal that you see, or even just sign up with the same insurers as your parents. However if you’re looking to get the best value for your money, then you actually have to do the looking yourself.

Back in the day if you wanted to find the best insurance, you needed to pound the pavement and wade through a pile of greasy insurance salesmen who wanted you to buy cover for more than just your car. Blink for a moment with these guys and you would find yourself signed up for life insurance, health insurance, and riot insurance (did you know you could get that?) on top of the most expensive car insurance policy out there.

Thankfully, we have the internet now and finding the right insurance isn’t such a gut-wrenching trial.

Google It

Before picking up insurance, google it! Type in some of the obvious phrases like “Best car insurance for under 25’s” and “car insurance traps.” Have a look at what’s out there and wrap your head around some of the traps to avoid.

For example, you might want to take out the cheapest insurance you can find – after all that leaves more in your pocket. However if you take out minimal cover, you might find yourself $17,000 out of pocket after your insurance has paid all they’ve covered you for.

Use an Insurance Comparison Site

Now that you’ve got an idea of the amount of cover you need, and the pitfalls to avoid, use an insurance comparison site to find a cover that suits you. There are several websites that will list and compare multitudes of insurance options, so you don’t have to wade through every individual website. Chances are, if you google car insurance, you will find these websites easily.

These sites will also alert you to any deals that are currently on, such as a first month free, or a cash back offer. Just keep an eye out for the ‘sponsored’ links. These people pay to be pushed higher up in the search rankings, so while they might appear at the top of the list, they aren’t always a good deal.

Google It Again

Once you’ve reviewed the policies available and narrowed it down to two or three options, google those companies and see what people are saying about them.

Remember that no one likes insurance companies, are you aren’t likely to find many positive reviews. People mostly take to the internet to review a company when they’ve had a bad experience, so take their feedback with a grain of salt.

However, people also don’t complain without a reason. If a company has a string of complaints noting that they didn’t pay out when they should of, or that their customer service is impossible to deal with consider skipping them. It might cost you a few extra dollars a month, but insurance is pointless if it won’t pay when you need it.