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Credit Rating Agencies Differ On Illinois Credit Outlook While Recognizing High Debt Of State Pension Plans | Illinois

Karl J. Flynn
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(The Center Square) – Illinois’ credit rating maintains a notch above “trash” status, but rating agencies have different views on the state’s credit outlook.

The most recent report released Tuesday by Fitch Ratings claims the Illinois issuer default rating is BBB-, “significantly lower than other states.” S&P Global Ratings also confirmed the government’s BBB- rating for long-term general debt. But agencies diverged on the outlook, with Fitch giving Illinois a negative outlook while S&P revised the state’s negative outlook to stable.

Fitch’s rating “reflected an ongoing pattern of poor operational performance and unresolved fiscal decision-making which produced a credit position far below the level of the state’s broad economic base and substantial independent legal capacity to control its. budget world differently, “the agency said. . “The ratings also reflect the government’s high long-term liability position, modest long-term income and economic growth profile, and adequate spending flexibility. “

As for the negative outlook, Fitch said that “reflects the risks posed by the state’s lack of significant reserves and its already intensive use of other budget management tools, such as deficit financing, but more federal aid. in addition substantial could prove to be an effective means of mitigation. “

Illinois is expected to get about $ 7.5 billion from the federal government in direct aid to the state budget.

What could lead to a change in the state’s credit rating one way or another varies, Fitch said.

Changes that “lead to significantly higher income or reduced spending could” lead to positive rating action while downgrade could be triggered “by the absence of a credible pathway to reverse the current use of credit. the state of non-structural fiscal measures or the use of short-term measures that dramatically worsen the state’s long-term challenges, such as the liability burden of pension plans.

“Spending growth, in the absence of policy measures, is likely to be higher than income growth, mainly due to increased pension demands,” the report said. “Pension costs are exceptionally high and, as noted above, will continue to rise under current law. Illinois has chronically underfunded its retirement system based on a legal formula that targets only 90% of full long-term actuarial funding. “

Illinois long-term liabilities, especially pension liabilities, are very high for a U.S. state, Fitch said.

“Fitch estimates the state’s total long-term liabilities at around $ 200 billion, with pensions accounting for around 80% of the total,” the report said.

S&P said the state’s stable outlook of negative “reflects reduced fiscal and economic uncertainty resulting from the COVID-19 pandemic and the economic downturn that followed,” S&P credit analyst said Global Ratings, Geoff Buswick, in a statement.

Among the factors in the state’s BBB- rating, according to S&P reports, is empty budget stabilization, or a rainy day fund, the “still large” backlog of bills, funding practices. recurring state pensions and late audit reports. There is also an unknown about the pace of Illinois’ recovery from the pandemic.

“We could lower the rating if we believe that Illinois’ backlog of bills is increasing significantly or that the state’s liquidity position is weakening to a level that compromises its ability to fund basic government services. in a timely manner, ”S&P said. “Any improvement in the state’s solvency, however, remains somewhat constrained by poorly funded pension systems and other disproportionate liabilities.”



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The case against the cancellation of the debt at the ECB

Karl J. Flynn
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Sovereign Bond Updates

As euro area governments’ responses to the coronavirus pandemic are expected to accumulate € 1.5 billion in additional debt, several senior Italian officials including the prime minister’s economic adviser, suggested that the European Central Bank should forgive governments for debt purchased through quantitative easing. Canceling the sovereign debt that the ECB has accumulated or extending its maturity perpetually, they say, would free up more resources for the government to support the recovery. The idea caused consternation in France and Germany. The ECB is right to firmly oppose it.

In some circumstances, relying on the central bank to finance the government may be much better than the alternatives. Few people today think that the Bank of England interference in gilts auctions at the start of World War I was anything but reasonable. Likewise, throughout World War II, the US Federal Reserve set the interest rates the US Treasury paid to borrow and bought all the bonds at that price that private investors did not want.

Italy, however, does not face any similar crisis today. Differences between borrowing costs for peripheral euro area countries and Germany have shrunk since ECB President Christine Lagarde said it was not her job to “close the gap” earlier this year. Now Italy is paying just 1.2 percentage points more than Germany to borrow for 10 years, half the gap after Ms Lagarde’s comments in March. The mess in public funding markets in the early stages of the coronavirus pandemic was largely addressed by central bank quantitative easing programs.

The cancellation of the Eurosystem’s debt would not return liquidity to the Italian government either. The debts represent expenses that have already been financed and the interest payments are recycled in the treasuries of the euro area. For now, putting debt on the Italian central bank’s balance sheet is not much different from writing it off altogether.

A fiscal crisis could be caused by the resumption of EU rules which limit public debt to 60% of national income. Italy already exceeded this limit before the pandemic; many others will now join him. Yet such a crisis is more likely to be brought about by political errors and a deliberate confrontation with the “creditor” nations of the North than by economic considerations. The European Commission has already been able to elucidate this question.

Italy could act on its own to facilitate the treatment of its long-term debt, in case the ECB decides to sell its assets back to the private sector and rates rise. In particular, it could issue much longer-term loans to lock in the current low financing rate and gain more time to correct the country’s low growth rate. Italy might even try to sell perpetual debt.

There may be monetary reasons for canceling public debt holdings. Many economists argue that “helicopter currency” – a permanent increase in money supply, compared by economist Milton Friedman to central bankers dropping money from a helicopter – will be needed to save the eurozone from potential deflation. This would be more easily implemented by simply reducing the ECB’s existing holdings of public debt to zero. Any movement towards this policy should come from central bankers eager to meet their inflation targets, not from politicians playing with populist slogans.

Either way, there is little reason for Italian officials to raise the possibility now. Debt markets are at rest and the proposal could easily scare investors or taxpayers from Northern Europe. The debate over the long-term response to eurozone debt can wait until the pandemic is over.



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Mozambique debt scandal shipbuilder says he did

Karl J. Flynn
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Lebanese shipbuilder at the center of a $ 2 billion Mozambique debt scandal says it made payments to its current president and ruling party in 2014, but said they were donations campaign, not bribes, according to a London court filing.

Privinvest said payments made to President Filipe Nyusi in the run-up to his election and to the Frelimo party were permitted under Mozambican law, according to the case filed Jan. 15 with the High Court in London.

The case concerns a series of tuna fishing, maritime security and shipbuilding projects for which Privinvest was the sole contractor and for which Mozambique borrowed $ 2 billion between 2013 and 2014, provided or arranged by banks including Credit Suisse. Nyusi was Minister of Defense when the projects were approved.

US officials say hundreds of millions of dollars have gone missing in what they have described as a front for a bribe and kickback program. The scandal prompted donors, including the International Monetary Fund, to suspend support for Mozambique, triggering a currency collapse and default in 2016.

Nyusi spokesman Caifadine Manasse denied the Mozambican leader had any connection to the scandal and said any campaign donation was legal.

“President Nyusi has no possible connection with the illegal debt,” Manasse told Reuters in response to questions about Privinvest’s court case.

“We calmly wait for the truth to come out, and it will show that neither Frelimo nor President Nyusi are involved in wrongdoing,” Manasse said.

The filing by Privinvest was part of its response to a legal action brought by Mozambique in 2019 against it, Credit Suisse and other defendants, seeking compensation and recovery of the loan funds. Mozambique also sued billionaire Privinvest owner Iskandar Safa later that year, accusing him of fraud.

Privinvest and Safa have both denied the wrongdoing, while Credit Suisse filed a counterclaim in the London lawsuit, arguing that it was entitled to seek damages for the money owed to it.

Privinvest and Safa’s January 15 dossier indicates that Privinvest made campaign donations to Nyusi and the Frelimo party, but that “none of this was a counterpart for the projects” and that “no allegations of corruption” could not be done.

“If there had been such a conspiracy, President Nyusi (…) was fully aware of it and / or participated in it, and was indeed at the heart of the affairs of which the Republic is now complaining,” the file indicates.

Credit Suisse declined to comment on the London case.

U.S. prosecutors have filed a separate case in connection with the 2019 scandal, in which three Credit Suisse bankers pleaded guilty to charges, including conspiracy to violate anti-corruption laws. Credit Suisse said the defendants hid their contacts from the bank. US authorities have also indicted a former Mozambican finance minister for his alleged role and are asking for his extradition from South Africa.

The United States was the first to lay charges in this case, and criminal and civil proceedings initiated by Mozambican authorities followed shortly thereafter.

(Reporting by Emma Rumney and Manuel Mucari; Writing by Emma Rumney; Editing by Mark Heinrich and Nick Tattersall)



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What is a secured loan?

Karl J. Flynn
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Definition of a secured loan

A secured loan is a loan that you get by putting up collateral, like a car or a house. If you miss payments, the lender can sell your collateral to pay off the loan. It may be easier to get a secured loan than other types of loans.

Reasons to get a secured loan

A secured loan may be a good option for you if:

  • Your credit rating is low
  • Are you looking for a low rate loan?

Remember, however, that you risk losing anything you have put down as collateral if you get a secured loan.

If you don’t like the idea of ​​getting a secured loan, you are not alone. Bad credit borrowers can look into bad credit personal loans to find an unsecured loan and easier eligibility requirements.

What is an unsecured loan?

The opposite of a secured loan is an unsecured loan. An unsecured loan does not involve collateral. If you miss payments, the lender can sue you, but your assets will not be repossessed or sold immediately. However, these types of loans are more difficult to obtain. In addition, lenders generally charge a higher rate of interest for unsecured loans.

What counts as collateral for a secured loan?

Anything a lender can sell if you miss loan payments can be considered collateral. Here are some examples of common guarantees used by borrowers:

Other examples of potential warranties include jewelry, coins, fine art, boats, RVs, and ATVs.

Where can I get a secured loan?

If you want to get a secured personal loan, start by talking to various personal lenders. For example, you can get a secured loan from an online lender, bank, or credit union. Shopping around with a variety of lenders will help you find the best lender for your finances.

Should I get a secured loan?

If you are having difficulty qualifying for a traditional loan, a secured loan may be the right choice for you.

If you can qualify for an unsecured loan, it is usually a safer choice. However, unsecured loans can charge higher interest rates than secured loans. If you are trying to save money on interest, you may want to get a secured loan.

Here are some pros and cons to help you decide if a secured personal loan is right for you:

Benefits

  • If you don’t have the credit score you need for a personal loan, you may still be able to get approved for a secured loan.
  • A secured loan can help you create or rebuild credit.
  • A secured loan can allow you to be approved for a loan on your own when you would normally need a co-signer.
  • Secured loans often have lower interest rates on personal loans.

The inconvenients

  • Anything you give as collateral can be sold by the lender if you don’t make the payments.

If you decide that a secured loan is right for you, be sure to ask your favorite personal lenders plenty of questions. For example:

  • What is your minimum credit score required to get a personal loan?
  • Is it possible that I can claim an unsecured personal loan?
  • What interest rate am I entitled to with a secured personal loan? And what interest rate would I get with an unsecured personal loan?
  • What can I use as loan collateral?
  • How long will I have to repay the loan (what are the repayment terms)?
  • Are you charging origination fees or other fees that I should know about?

Taking out a secured loan is an important decision. You deserve all your questions answered before signing on the dotted line and committing to new debt of any kind.

In the meantime, if you’re starting from scratch, check out our guide on how to get a no-credit loan.


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Rockville Advisors debt consolidation loan scam continues to hurt borrowers

Karl J. Flynn
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Rockville Consultants Debt consolidation loan offers are a bait and switch scam. Rockville Consultants began flooding the market with debt consolidation, debt consolidation and credit card relief loan offerings in the mail with the My Rockville Advisors website. The problem is, the terms and conditions are confusing, if not suspect, to say the least.

The interest rates are so low that you would need almost perfect credit to be approved for any of their offers. Best reviews 2021, the debt consolidation finance review site, followed Rockville Consultants, Sooner Partners, Snowbird Partners, Gulf Street Advisors, Brice Capital and others.

Credit cards are a great way to earn rewards and points while spending. Many people use them in various ways, for example to pay medical bills, various purchases, buy a car, etc. However, if you’re not careful, they can get you in serious trouble. Credit card debt is becoming an increasingly prevalent problem for everyone around the world, especially after the negative impact the COVID-19 pandemic has had on the economy, forcing many to need coronavirus credit card relief.

Due to the pandemic, many people are struggling to pay off their credit card debt effectively. One strategy to pay off credit card debt as quickly as possible is to get debt consolidation loans. This strategy involves consolidating your debt and paying off multiple credit card debts at the same time.

Debt consolidation loans can be a great alternative as they have many advantages. If you are struggling with credit card debt, here are five reasons why you should consider paying it off using debt consolidation loans.

Be careful not to crack debt consolidation scams.

1. Lower interest rates

The most obvious advantage of using debt consolidation loans is that the interest rates with debt consolidation loans are usually much lower than those with credit cards. For example, the average interest rate for debt consolidation loans is 9.5%, while credit card interest rates are 14.52%.

A debt consolidation loan can help debtors pay off multiple credit card debts simultaneously. So, by getting a debt consolidation loan, you will pay off all of your credit card debt at one time and you will also not have to pay extremely high interest rates per month. This saves you the money you have to pay per month as you will only pay one bill per month.

Moreover, by paying off your debt using debt consolidation loans, the monthly bill that you would have to pay will not increase. The opposite is the case if you don’t pay your debts because the credit card companies take a percentage off your credit card balance. This means that the amount you have to pay each month also fluctuates.

For this reason, it also takes much longer to pay off credit card debt as the amount keeps increasing every month. Therefore, with a debt consolidation loan, you can pay off your debt much sooner.

2. Consolidated payments

By taking out a debt consolidation loan to pay off multiple credit card debts at the same time, you would consolidate all of your debts into one and ultimately make your life easier by improving your financial health. As a result, your multiple monthly payments will become one. By streamlining your monthly payments in this way, you will be able to manage your monthly budget and expenses much more efficiently.

3. Final debt-free date

After you get a debt consolidation loan and pay off your debt with that amount, you will also have a final date by which you have fully paid off all of your debts. This is not the case with credit card companies, which allow customers to continue to take on debt. Thus, the precise time it takes to be debt free also becomes indefinite and continues to change. This is good for people who can pay in full every month, but it can cause problems for those who don’t normally pay in full every month. Moreover, this also does not apply to people who will also not be in control of their credit card spending. For this reason, debt consolidation loans also give more motivation to stay focused and feel more relaxed.

4. Improve credit score

When you use debt consolidation loans to pay off your credit card debt, your credit score also improves much faster. This is only applicable if you pay off your debts and don’t fall back into the habit of over-buying and increasing your debt.

The reason credit scores improve is that debt consolidation loans are not counted as part of a consumer’s credit utilization rate. The lower ratio ultimately improves credit scores.

5. Pay off other debts

Since using debt consolidation loans to pay off your credit card debt lowers your interest rate, they ultimately save hundreds of dollars that would otherwise have been spent on interest. So, you can use this amount to pay off your other debts, for example, mortgage debt, student loan debt, tax debt, etc.

Important points to consider

Debt Consolidation Loans come with a fixed interest rate, a fixed monthly payment, and a fixed repayment schedule that helps determine the exact date when you will be completely debt free. For these reasons and those mentioned above, people choose to opt for debt consolidation loans to swap their credit card debts. However, while this is a great option, it may not be as good for everyone.

One of the pitfalls of debt consolidation loans is the freedom they give you to use them for anything. Therefore, you need to be careful and make sure that the loan is used for consolidate your debt and don’t be tempted to borrow things you’ll regret later. It’s important to remember that debt consolidation loans are also another way to borrow more money than you need to pay back.

In addition, be aware that debt consolidation loans also enter your credit history and influence your credit scores. So, you should pay at least the minimum amount before the due date so that there is no significant impact on your credit scores and your history.

The bottom line

A debt consolidation loan can be a great way to consolidate debt and not pay huge interest rates. However, you must consider all of the options available to you before applying for a debt consolidation loan.

More importantly, whatever method of debt repayment you use, you need to remember that in order to get out of debt, you need to be in control of your spending. Plus, it’s always a good idea to switch to cash from credit cards so you don’t fall into debt in the future again.


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What it is, how it works and how to get one – Forbes Advisor

Karl J. Flynn
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Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.

Secured loans can help borrowers access much-needed cash or make major purchases, such as a house or a new car, often with less stringent qualifying requirements than unsecured loans. By pledging valuable assets, a borrower can obtain financing while keeping interest rates low. Lenders also face less risk when providing secured loans as they can foreclose or repossess collateral if the borrower defaults.

What is a secured loan?

A secured loan is a loan secured – or secured – by a valuable asset, such as real estate, cash accounts, or an automobile. In many cases, the loan is secured by the underlying financed asset such as a house or vehicle; alternatively, borrowers may be able to pledge other collateral like investments or valuable collectibles.

If a borrower defaults on a secured loan, the lender can repossess, seize or otherwise seize the asset to collect the outstanding balance. For this reason, secured loans pose less risk to lenders and therefore often come with lower interest rates and borrower requirements than unsecured loans.

Secured or unsecured loans

For example, in the case of secured and unsecured personal loans, a borrower with a high credit rating may qualify for a low interest unsecured loan without having to give collateral. Another applicant for the same unsecured loan might not qualify and need to rely on a secured option because it is more risky. One type of loan isn’t necessarily better than another, but it’s important to understand your options before signing on the dotted line.

How secured loans work

Secured loans give borrowers access to a lump sum of cash to cover everything from home improvement projects to buying a car or a house. You can usually get these loans from traditional banks, credit unions, online lenders, car dealers, and mortgage lenders.

Even though secured loans are less risky for lenders, the application process usually requires a rigorous credit check, although some lenders offer the option to prequalify with a simple credit application. And, although secured loan balances bear interest like other loans, borrowers can access lower annual percentage rates (APRs) than those available with unsecured options.

Once a borrower qualifies for a secured loan, the lender places a lien on the borrower’s collateral. This gives the lender the right to seize the collateral if the borrower defaults on the loan. The value of the collateral should be greater than or equal to the outstanding loan balance in order to improve the lender’s chances of recovering their funds.

What can be used as collateral on a secured loan?

Often times, the type of collateral required for a secured loan is tied to the underlying purpose of that loan. This is particularly illustrated by mortgages, in which the home loan is secured by the financed house. Having said that, a suitable collateral can also depend on a number of other factors including the lender and the loan amount. Common forms of guarantee include:

  • Real estate, including homes, commercial buildings, land and real estate equity
  • Bank accounts, including checking accounts, savings accounts, certificates of deposit accounts (CDs), and money market accounts
  • Investments like stocks, mutual funds and bonds
  • Insurance policies, such as life insurance
  • Vehicles ranging from cars, trucks and SUVs to motorcycles and boats
  • Other valuable assets like precious metals, coins and collectibles
  • Machinery, equipment, inventory and other business assets

What if you are unable to get a secured loan?

If you default on a secured loan, your lender can seize the collateral to collect the outstanding loan balance. In the case of a mortgage, it is about filing a foreclosure action against the borrower. If you default on a car loan, the lender can repossess the financed vehicle. In general, the value of the collateral for the underlying loan must meet or exceed the loan amount, which improves the lender’s chances of limiting their losses in the event of default.

However, there are certain circumstances in which the loan balance may exceed the value of the collateral. For example, if you buy a house during the height of the real estate market and fail to pay off your mortgage during an economic downturn, the bank might not be able to recover the mortgage amount through a sale. foreclosure. When the sale of the collateral does not cover the entire outstanding balance of a loan, the lender may attempt to recover the remaining amount by filing a judgment of insufficiency.

If you have a secured loan and think you might default, you can take steps to limit the negative impacts on your credit score. Contact your lender immediately, review your budget, and prioritize secured loan payments so you don’t lose your home or other valuable collateral.

Types of secured loans

Mortgages and auto loans are perhaps the most well-known secured loans, but there are a number of other financing options that may require collateral. Here are the most common types of secured loans:

  • Mortgages. Mortgages are a type of loan commonly used to finance the purchase of a house or other real estate. These loans are secured by the financed property, which means that the lender can foreclose in the event of default by the borrower.
  • Home equity lines of credit. A Home Equity Line of Credit (HELOC) is a revolving loan secured by the borrower’s home equity. The borrower can use the funds as per his requirement.
  • Home equity loans. Like a HELOC, a home equity loan is secured by the borrower’s home equity. With a home equity loan, however, the borrower receives a lump sum of cash, on which interest begins to accrue immediately.
  • Auto loans. Auto loans are secured by the financed vehicle. To protect its interest in the collateral, a lender holds ownership of the financed vehicle until the loan is fully repaid.
  • Guaranteed personal loans. Secured personal loans allow borrowers to access cash that can be used for personal expenses such as home renovations, vacations, and medical expenses.
  • Secure credit cards. With a secured credit card, a borrower has access to a line of credit equal to the amount of money he commits as a security deposit. This makes these cards a great option for borrowers who are trying to improve their credit rating.

How to get a secured loan

Secured loans are generally available from traditional banks and credit unions, as well as online lenders, car dealers, and mortgage lenders. Follow these five steps to get a secured loan:

  1. Check your credit score. Before applying for a loan, check your credit score using a free online service or your credit card provider. Once you’ve familiarized yourself with your score, use the information to pre-qualify for a loan or take action to improve your score and your chances of approval.
  2. Review your budget. If you are considering a secured loan, it is also helpful to review your budget to determine what you can afford to pay each month. It is always important to take existing debt repayments into account when taking out a new loan.
  3. Evaluate the value of potential collateral. When you’re ready to buy a loan, assess the value of your potential collateral, including cash account balances, home equity, and any other valuable assets, to see how much you can borrow.
  4. Shop around for the best loan. After assessing your credit score and how much money you can afford to borrow, start looking for lenders. If you are considering a HELOC loan or home equity loan, contact your current lender to learn more about your options. If you are considering applying for a secured personal loan, look for lenders who offer a no-credit screening.
  5. Submit a formal request. Once you’ve prequalified with a lender, submit a formal application. Unlike the unsecured loan application process, lenders who offer secured loans will likely need an appraisal to confirm the value of your collateral before extending the loan.

Benefits of secured loans

  • You may be able to access lower interest rates with a secured loan than with an unsecured alternative
  • It might be easier to qualify as secured loans pose less risk for lenders
  • Borrowers can take advantage of tax deductions for interest payments on certain secured loans, such as mortgages

Disadvantages of secured loans

  • If you do not repay the loan, your collateral could be repossessed or foreclosed on.
  • The borrowing is less flexible because the authorized uses of the loan are often linked to the collateral itself


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Delta Air Lines pursues secured loan backed by SkyMiles

Karl J. Flynn
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Airlines spent large sums of money in 2020 as the COVID-19 pandemic crushed demand for air travel. With demand unlikely to improve much in the short term, most airlines are stepping up their cash flow, believing that there is no such thing as having too much cash on hand.

Delta Airlines (NYSE: DAL) seems to take this approach. The company plans to market new loans and bonds backed by its SkyMiles loyalty program next month, according to Bloomberg, bolstering what is already a substantial cash treasury. Here’s what makes this decision important.

Another airline turns to its loyalty program for cash

Beginning of July, United Airlines (NASDAQ: UAL) raised $ 6.8 billion through its MileagePlus loyalty program. United had previously attempted to raise capital with loans backed by more conventional aircraft, but the only unused planes it had left were quite old and unattractive to potential lenders. Rather, offering the loyalty program enabled it to bring in a ton of cash at reasonable interest rates (6.5% for the secured debt portion of the financing).

When Delta’s earnings call later in the month, a Wall Street analyst asked if Delta could raise capital through a similar structure. CFO Paul Jacobson responded that it would be possible for Delta to do something similar and that the carrier is keeping its options open for now.

Now it looks like Delta Air Lines wants to move forward by raising capital backed by its loyalty program. Few details have been resolved so far, according to Bloomberg, but the goal is to finalize the terms after Labor Day.

Image source: Delta Air Lines.

An attractive source of capital

Delta Air Lines ended the second quarter with $ 15.7 billion in cash and investments on its balance sheet. However, last month the company expected to spend around $ 27 million in cash per day in July. It is likely to continue to burn cash at a significant rate over the next several months, consuming billions of dollars before the end of the year.

In addition, as of June 30, Delta had $ 5.2 billion in debt and finance leases maturing within 12 months. This is another reason why it makes sense to raise more capital now, even though Delta has a lot of cash on its balance sheet.

Debt backed by the SkyMiles program is likely to generate a lot of interest from lenders. Delta reported loyalty-related revenue of $ 4.9 billion for 2019, a significant portion of which comes from its lucrative credit card partnership with American Express. In fact, last April, Delta said revenue from the AmEx relationship doubled from $ 1.7 billion in 2012 to $ 3.4 billion in 2018 and was set to double again to around $ 7 billion by 2023.

This revenue stream generates a very high profit margin, which makes the SkyMiles program extremely valuable. If they wish, Delta Air Lines should be able to raise as much money from their loyalty program as United, if not more. Additionally, Delta should be able to get a much lower interest rate because it has a stronger balance sheet than United Airlines. In fact, most of Delta’s unsecured debt earns around 6%. The return on secured debt backed by high quality collateral would naturally be significantly lower.

Avoiding a CARES Act Secured Loan?

If Delta is successful in raising a significant amount of SkyMiles-backed debt, it will likely turn down the $ 4.6 billion federal secured loan to which it is eligible under the CARES Act. He has until September 30 to decide whether he wants to borrow under the CARES Act loan program.

Last week, Southwest Airlines confirmed that he will not participate in the guaranteed loan program. There are good reasons for Delta Air Lines to do the same.

First, Delta can possibly raise over $ 4.6 billion in SkyMiles-backed debt, and the interest rate might not be much higher than what the government would offer. Second, taking out a government loan when it is about to lay off thousands of employees would be poor communication. Third, airlines that accept loans guaranteed by the CARES Act are not allowed to pay dividends or repurchase shares for up to 12 months after the loans have been paid in full.

None of these issues would break the deal if Delta didn’t have better options. However, by pledging SkyMiles as collateral for secured loans, the airline giant should be able to raise a lot of capital at reasonable interest rates without further help from the government. This is good news for shareholders.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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What is a secured loan? a form of debt that requires collateral

Karl J. Flynn
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Personal Finance Insider writes about products, strategies, and tips to help you make informed decisions with your money. We may receive a small commission from our partners, such as American Express, but our reports and recommendations are always independent and objective.

  • A secured loan is a type of loan secured by collateral that you own, such as your house or car.
  • There are many types of secured loans, from mortgages and auto loans to secured credit cards and secured personal loans.
  • Lenders may offer better interest rates and terms on their secured loans, but they will also have the right to foreclose on your collateral if you miss a payment or default on your payment.
  • Learn more about personal finance coverage.

Although borrowers take out many different types of loans every day, all of them fall into one of two categories: secured or unsecured.

Some types of loans, such as mortgages, are always secured loans. But with other types of debt, you may have the option of choosing between secured and unsecured loan options.

What type of loan is the best? In short, it really depends on your specific situation. In some cases, a secured loan might be a good choice, but it could also put you at higher risk. Here’s what you need to know.

What is a secured loan?

A secured loan is a type of loan secured by collateral that you own. If a borrower defaults on a secured loan, the lender can seize the collateral to minimize his losses. Here are some common examples of secured loans:

  • Mortgages: Secured by your home or property
  • Auto loans: Secured by your vehicle
  • Secured credit cards: Usually guaranteed by a deposit
  • Guaranteed personal loans: Could be secured by a variety of financial assets

These are just a few examples of secured loans. But anytime you finance the purchase of a physical item, be it a sofa or a boat, there’s a good chance you have a secured loan. In either case, the lender has the right to repossess the collateral (if you miss a payment) until the loan is fully repaid.

What can be used as collateral for a secured personal loan?

With auto loans or mortgages, the item you buy is also the collateral. But with personal loans, you get cash instead of a physical asset. For this reason, most personal loans are unsecured.

However, there are ways for a borrower to get a personal loan. Here are some assets that a lender can accept as security for a personal loan:

  • Home equity
  • Savings account or certificate of deposit
  • Vehicle Title
  • Insurance conditions
  • Stocks, bonds and other stocks
  • Jewelry
  • Precious metals
  • Collectibles

What are the advantages and disadvantages of a secured loan?

Secured loans are less risky for the lender. For this reason, they may be willing to offer you better terms for a secured loan than an unsecured loan.

Choosing a secured loan could allow you to get a lower interest rate, a higher borrowing limit, or better repayment terms. And if you have a limited or damaged credit history, pledging an asset as collateral could help you get loan approval.

But while secured loans may offer more borrowing options or more attractive terms, they also represent a higher risk for you as a borrower. If you don’t repay the loan, the bank can take back your house, car, jewelry, or whatever was used as collateral.

It is also important to point out that not all secured personal loans offer better terms or rates than their unsecured counterparts. In fact, secured loans for borrowers with bad credit (like title loans or pawn shops) often charge high fees and high interest rates.

Should You Pay Off Your Unsecured Debt With A Secured Loan?

If you are facing overwhelming credit card debt, you might be tempted to take out a second mortgage or title loan on your paid off vehicle to consolidate your debt at a lower interest rate.

At first glance, this may seem like a good financial decision. But, in reality, this is a very dangerous decision because you would be moving a form of unsecured debt to secured debt.

While dealing with credit card collection agencies can be overwhelming, they cannot confiscate your personal property without getting a court judgment. But once you switch to a secured loan, your collateral is now at risk.

Instead of transferring unsecured debt, like credit card bills or medical bills, to a secured loan, try working out a payment plan with the lender. And if you feel like you need more help managing your debt, you can make an appointment with a credit counselor from the National Foundation for Credit Counseling or the Financial Counseling Association of America.

Is taking out a secured loan a good idea?

In some cases, taking out a secured loan can be a smart move. For example, your bank may offer you a better interest rate and better terms on a home equity loan than an unsecured loan. Plus, a secured loan could help you rebuild a damaged credit rating.

On the other hand, some secured loans for borrowers with low credit scores, such as vehicle title loans, can charge exorbitant rates and fees. Before taking out a title loan, make sure you have explored all of your other borrowing options, such as Alternative Payday Loans (ALP), which are available at

credit unions
.

As with any loan, you need to make sure that you can really pay your monthly payments on a secured loan. And be sure to do your research and compare lenders before choosing the secured loan that’s right for you.

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Get a Debt Consolidation Loan Even With Bad Credit

Karl J. Flynn
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If you have a lot of debt or different types of debt, then a debt consolidation loan may seem like a good idea. However, if your credit is low, you may not have a lot of options.

The good news is that you can still get a debt consolidation loan even with bad credit. In this article, you will learn about the ins and outs of a debt consolidation loan, the pros and cons of getting one, and what your alternatives are if you are not ready to get a debt consolidation loan. .

What is a debt consolidation loan?

A debt consolidation loan is a new loan that you take out to cover the balance of your other loans. A debt consolidation loan is a single, larger debt that usually has better repayment terms than your original smaller debt. When you receive a consolidation loan, your other loan balances are paid off. This allows you to make one monthly payment rather than several.

For example, if you had one student loan for each semester of your four-year college degree, you would have taken out eight loans. This can be tedious to manage, so you can take out a debt consolidation loan to pay off all of your eight loans and make just one monthly payment instead.

Get a debt consolidation loan with poor or average credit

If your credit is poor or average, it may be difficult for you to get approval for a consolidation loan or to get a loan on favorable terms. A bad or average credit score is usually less than 670. You will need to take steps to get a bad credit debt consolidation loan.

Step 1: Understand Your Credit Score

Understanding your financial situation is the first step in obtaining a personal loan or a consolidation loan. Your credit score is one of the main factors a lender will assess when deciding whether to grant you a debt consolidation loan. Therefore, take the time to research your credit score and the events that caused your score. Sometimes years of bad habits contribute to a low score.

Continue to monitor your score over time. You can learn what contributes to a good score as well as what lowers your score, and act on it.

Step 2: Shop around for a debt consolidation loan

If you have a bad credit rating, you might be inclined to take out the first loan that is offered to you. However, you may have several options that lenders can work with, so be sure to shop around for a good interest rate and a good term. You may want to investigate online lenders as well as physical lenders such as your local credit union.

Make sure you carefully consider all of the fees associated with taking out a personal loan. This may include an origination fee or a prepayment penalty on your loan. Understanding your fees can save you hundreds of dollars over the life of your loan.

Step 3: Consider a secured loan

Most of the personal loans used for debt consolidation are unsecured loans. This means that they do not require collateral. However, if you are having trouble getting approval for a loan, you may want to consider a secured loan.

The forms of security include a vehicle, house or other property. The collateral should be worth the loan amount if you are in default. Even though you can qualify for an unsecured loan, you can compare the interest rates of a secured loan to see if you can get a better rate.

Step 4: Improve Your Credit Score

Finally, if you can’t get a loan right away, you may want to take the time to assess your credit score and see where your areas of opportunity lie. If you have small issues with your score that caused it to drop significantly, then you might be able to increase your score quickly.

For example, a missed payment or a forgotten invoice can drop your score. If so, you may be able to pay that small bill and quickly increase your credit score.

How To Qualify For A Debt Consolidation Loan

To get a debt consolidation loan, you must be 18 years of age or older and be a legal resident of the United States. You must also have a bank account and not be in bankruptcy or foreclosure. These are the basics of qualifying for a debt consolidation loan.

In addition to these basics, you will want to try to improve your financial situation as much as possible. Borrowers with good or excellent credit and a low debt-to-income ratio usually have no problem obtaining a debt consolidation loan. However, if you have bad credit, you’ll want to work on improving your credit score and lowering your debt-to-income ratio.

If you have bad credit and are considering a debt consolidation loan, you may already be in a financial rut. This can make it difficult to improve your financial situation. If this is the case, you can look for lenders who specialize in helping people with poor or average credit and be sure to research the best rates and terms you can get.

Personal loans for debt consolidation

If you have poor credit and are in need of a personal loan, you may want to consult these providers. They will offer high interest loans to people with poor credit.

Fiona

Fiona is an online marketplace that connects potential borrowers with multiple lenders. Borrowers simply fill out a quick application, and they’re matched with the lenders most likely to approve them. This saves time and money because you can be matched with a lender without needing to visit a bunch of sites.

Fiona is ideal for borrowers with a credit score of 580 or higher who don’t want to waste time filling out a bunch of applications. One cool feature of Fiona is that their initial application only requires a smooth credit check, so applying quickly won’t hurt your credit score.

Since Fiona is a marketplace and not a direct lender, the terms of the offers and the number of offers borrowers receive may vary. Some borrowers report being bombarded with offers, which we believe is potentially a benefit as there are multiple offers that get you the best deal.

Point Ready

Lending Point will typically lend up to $ 25,000 with an interest rate of 15.89% to 35.99% APR and a term of 36 months. You can check your rate for free on their website. If you qualify, you can receive your personal loan in less than 24 hours. LendingPoint takes your credit score, work history, and income into account when you apply for a loan.

SoFi

SoFi will lend up to $ 100,000 with an interest rate of up to 17% over 24 months. There are no origination fees, prepayment penalties and no overdraft fees. You can apply online for free and will usually receive your funds within a few days.

Reached

Upstart will lend up to $ 50,000 with an interest rate of 7% to 35.99% over a term of 36 or 60 months. Funds are provided the day after approval, but they have a steep origination fee of 8%.

OneMain Financial

OneMain will lend up to $ 20,000 with an interest rate between 18% and 35.99% over a period of 24 to 60 months. They have small setup fees and late payment fees, but they usually go up to $ 30 per payment. You can apply for a loan online and have it funded the day after your application. The company also has nearly 1,500 branches across the country for those who prefer to apply for a loan in person.

Should I Get a Debt Consolidation Loan?

If you are in a hurry and need to consolidate your loans to make them more manageable, your best option may be to get a personal loan or a debt consolidation loan.

Advantages

A debt consolidation loan has many advantages. Some of them are:

  • Simplified financing. When you consolidate your debt, you will pay off multiple debts and only have one loan. This means that you will be making one monthly payment instead of several to follow.
  • Lower interest rates. If you have a bunch of credit cards or other high interest debt, the interest rates can vary and be high. Personal loans generally have lower interest rates depending on your credit score, the loan amount, and the length of the term.
  • Fixed repayment schedule. Instead of having multiple payments each month that vary in amount, interest rate and duration, you will have a fixed schedule each month.
  • Boost your credit. By eliminating the risk of forgetting to make payments or letting your loans slip away, paying a fixed amount on a consolidated loan can help boost your credit score.

The inconvenients

Debt consolidation is not for everyone. Also make sure you understand the risks you are taking. Some of the things to watch out for include:

  • The initial costs. Some personal loans have upfront fees, including origination fees, closing costs, or annual fees. If you pay a lot of fees over time, consolidating your loans might not be beneficial.
  • Higher interest rates. If you have bad credit, you won’t get a great interest rate on your consolidated loan. Therefore, you may have a higher interest rate on your consolidated loan than on your existing loans. If so, it probably won’t make sense to consolidate.

The bottom line

Having bad credit doesn’t mean you can’t get a debt consolidation loan. However, it may be more difficult for you to get a loan right away or get one at a great rate. If you do decide to apply for a debt consolidation loan, be sure to research the best rates and do your best to improve your credit.


Michael started Your Money Geek to make personal finance fun. He has worked in personal finance for over 20 years, helping families lower taxes, increase income, and save for retirement. Michael is passionate about personal finances, side activities, and all things geeks.



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Try a secured loan or co-signer

Karl J. Flynn
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Personal Finance Insider writes about products, strategies, and tips to help you make informed decisions with your money. We may receive a small commission from our partners, such as American Express, but our reports and recommendations are always independent and objective.

  • If you want to get a loan without credit, start by looking for lenders who accept non-traditional credit histories like rent or utility payments.
  • Other loan options for borrowers with limited credit history include alternative payday loans (PAL), secured loans, and 401 (k) loans.
  • To create credit from scratch, try applying for a secured credit card or credit loan, or request to be added as an authorized user on someone else’s credit card.
  • Get Your Free Credit Score With CreditKarma »

There are many reasons why you might not have a credit score. On the one hand, you may be young or have recently moved to the United States from overseas and haven’t had the opportunity to build a credit profile yet.

On the other hand, you might be someone who prefers to pay with cash or debit card and you just have never applied for a credit card. Not having credit doesn’t mean you are financially irresponsible. In fact, many people without credit are incredibly creditworthy.

But while it’s better not to have credit than to have bad credit, the reality is that most lenders use credit scores in their lending decisions. And having no credit can make it harder to get approved for a mortgage, car loan, personal loan, credit card, or any other type of credit.

But you may be surprised to learn that it is possible to get a loan without credit. Below, we’ll discuss your best options if you need a loan today before explaining some ways to build your credit if you’re trying to prepare for a loan later.

How to get a loan without credit

If you are looking to get a loan with no credit history, here are five strategies to consider.

1. Look for lenders who accept non-traditional credit histories

Even without a credit score, there may be other ways to prove to a bank that you are a trustworthy borrower. Some lenders accept alternative data to assess a borrower’s risk, such as their bank account activity and payment history for rent, utilities, and other bills.

To get approved for a loan using your non-traditional credit history, you may need to contact a lender directly. And even better if you can find a bank or credit union that has a branch near you so you can talk to someone face to face.

If you are planning to apply for a loan from a lender that offers manual underwriting, here are a few documents that you will probably want to gather beforehand:

  • Recent W-2
  • Recent tax returns
  • The last four to six pay stubs
  • Bank statements for the past three to six months
  • Rent payment history for the last 12 to 24 months
  • History of utility payments for the past 12 to 24 months

What Kinds of Loans Can You Get Without Credit?

Manual underwriting is the most common in the mortgage industry. Government-backed FHA, VA, and USDA loan programs will each consider borrowers without credit. But to get approval, all of your alternative credit information may need to be verified by a third-party non-traditional credit report.

If you are looking to take out a personal loan with a slim credit history, payday loans are not your only option. Several online lenders lend money to borrowers with limited credit history, including Avant, Prosper, Upstart, and Lending Club.

Some lenders may even offer “no credit check” personal loans. But you will want to check the fine print with these loans before signing on the dotted line. Loans “without a credit check” may be more likely to charge high interest rates and fees, or have unattractive terms.

2. Apply for an Alternative Payday Loan (ALP) from your credit union.

If you need the money urgently and you are a member of a credit union, you should check to see if they offer Alternative Payday Loans (ALP). PALs are small, short-term loans intended to provide an alternative to high-cost payday loans.

These unsecured loans have terms of one to six months and the amounts borrowed can range from $ 200 to $ 1,000. Unlike payday loans, the PAL file fee cannot exceed $ 20 and the maximum interest rate is 28%.

However, you will not be eligible for a PAL until you have been a member of your credit union for at least one month. So unless you are already a member of a credit union, a PAL will not be a good option if you need money right away.

3. Get a secured loan by posting collateral

Since unsecured loans do not require any collateral, lenders tend to require borrowers to have good credit scores in order to mitigate their risk. However, if you are able to put something of value as collateral, it might help you get a loan even without credit.

Here are some examples of assets that a lender can accept as collateral for a secured loan:

  • Real estate (house or unbuilt property)
  • Vehicles
  • Bank accounts
  • Stocks, bonds or mutual funds
  • Insurance conditions
  • Collectibles
  • Gold, silver or other precious metals

In addition to more lenient credit requirements, secured loans can also offer better interest rates or better terms. But the downside is that your warranty will be at risk if you miss a payment or default on your payment.

Be sure to weigh the pros and cons of a secured loan before taking one. And try to avoid predatory securities lenders or pawn shops who can put you on a financial treadmill by charging outrageous rates.

4. Borrow on your 401 (k)

If you don’t have credit and need quick access to a large sum of money, a 401 (k) loan might be a legitimate option. But there are several pros and cons you should consider before borrowing for your retirement.

The biggest advantage of 401 (k) loans is that you will not be dealing with a lender, so there is no credit score requirement. With a 401 (k) loan, you are actually borrowing from yourself, so the “interest” you pay goes directly to your 401 (k) account. In addition, as long as you stay with your employer, you will have up to five years to repay the loan in full.

If you plan to pay off the money quickly, a 401 (k) loan might be a much better borrowing choice than a payday loan, title loan, or pawnshop loan. However, be aware that if you do not replace the amount withdrawn on the due date, you will have to pay taxes on the funds plus a 10% penalty.

Also, if you lose your job or quit your employer, the entire loan matures and will need to be paid in full by this year’s tax return due date. So if your job situation is volatile, borrowing on your 401 (k) becomes a riskier decision.

5. Add a creditworthy co-signer to your loan application

Adding a creditworthy family member or friend as a co-signer could help you get a loan when you don’t have credit. However, keep in mind that your co-signer’s credit will also be damaged if payments are missed or the loan becomes past due.

Entering into a co-signing relationship can be dangerous from both a financial and relationship point of view. If you do decide to have someone co-sign for you, you will need to take extra care to ensure that your payments are always made in full and on time.

How to create credit from scratch

If you don’t need to take out a loan right away, a better option may be to wait until you’ve had time to establish a credit history. One option for creating credit from scratch is to apply for a secured credit card.

Since borrowers need to make a cash deposit to get a secured card, lenders are more willing to offer them to consumers who have limited or no credit at all. And as long as you choose a card issuer that reports to the credit bureaus, your positive payment history can help you quickly start building a positive score.

Taking out a credit loan from a bank or credit union is another credit option.

Finally, you can request to be added as an authorized user to someone else’s credit card account. Just make sure the card issuer reports authorized user activity to the credit bureaus.

With each of these options, you may be able to build a strong credit score in six to 12 months or maybe even faster. And given the additional borrowing options you might have with strong credit, delaying your loan application until then might be best if you can afford to wait.

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