Question 1

How to freeze credit?

Accepted Answer

Let's start with the why: Why freeze your credit?  Freezing your credit can be a crucial step to take if you think your identity might have been stolen from a financial institution hack, or if you have reason to believe someone might impersonate you to open accounts or credit cards in your name without permission. A credit freeze will prevent possible creditors from looking at your credit report, which is a part of most loan and credit card application processes. This means that if your credit is frozen, identity thieves and impersonators won't be able to open fraudulent accounts in your name. To freeze your credit you must contact each of the major credit bureaus individually and request a freeze. This is typically free to do, and should only take a few minutes.

Question 2

What to do if your loan application is rejected?

Accepted Answer

If your application was denied, you probably received a notice of adverse action explaining the source that was used, the reason(s) for denial, and information about how to obtain your credit reports and dispute inaccurate information. Read into the notice of adverse action to determine why you were denied, or call your creditor/the lender directly to understand why you were not approved for the credit/loan.

Question 3

Can you take out a loan to pay off another loan?

Accepted Answer

Yes!  This is typically referred to as a Debt Consolidation Loan and it is a good choice if you are approved for a lower interest rate and effective APR.

Question 4

What are the different Types of Credit?

Accepted Answer

There are three major types of credit that you may encounter:  Revolving credit: Revolving credit accounts have a set credit limit that you can draw upon, pay back, and draw upon again. A common example of revolving credit is a credit card.   Installment credit: Installment credit is debt that you borrow and pay back in fixed monthly installments. This includes personal loans, student loans, auto loans, and mortgages.   Service credit: Service credit includes accounts where you are provided a service and are billed monthly. This includes utility and cell phone bills.   VIVA Tip - Keeping a broad mix of different types of credit is great for your credit score!

Question 5

What does unsecured loan mean?

Accepted Answer

An unsecured loan is a loan that does not require any collateral. Because of this, unsecured loans typically have higher interest rates than secured loans. However, unsecured loans can be easier to obtain if you have limited assets or want maximum flexibility for how you’ll use your loan. Unsecured loans can be used for just about anything whereas most secured loans have limited use-cases.  A secured loan, on the other hand, uses an asset as collateral. That asset can be anything from your house for a home equity line of credit (also known as a HELOC), to vintage baseball cards held as collateral for a pawn shop loan. The catch is if the borrower defaults on the secured loan, they lose the asset being held in collateral.  VIVA Tip - Loans from VIVA Finance are unsecured, so you can use them for anything from auto repairs to travel expenses!

Question 6

What is debt consolidation?

Accepted Answer

Debt consolidation is when you take out a loan in order to pay off multiple other debts at once. Typically a person will take out a debt consolidation loan and use that money to pay off things like credit card balances and high-interest loans. There are a few nice benefits of debt consolidation:  Simplify finances with one monthly payment instead of making multiple payments every month  Decrease overall interest rate - particularly if consolidating high-interest credit card debt  Lower monthly payments - lower overall interest rate and/or longer repayment plans could result in a lower payment due every month. Higher credit score - making regular, on-time payments on a debt consolidation loan and lowering your credit utilization rate can improve overall credit scores

Question 7

Is debt consolidation a good idea?

Accepted Answer

That depends!   Debt consolidation loans usually require a hard credit check during the application process, which has an immediate negative effect on credit scores. However, making on-time payments, eventually paying off the debt consolidation loan, and broadening overall credit mix can have a positive, long-term effect.  But (there's always a but!) taking out a debt consolidation loan in order to pay off credit card balances, for example, and then running those credit cards up again is a slippery slope. This pattern can lead to a snowballing effect of needing more/larger loans to pay off previous loans plus new credit card balances, lower credit scores, and higher overall interest rates.

Question 8

How do title pawn loans work?

Accepted Answer

A title loan is similar to a payday loan in that it is a relatively small loan with a short period of time (under a month) for repayment and high interest rates. Title loans are often predatory and can lead to a vicious cycle of debt.    A title loan agreement will let someone borrow a sum of money in exchange for the title of an asset they own, usually their car or other vehicle, as the collateral. When the term of the loan is complete, the borrower owes the entire principal and interest balance – title loans do not allow for amortization. This means that when time is up, the whole loan amount plus the interest must be paid back at once.  If the borrower is unable to pay the entire principal and interest balance, they will either have to forfeit the asset used as collateral or pay the interest due and “roll” into a new loan contract. This new contract will add more interest and fees, bringing the total much higher. The effective APR on title loans is usually over 100% and can lead to a cycle of debt, because it is challenging to pay off the entire principal and interest balance in a 15 or 30 day loan term.    Title loans, or title pawn loans, are generally not a safe choice for most borrowers. If possible, other options like personal loans should be considered instead.

Question 9

Will paying off loans improve my credit score?

Accepted Answer

Making on-time payments on an installment loan will definitely improve your credit score! There's a small catch, though: the actual event of paying off your loan will have a negative affect on your credit.  Why?  It comes down to credit diversity, which is a key component to how your credit score is calculated. Having many diverse types of credit available to you is good for your credit score, but when you pay off a loan it is effectively closing the loan account, which reduces the diversity of your overall credit mix.   However if you've been making on-time payments on the loan, the overall effect on your score will be positive. So even though you'll see a dip from paying off and closing the loan account, your credit score should be better off in the long run.

Question 10

If I get a loan, will it affect my credit?

Accepted Answer

Taking out a loan will probably affect your credit, but it can be a positive effect in the long run. Here's what that means:  Applying for a new loan often requires a hard credit check, which has an immediate negative effect on your credit score  Having the loan itself broadens your credit mix, which has a positive effect  Making regular, on-time payments on the loan improves your credit score by establishing a positive credit history  Paying off the loan can reduce your credit mix, lowering your score  There are some loan products designed just to help improve credit scores, typically called Credit Repair loans.

Question 11

How do I calculate APR on a loan?

Accepted Answer

Annual Percentage Rate (APR) is the yearly interest that is charged to borrowers, including all fees and other costs. APR is commonly used because it provides a consistent basis for presenting the annual cost to a consumer. APR does not take into account the compounding effect of interest where it applies.   APR = ((Interest + Fees / Loan Amount) / Number of days in loan term)) x 365 x 100

Question 12

Can you borrow against your 401k?

Accepted Answer

Borrowing from a 401k retirement account is generally allowed by retirement plan providers. While 401k loans can be a quick source of emergency funds and can provide immediate financial relief, they can be very costly when considering the drawbacks.   A major cost of 401k loans is the missed opportunity cost of keeping your savings invested in the market. You will miss the tax advantages of a company-sponsored retirement account and the compounding interest on a tax-free investment.   There are additional negative tax implications for 401k loans. Repayment on a 401k loan is made using after-tax dollars, while the funds are borrowed from a tax-protected investment account. Your payments will come from money taxed at your marginal tax rate, adding hidden cost to your loan repayments.   Lastly, there is the unforeseen risk of leaving your job with a 401k loan outstanding. If you leave your job with a 401k loan outstanding, you may be required to pay back the loan in a short time frame. If you are unable to pay off the loan, the loan will be considered defaulted and will be treated as a withdrawal or distribution, which creates tax liability. You will owe taxes and will be subject to a 10% federal tax liability if you are below 59 ½ years old.    401k loans can be a viable option if you need access to funds or are experiencing an unforeseen financial hardship. Before borrowing from a retirement account, consider other alternatives with less risk, such as a personal loan or home equity line of credit.

Question 13

Can you borrow against your 403b?

Accepted Answer

Borrowing from a 403b retirement account is generally allowed by retirement plan providers. While this can be a quick source of emergency funds and can provide immediate financial relief, it can be very costly in the long run to borrow against a retirement account.   A major cost of 403b loans is the missed opportunity cost of keeping your savings invested in the market. You will miss the tax advantages of a company-sponsored retirement account and the compounding interest on a tax-free investment.   There are additional negative tax implications for 403b loans. Repayment on a 403b loan is made using after-tax dollars, while the funds are borrowed from a tax-protected investment account. Your payments will come from money taxed at your marginal tax rate, adding hidden cost to your loan repayments.   Lastly, there is the unforeseen risk of leaving your job with a 403b loan outstanding. If you leave your job with a 403b loan outstanding, you may be required to pay back the loan in a short time frame. If you are unable to pay off the loan, the loan will be considered defaulted and will be treated as a withdrawal or distribution, which creates tax liability. You will owe taxes and will be subject to a 10% federal tax liability if you are below 59 ½ years old.    403b loans can be a viable option if you need access to funds or are experiencing an unforeseen financial hardship. Before borrowing from a retirement account, consider other alternatives with less risk, such as a personal loan or home equity line of credit.

Question 14

Can you take out a loan for a wedding?

Accepted Answer

Personal loans can be used for just about anything, including weddings!  Taking out a personal loan to pay for a wedding can be a great way to cover deposits and other large, upfront costs and spread payments over time. Bonus: making on-time payments can help improve your credit score and your overall financial standing. What better way to start off married life?

Question 15

How does a credit builder loan work?

Accepted Answer

A credit builder loan is an installment loan used to establish your credit score and history. This is done through making on-time payments on the loan and broadening your credit mix.   Credit builder loans, also sometimes called starter loans, can be an effective way to establish a good credit score before a major financial event. Getting a mortgage or auto loan can be easier and less costly if you have a track record of on-time payments and a good credit mix.  Before taking out any new loan, including a credit builder, be sure to review the costs and APR from the loan provider to make sure that the loan is affordable.

Question 16

How do I build credit?

Accepted Answer

Make set, on-time payments on an installment loan and diversify your credit mix.  An installment loan is just about any type of loan that requires a regular schedule of repayment within a fixed amount of time. The most common types of installment loans are personal loans, student loans, auto loans, and mortgages.   Credit mix is referring to the different types of credit available to you. So having just one credit card is a narrow credit mix, while having a credit card plus a personal loan plus a mortgage plus a car loan is a broad credit mix. Having a broader credit mix is better for your overall credit score.

Question 17

How to find the principal of a loan?

Accepted Answer

The loan principal is the outstanding (unpaid) balance of the loan. This part of the loan can accrue interest. When you first take out a loan, the principal can include the total amount financed plus any fees that can be added to the principal, like origination fees.   The principal will decrease as you make payments on the loan. Missed payments, however, may lead to additional fees and increase the principal.

Question 18

How to find the total interest on a loan?

Accepted Answer

The total interest of a loan is the sum of all interest paid over the life of the loan. Different types of loans, however, can use different interest calculations.  Personal loans typically use simple interest. This type of interest is only calculated on the principal of the loan; the interest won't be compounded, and you'll never pay interest on interest. For simple interest loans, fixed installment payments are determined by taking the interest rate, principal amount, and the number of periods (typically months) in the loan contract.   At the beginning of the loan, the fixed payments will be split with a higher portion of the payment going towards the interest. As the principal is paid off, the interest portion of the payment will get lower.

Question 19

How to pay off debt?

Accepted Answer

Paying off debt, fast, can be done a few different ways. The easiest option is to make larger payments than the required payments.  A relatively simple option is to make larger payments. For installment loans that means making payments larger than the required installment payments. On credit card balance debt, payments should be more than the required minimum monthly amount due.  Another way to pay debt faster is to make payments more frequently than required. So if your loan payment frequency is every month, try making two payments a month instead. For credit cards, this could mean making a payment every week. Larger, longer-term loans like mortgages could be paid off faster with 13 payments per year, instead of the typical 12.   Before making early, extra, or larger payments on any loan or debt, be sure to check the contract to see if there are any early repayment penalties.

Question 20

How to pay debt faster?

Accepted Answer

A relatively simple option is to make larger payments. For installment loans that means making payments larger than the required installment payments. On credit card balance debt, payments should be more than the required minimum monthly amount due.  Another way to pay debt faster is to make payments more frequently than required. So if your loan payment frequency is every month, try making two payments a month instead. For credit cards, this could mean making a payment every week. Larger, longer-term loans like mortgages could be paid off faster with 13 payments per year, instead of the typical 12.

Question 21

Can I get a personal loan after a bankruptcy?

Accepted Answer

Loan eligibility after a bankruptcy depends on the underwriting criteria of the loan provider, meaning different loan providers have different requirements for eligibility. While many loan providers won't approve a borrower if there is a bankruptcy on their credit report, there are some loan providers who will. Chapter 13 bankruptcies will stay on your credit report for seven years, while Chapter 7 bankruptcies will stay on your credit report for 10 years.   Qualifying for a personal loan with a bankruptcy on your credit report may be challenging but not impossible. Some lenders focus on alternative metrics such as cash-flow and employment, which could help with getting a loan, even while the bankruptcy is still on your credit report.

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