Family Finances
America’s families have been struggling with rising costs. But even as consumer price inflation has begun to level off this summer, childcare costs are still surging.
As pandemic-era federal aid programs come to an end, childcare providers continue to raise tuition costs. Some families are now paying more for childcare than their mortgages.
Childcare Costs On the Rise
In July, the average cost of daycare and preschool services rose at nearly double the pace of the overall inflation basket: 6% versus 3.2%.
Three main factors are driving this cost increase:
- Escalating costs for providers, including food, utilities, instructional materials, and more
- Increasing demand for childcare, as parents continue to return to the workplace
- Increasing costs for workers, driven by labor shortages
On top of that, more than 220,000 care providers, serving nearly 10 million children, will lose out on federal financial aid next month. The $24 billion in childcare grants authorized by the American Rescue Plan Act of 2021 will only remain available through September.
More Planning for Parents
Childcare prices vary widely depending on where you live, your child’s age, availability, and the provider you end up choosing. But here are a few tips for finding care that can help parents get started:
- Start your search early. Getting a headstart before you require care will give you time to compare providers and prices.
- Share child care. Parents can partner up to curb costs and share a nanny for children of similar ages.
- Take advantage of flexible work. As hybrid schedules become a new norm, strategic scheduling may help parents reducei childcare costs.
- That said, the cost of childcare is likely going to continue to climb, as economic factors driving the price hikes don’t abate. Smart budgeting, drawing on family help and shared resources remains top of mind as parents are planning for childproof finances.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
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4 personal loans for people with bad credit: Could one be right for you?
Subprime personal loans can help you obtain financial help if you’re being denied access to traditional loan products. However, because they’re usually tailored to low credit borrowers, the drawback is that they often come with high interest rates and fees. Nevertheless, they can provide a financial solution where there once was none.
Read on to discover the answer to the question: What is a subprime loan? Learn the subprime loans definition, how these loans work, and the steps to take to get a subprime personal loan.
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Subprime loans are for borrowers who have any of the following characteristics:
- Poor credit
- Low income
- Zero or limited credit history
- Less than ideal collateral
What is a subprime loan? Essentially, the subprime loans definition is a loan option for borrowers who have trouble getting loans through a traditional route. Many different types of loans offer subprime options — such as subprime personal loans and subprime auto loans.
While subprime loans are more expensive than other loans, they do serve a few purposes:
- They provide borrowers access to needed funds.
- They help borrowers who have no credit or poor credit the opportunity to build a stronger credit history with financial institutions.
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What constitutes a bad credit score? It depends on the credit score calculation used. FICO® Scores calculate a subprime credit score as anything between 580 and 669. Meanwhile, VantageScore® considers subprime to be any score between 300 and 600.
Can Subprime Loans Impact Your Credit Score?
Applying for and getting a subprime loan doesn’t hurt your credit score any more than the average loan. As far as your credit score is concerned, there is nothing different about a subprime loan versus a prime-rate loan. Your score is affected the same way either way.
Any time a lender runs a hard credit check during a loan application, your credit score is hurt a few points. But making loan payments on time can help you build credit.
The largest contributor to a person’s FICO credit score is their payment history. It accounts for 35% of a person’s total score, and is why making your payments on time is so important.
Paying down your loan will gradually lower your amount owed (which accounts for 30% of your FICO credit score).
Over time, a subprime borrower may be more likely to qualify for a prime-rate loan, as long as they have paid their bills on time and paid down their debt. (Learn more at Personal Loan Calculator)
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What is subprime lending? Many lenders offer subprime loans — they’re not unusual. You can get a subprime mortgage, subprime auto loan, or subprime unsecured personal loans. Shopping for subprime loans is simple. Use a loan broker platform and enter your credit score, ZIP code, and how much you want to borrow. From there, you’ll receive a list of lenders who are willing to work with borrowers who have a similar credit portfolio.
Once you formally apply, you’ll be given more specific loan terms. From there, compare personal loan rates and repayment periods. You may even want to make a subprime personal loans list of all your favorites. Depending on which type of loan you need, you may be required to put down a large down payment. For example, if you need a subprime auto loan, subprime borrowers typically need to put down a larger percentage of the purchase price than borrowers with good credit.
Once you’ve been approved for the loan, the repayment process is the same as any other loan product, but you will be paying more than someone who borrowed the same amount but has better credit. With subprime loans, origination fees, and interest are usually higher than a standard loan.
You may also have a longer repayment period, which has its own set of benefits and drawbacks. Generally speaking, a longer repayment period lowers your monthly payment, but it also increases the overall cost of the loan because interest accrues over a longer period of time. Keep in mind that subprime can mean different things to different lenders. Your credit score isn’t the only thing that may cause a lender to think of you as a subprime borrower. Other contributing factors include your income and collateral.
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There are a few different types of subprime consumer loans, each having its advantages and disadvantages:
1. Interest-Only Subprime Loans
At the beginning of an interest-only subprime loan, your payments are only going toward interest. Therefore, while your monthly payments are small, you’re not actually paying down the loan because you’re essentially just paying lender fees. When you’ve finished paying off the interest, all payments go toward the loan’s principal. Unfortunately, the monthly payment amount increases once this shift occurs.
With a fixed-rate subprime loan, the interest is the same throughout the life of the loan, which means your monthly payments are always the same. The downside to this is that the repayment period can be as long as thirty or more years. While this lowers the monthly payment amount, it increases the amount you’ll pay in interest over the life of the loan.
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For the initial duration of an adjustable-rate subprime loan, interest rates remain fixed. However, rates become variable after the initial fixed-rate period. Consequently, your monthly payments can change as the market fluctuates, which means you don’t know in the beginning how much you’ll actually pay for the loan. The frequency of payment amount changes depends on the type of loan you choose. Adjustable-rate loans can change every month, quarter, year, three years, or even five years, depending on how the loan is structured.
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Dignity subprime loans require borrowers to put down 10% of the loan amount in order to qualify. The borrower must agree to higher interest rates during the initial repayment period, after which the interest rate lowers to a prime rate if the borrower has made regular, timely payments.
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Knowing the positives and negatives about subprime loans will help you make a smart financial decision.
For instance, as mentioned, the interest rates on subprime unsecured personal loans are high. Borrowers with bad credit will likely get a rate near the high end of a lender’s range, which could be 35.99% or higher. That means if you took out a loan for $10,000 with a rate of 35.99% and a repayment term of seven years, you’d pay $17,489.90 in interest. However, if you qualified for an interest rate of 9.95% for that same loan, you’d pay $3,923.30 in interest. As you can see, the difference is substantial.
With some financial care, someone who qualifies only for a subprime loan may be able to improve their financial situation, enhance their credit history, boost their credit score, and qualify for a prime-rate loan in the future.
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Personal loan approval is never guaranteed, but here are some lenders that may offer online personal loans to borrowers with subprime credit. (The following information on APR range, loan amounts, and maximum term lengths will be updated weekly, every Monday.) (Learn more at Guide to Prime Loans)
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Step 1: Start by checking your credit score. Many banks offer their account holders free updates on their credit score.
Step 2: Determine how much you need. Many subprime lenders have specific ranges of loan amounts. Knowing what you need will determine which lenders may be willing to work with you.
Step 3: Calculate your annual income. Lenders typically want to know your pre-tax (or gross) income. Use tax returns and pay stubs to calculate how much you make.
Step 4: Gather the appropriate documentation and information. You may be asked for the following:
- Government-issued ID.
- Tax returns.
- Pay stubs.
- Social Security number.
- Employer name.
- Start date of current job.
- Amount of recurring debts.
Step 5: Apply online. A loan broker can speed up the application and rate comparison process by only requiring one application.
Step 6: Compare rates and loan terms. When comparing loan products, look at the following information provided by each lender:
- Repayment period.
- Type of interest (fixed or variable).
- Interest amount.
- Penalties.
- Origination fee.
- Secured or unsecured.
- Monthly payment amount.
Step 7: Choose the lender offering the best loan product for your specific financial needs. By comparing the above loan terms, choose a personal loan that fits within your budget the best. Don’t just look at interest, but also pay close attention to fees, such as the loan origination fee. For example, one company may offer a slightly lower APR, but when you take into account the loan origination fee, it actually becomes more expensive than other options.
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Subprime personal loans and regular personal loans share some of the same characteristics. But they also have some key differences that it’s important to be aware of:
Similarities
Both subprime personal loans and regular personal loans allow you to borrow money that you repay with interest in installments over a set period of time. Both types of loans can affect your credit. As long as you repay these loans on time consistently, they may help build your credit.
Differences
Subprime loans have higher interest rates than regular loans. They also come with higher fees, such as origination fees, and borrowers might be limited to smaller loan amounts. The repayment period for subprime loans is often longer, which can make your monthly payments smaller, but you’ll pay more in interest over the life of the loan.This chart gives you an at-a-glance comparison of the pros and cons of subprime loans vs. regular loans.
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Knowing when to consider subprime personal loans is sometimes half the battle. When it doesn’t feel right, consider the following alternatives:
Getting a Cosigner
Cosigning on a personal loan can dramatically improve your chances of getting a prime-rate loan if your cosigner has a strong income and credit score. The downside, however, is that if you miss payments, both of your credit scores will be hurt because both of your names are on the loan.
Borrowing From Friends and Family
Sometimes, a loan from a formal financial institution is not the answer. Asking a friend or family member for a loan may be a solid alternative. By signing a promissory note or loan agreement, you can put your lender at ease, knowing you’re serious about paying them back.
Selling Assets
Sometimes we overextend ourselves and purchase things that are difficult to afford long term, such as an expensive car. If you have a financial emergency that requires immediate funding, consider selling some of your assets and using the proceeds to fund whatever it is you were considering a loan for.
Pay by Cash
If you have the money in savings, but are considering a subprime loan to improve your credit, it may make more sense to pay by cash and take your time improving your credit score by other means. After all, a large portion of your credit score revolves around how much debt you have. If you increase your debt by a significant amount, the benefits of the subprime loan may be marginal.
Home Equity Loan
If you own your home and have accrued enough equity in it, you may be able to qualify for a home equity loan. Unlike subprime unsecured personal loans that require no collateral, with a home equity loan, any equity you have is used as collateral to secure a second loan.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Advisor
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at here. Liz Young is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at here.
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