How Does Installment Loans Work?

Installment loan is a broad, overall term that applies to the overwhelming majority of personal and commercial loans extended to borrowers. Installment loans include any type of loan that is pay back with regularly scheduled payments, or installments. 

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Each payment on an installment debt consist of repayment of a portion of the principal amount borrowed and also the payment of interest on the debt. The main variables that define the amount of each regularly scheduled loan payment include the amount of the loan, the interest rate charged to the borrower, and the length, or term, of the loan.

The Basics of Installment Loans

Common instances of installment loans includes auto loans, mortgage loans or personal loans. Other than mortgage loans, which are frequently variable-rate loans where the interest rate changes during the term of the loan, nearly all installment loans are fixed-rate loans, meaning that the interest rate charged over the term of the loan is fixed at the time of borrowing. And so, the regular payment amount, typically due monthly, stays the same throughout the loan term, making it easy for the borrower to budget in advance to make the required payments.

Installment loans may be either collateralized or non-collateralized. Mortgage loans are collateralized with the house the loan is being used to purchase, and the collateral for an auto loan is the vehicle being purchased with the loan. Some installment loans, often referred to as personal loans, are extended without collateral being required. Loans extended without the requirement of collateral are made based on the borrower's creditworthiness, usually demonstrated through a credit score, and the ability to repay as shown by the borrower's income and/or assets. The interest rate charged on a non-collateralized loan is usually higher than the rate that would be charged on a comparable collateralized loan, reflecting the higher risk of non-repayment that the creditor accepts.

The Process of Installment Loans

A borrower applies for an installment loan by filling out an application with a lender, usually insist on the purpose of the loan, such as the purchase of a car. The lender discusses with the borrower various options concerning issues such as down payment, the term of the loan, the payment schedule and the payment amounts. For instance, if an individual wants to borrow N400,000 to finance the purchase of a car, the lender informs the borrower that making a higher down payment could get the borrower a lower interest rate, or that the borrower could obtain lower monthly payments by taking out a loan for a longer term. The lender also reviews the borrower's solvency to determine what amount and with what loan terms the lender is willing to prolong credit.

Borrowers generally have to pay other fees in addition to interest charges, such as application processing fees, loan origination fees and potential extra charges such as late payment fees. The borrower ordinarily retires the loan by making the required payments. Borrowers can usually save interest charges by paying off the loan before the end of the term set in the loan agreement. However, some loans carry out prepayment penalties if the borrower pays off the loan early.

Advantages and Disadvantages

Installment loans are flexible and can easily be tailored to the borrower's specific needs in terms of the loan amount and the length of time that best suits the borrower's ability to repay the loan. Installment loans let the borrower obtain financing at a substantially lower interest rate than what is usually available with rotating credit financing, such as credit cards. This way, the borrower can keep more cash on hand to use for other purposes, rather than making a large cash outlay.

For longer-term loans, the borrower might be making payments on a fixed interest loan at a higher interest rate than the prevailing market rate. The borrower may be able to refinance the loan at the prevailing lower interest rate. The other main disadvantage of an installment loan stems from the borrower being locked into a long-term financial obligation. At some point, circumstances may render the borrower incapable of meeting the scheduled payments, risking default and possible forfeiture of any collateral used to secure the loan.

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Advantages of Investing in Your Early 20s

For many young adults, it looks easier to put off any investing choices until their financial situation becomes at least theoretically, more stable. Twenty-somethings, however, are actually in a prime position to enter the investing world, even with college debt and low salaries.

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Time

While money may be tight, the young adults have a time advantage. But there is a reason that compounding the ability to grow an investment by reinvesting the earnings was referred to by Albert Einstein as "the eighth wonder of the world." The magic of compounding allows investors to generate wealth over time, and requires only two things: the reinvestment of earnings and time.

Take More Risk

An investor's age influences amount of risk he or she can withstand. Young people, with years of earning ahead of them, can afford to take on more risk in their investment activities. While individuals approaching retirement years may gravitate towards low-risk or risk-free investments, such as bonds and certificates of depos, young adults can build more aggressive portfolios that are subject to more volatility and stand to produce larger gains.

Learn by Doing

Young investors have the flexibility and time to study investing and learn from both successes and failures. Since investing has a fairly lengthy learning curve, young adults are at an advantage because they have years to study the markets and refine their investing strategies. As with the increased risk that can be absorbed by younger investors, so too can they overcome investing mistakes because they have the time needed to recover.

Human Capital

From an individual's perspective, Human Capital can be said to be the present value of all future wages. Since the ability to earn wages is fundamental to investing and saving for retirement, investing in oneself by earning a degree, receiving on the job training or learning advanced skills is a valuable investment that can have strong returns. Young adults often have many opportunities to increase their ability to earn higher future wages, and taking advantage of these opportunities could be considered one of the many forms of investing.

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Better Ways To Buy Insurance For Small Business

Buying insurance is frustrating. Even with all of the technological advancements we’ve made in the past 20 years, the process of getting and managing insurance hasn’t gotten much easier, especially for small to medium-size businesses who don’t get the same service as their larger counterparts.

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Why Do Valued Employees Quit?

Everyone has a good and bad days at work, but when an employee has too many bad days, he or she may start strategizing to leave that job behind. If you've worked hard to get the best possible people on your staff the ones most desirable to your competitors, needless to say you don't want to lose them due to situations you could prevent.

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Reasons why employees quit their jobs. 

1. Too Much (or Too Little) Work

Good employees are often capable of doing more than they are initially tasked with, which can be a tricky problem. That level of capability can result in an employee being asked to do more work than he or she can handle, which can lead to long hours, frustration at contributing more than the rest of the team and ultimately, burnout. Capable workers may complete their tasks and hit roadblocks when they request more work; the resulting boredom and lack of fulfillment on the job can be just as toxic as being overworked.

2. Promotion Issues

Many employees leave jobs when there is no upward mobility. No matter how hard they work or how well they succeed, there are no opportunities for advancement into higher-paying, more demanding positions. Alternatively, if a less qualified or capable team member gets a promotion, high-performing employees may look elsewhere especially if a former teammate becomes a manager.

3. Poor Management

Unfortunately, in many companies being a manager is considered a step on a typical career ladder, regardless of an employee’s skills. Managers require expert communication and interpersonal skills, yet not all managers have these skills or are given the training to gain them. Most managers fear giving honest feedback, mainly because they haven’t been trained to do it well.”

4. A Toxic Work Environment

While the ideal workplace would include colleagues behaving professionally, not all personalities mesh so easily. Interpersonal conflicts, office gossip, recognition-grabbing or undercutting of coworkers can lead to a toxic work environment, which might make a capable employee consider quitting. An additional problem may be interoffice competition: When flexible hours and vacation time are generous, a competitive workplace might prevent employees from feeling like they can use their benefits or flexible work options without getting penalized. Having challenges scheduling vacations, or being discouraged from doing so, can also lead to employee dissatisfaction.

5. Inadequate System of Rewards

Raises are miserly, recognition is rare neither of these company attributes is going to foster company loyalty among employees or encourage them to put in extra hours over the weekend. When employees do good work, they should be recognized financially and publicly. Otherwise, someone else will.

6. Stingy Benefits

A generous benefits package can often be as much of a lure to employees as a generous salary. Funding for professional development or education, good health insurance, generous sick days, flexible hours, telecommuting options, more-than-the-minimum paid maternity and paternity leave, ample vacation time these are the kinds of benefits that can help a company retain workers or, when they are not provided, drive an employee to look for a better package elsewhere. Benefits don’t have to be large to be appreciated something as seemingly minor as snacks at meetings can make a big difference (“no meeting without eating” will keep blood sugar steady and employees happy). Planned social events can also go far to gain employee loyalty and forestall a toxic work environment.

7. Changing Career Goals

If one career field is not fulfilling, it is now fairly common for workers of all ages to start new careers unrelated to the path they originally embarked on. Talking with employees about ways in which they can stay in their job while continuing to learn and grow may help companies retain high performing individuals.

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Reasons Why Borrowing Is a Bad Idea

Pundits claim that your 401(k) balance is a less expensive way to borrow money because the interest rate charged is generally lower than the rates on a commercial loan. They also cite the fact that when you repay the loan, you are paying yourself back with interest, instead of paying a bank.

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Despite these rights, borrowing from your 401(k) goes against almost all time tested principal of long-term investing. 

There are eight major reasons why this type of thinking is short sighted:

1. You Are Not Saving

If you borrow money from your 401(k) plan, most plans have a provision that prohibits you from making additional contributions until the loan balance is repaid. Even if your plan doesn't have this provision, it is unlikely that you can afford to make future contributions in addition to servicing the loan payment. Because the whole point of having a 401(k) plan is to use it is as a way to save for the future, you are defeating the purpose of having this account if you use it before you retire.

2. You Are Losing Money

If you not are not making contributions, not only is the entire balance that you borrowed missing out on any potential growth in the stock or bond markets, but each future contribution that you are unable to make (since you have an oustanding loan) isn't growing either. The extraordinarily low interest rate that you are paying to yourself with your loan payment is likely to be a pittance in terms of return on investment when compared to the market appreciation that you are missing.

3. Time Will Work Against You

Long-term investing (such as saving for retirement) is based on the idea that by putting time to work on your behalf, your money will grow. Most calculations suggest that your money will double, on average, every eight years. 401(k) plans permit each loan to be held for up to five years or longer. Therefore, if the loan is used to fund a first-time home purchase, loan holders not only lose out on what should have been an opportunity to nearly double their money, but they are also left unable to make up for the lost contribution and growth opportunities. Over time, their balance is unlikely to ever reach the total that it would have reached had contributions continued uninterrupted.

4. If Your Financial Situation Deteriorates, You Could Lose Even More Money

Should you find yourself in a position where you are unable to repay the loan, it is treated as a withdrawal and the outstanding loan balance will be subject to current income taxes in addition to a 10% early withdrawal penalty if you are under age 59.5. 

5. You Are Trapped

If you have an outstanding loan, most plans require that the loan be immediately repaid if you quit your job. So, as long as you have a loan, you are stuck in your current job and may be forced to pass up a better opportunity should one come along, unless you are willing to take the loan balance as a withdrawal and pay the 10% penalty, which further compounds the growth opportunities that you have missed by taking the loan.

6. You Lose Your Cushion

Taking a loan from your 401(k) plan should only be done in the most dire circumstances after you have completely exhausted all other potential sources of funding. If you take money from your plan to fund a vacation or pay off higher interest loans, the money won't be there to borrow when you really need it.

7. It Suggests That You Are Living Beyond Your Means

The need to borrow from your savings is a red flag, which is a warning that you are living beyond your means. When you can't find any other way to fund your lifestyle than by taking money from your future, it's time for a serious re-evaluation of your spending habits. What purchase could possibly be so important that you are willing to put your future in jeopardy and go into debt in order to get it? 

8. It Violates The Golden Rule of Personal Finance

"Pay yourself first" is the golden rule of personal finance. Violating that rule is never a good idea.

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Difference between Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI)

Disabled persons could receive payments through Social Security Disability Insurance and Supplemental Security Income. Both Social Security Disability Insurance and Supplemental Security Income are administered by the Social Security Administration. Applications usually require a Social Security number, birth certificate, information on medical staff visited and work information (if applicable). Applications are reviewed to determine if the applicant qualifies.

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Social Security Disability Insurance (SSDI)

It provides benefits to disabled persons if they cannot presently work due to a medical condition that is expected to last at least one year. Family members of disabled workers may also be eligible to receive money. Applicants for SSDI must generally meet a minimum threshold of years worked. For example, a 44-year-old individual must have worked at least 5.5 years in order to pass the SSDI duration-of-work test. There are no income limitations. When individuals getting SSDI reach full retirement age, they transition to Social Security's old-age program and receive the same payments through the Old-Age and Survivors Insurance Trust Fund instead of the SSDI trust fund.

Supplemental Security Income (SSI)

It offers benefits based on financial need and focuses on paying disabled or blind adults and children who have limited income, and certain adults over age 65. SSI is the largest federal program providing benefits to those with disabilities and is the only program that covers people who have never worked, or haven't worked enough hours, to qualify for SSDI. Funds for this program come from general tax revenue instead of from Social Security taxes and are disbursed each month to those who qualify. Few people who receive extremely low SSDI payments and have very little other income may qualify to receive both types of benefits.

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Hire Self-Managing Employees For The Success of Your Business

One of the common hiring philosophies among smart leaders is to find great people. These leaders often mean hardworking, independent individuals who can essentially manage themselves. Self-managing employees, or "self-starters," work efficiently and well with little supervision. These driven professionals keep a company moving forward with their innovative ideas and strong work ethic.

You need your employees to take the initiative, complete tasks and come up with ideas to improve the company." 

Self-managing employees attributes:

• They know how and when to execute the work themselves, and when to conscript others.
• They understand the balance between value created and resources invested for any given task.
• They ask a lot of questions to seek strategic or tactical advice, rather than emotional reassurance.
• They appreciate, if not welcome, criticism, because one of the most important functions of self-management is self-improvement.
• They identify issues and propose solutions.
• Finding self-starters

As you interview candidates who claim to be self-starters, the key is to ask the right behavioral questions to determine their personality type, strengths, weaknesses and communication styles.

Few sample questions you can ask a candidate to assess his or her ability to work independently.

• Tell me about a situation at work where you needed help, but couldn't find anyone to help you. How did you handle it? Self-reliant workers are able to proactively assess difficult situations and determine a solution on their own, Walker said. She suggested asking this behavioral question will show whether a candidate is capable of handling similar situations independently in this new role.

• Tell me about the last time you learned something new for the sake of learning, and how you have benefitted as a result.  They don't need to be told to learn something to improve a particular skill. The right candidate can typically answer this question without hesitation, often naming several examples and resulting outcomes, he said.

The candidates who say they're self-starters, but aren't really, typically trip over this question because they either don't take initiative or have proof or outcomes of their effort.

During the interview, propose a hypothetical goal and see if the candidate can identify a reasonable metric for success, explain the strategy in serialized tasks and recommend the resources required to achieve it.

How would you describe your ability to delegate responsibilities? Employees who like to work independently often take responsibility for a group projects and teamwork. Self-starters may admit that they're not great at letting go of the reins because they want everything done well, and know they can do a good job. This is a tricky area, though, because inability to delegate may present some problems if the candidate ends up in a leadership position.

Keeping the momentum going

Once you've built up a team of self-managing employees, your job as a leader is to keep them feeling motivated and enthusiastic about their jobs. They won't need a ton of guidance once you've given them directions, but make sure they know you support them and that you'll give them the resources they need to succeed.

Providing regular feedback and clear communication to employees will provide this support.

Mentoring and listening to your employees play an important role in leading a successful team. Employee engagement and constructive feedback are great ways to support a team of self-managing individuals.

When goals are clearly communicated and transparent across the organization, you can ensure that the work of each individual employee is helping moving the company towards its long-term objectives. This keeps everyone rowing in the same direction.

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