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How loans and interests affect you as a consumer and a taxpayer.

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In this assignment we would learn about the ways, that loans and interests affect, the lives of people. we will go through 3 video explaining different advantages and disadvantages of loans, different kind of interests that can be applied to different kind of loans and the way it is affect the lives of millions of people and also we would go through few website links and images which would help you the understand the way it's affecting the lives of people.

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Advantages and Disadvantages of Loans (Link 1):  

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Advantages and Disadvantages of Loans (Link 1):  

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There are several ways loans can benefit you but there are some negative sides as well, for example: you can purchase things without liquidity, provides capital for operation, flexibility, gives you accounting and tax advantages and cash discounts etc. whereas, the negative side includes the addition burden on costs of goods , processing fees, increased compliance and prepayment penalties and and charges.

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Borrowing and lending have become a commonality in businesses in recent years, and bank loans are an essential part of this system. Various types of bank loans are available to meet individual and business financial needs. As with any other product, there are advantages and disadvantages of bank loans. Let's have a closer look:

Advantages of Bank Loans

Following are some advantages of banks loans.

Purchase without Liquidity

A major goal of a bank loan is to lend to people who do not have ready cash. A bank loan can help an individual or a business in buying something as simple as a car or a home for which he doesn't have a corpus, or it can help businesses to buy machinery or set up big units for which it doesn't have money. The scope of a bank loan is vast, and the borrower can borrow as per their capacity depending on their creditworthiness.

Driver of Growth

Bank loans are major drivers of growth, especially for public and private sector companies. Very few companies may have enough cash flow for financing huge expansion. However, in today's fast-track economy, expansion is the only way to have sustainable profitability. This is where bank loans come into the picture. Suppose, Company A wants to expand its production for which it needs to invest in machinery. If the cost of machinery is 5 times the company's yearly net income, Company A does not have to wait for 5 years to expand. It can borrow a term loan from the bank to fund its expansion plans and repay it over the next 5 years, thereby accelerating growth.

Provides Capital for Daily Operations

The banks have special loans that can help a company fund its day to day operational capital and cash cycle. The working capital bank loans and cash credit loans are major bank loans that are used for the purpose. This allows companies to be flexible about their debtor and creditor agreement. Suppose Company X has purchased goods worth USD 1000.00, the payment of which has to be made in 10 days, whereas it sells these goods in USD 1200.00, which it will receive in 30 days. In such a situation, Company X can borrow USD 1000.00 from the bank for 20 days and repay the USD 1000.00 to the bank after it receives payment of USD 1200.00 from the debtor. A major advantage of such loan is that the company has to pay interest only for the amount and the number of days for which it has borrowed.

Better Interest Rates

Before a century, the borrower would borrow money from unorganized money lenders. The money lenders would usually exploit the borrowers by asking exorbitant interest rates and abnormal collateral demands. With the rise of organized banking from the beginning of the 1900's, these troubles have vanished. Organized and systematic bank loans are provided to borrowers with minimal interest rates. Furthermore, even today bank loans are cheaper as compared to other loans from other financial institutions such as NBFC's.

Flexibility

Bank loans provide an element of flexibility to the borrower, which can be very beneficial in long-term. The borrower can choose the duration of the loan and amount of EMI's, whereas the amount of loan and interest rates are negotiable. For example, if an individual takes home loan from the bank, he can decide if he wants to repay the loan in 5, 10 or 20 years.

Accounting & Tax Advantages

The interest on bank loans is deductible from taxable income, this is an advantage to the borrower in the form of tax savings. In addition, the borrower gets the advantage of budgeting and planning for monthly loan expenses. This is especially true for fixed-rate loans, although a simple model can be prepared for changes in floating-rate loans.

Ownership Remains with Borrower

With ownership perspective, bank loans can be a great source of funding for companies. If a company decides to raise funds, it has many alternatives such as issuing equity shares, raising private equity, including venture capital, etc. However, in all these methods the company may have to lose some part of the ownership share. Whereas in a bank loan, the company can raise funds as well as keep the ownership.

Cash Discount

Since most creditors allow cash discount, the benefit of which can only be derived when you have funds available to pay. A bank limit can support a business for such opportunities. The businessmen, before making a cash payment and availing the cash discount, must analyze the pros and cons. The benefit derived out of the cash discount should be more than the cost involved in terms of interest on the funds. Only then, the cash payment would be beneficial.

Disadvantages of Bank Loans

There are certain disadvantages of bank loans as follows:

Additional Burden on Cost of Goods

One of the biggest disadvantages of bank loans is that the borrower pays way more than the purchase price of the product when he uses a loan to buy a product. Suppose an individual wants to buy a smartphone of USD 800.00, he decides to use his own USD 300.00 and borrow the rest USD 500.00 by bank loan at 10% interest per annum. He repays his loan after one year, whereby he has to pay the principal amount of USD 500.00 + interest payment of USD 50.00 (10% of USD 500.00). Thus in total, he paid USD 850.00 for a product priced at USD 800.00. This seems a minor amount but imagine the principle going in hundreds of thousands of dollars, then it can be quite expensive.

Security Needs and Creditworthiness

It is very difficult to obtain a bank loan unless an individual or a corporate has a sound credit score or valuable collateral. Banks are careful to lend money, and they only give loans to borrowers who have the ability and willingness to repay the loan. Small companies who are new to the business and have not taken any bank loans in the past find it even more difficult to obtain a bank loan.

Partial Funding Requirement

In the case of term loans, every bank has its own set of criteria as to partial payment requirement from the borrower. The partial payment may range from 10% up to 40% in some cases. For example, if a company wants to borrow USD 10,000.00 to buy new office, then the bank may require that the company invests USD 1000.00 of its own. If the borrower doesn't have sufficient funds for partial payment, then the bank may reject the loan application.

Strict Repayment Schedule

Bank prescribes a very strict repayment schedule to the borrower, which must be adhered to. Failure to do so may reduce borrower's credit score and future credibility. The stringency to stick to the repayment schedule sometimes creates a burden on the borrower.

Prepayment Penalties and Charges

Most banks charge borrowers on early repayment, which is a lose-lose situation for the borrower. Some financial institutions apply heavy prepayment penalties and charges. It is quite ideal for a prospective borrower to first check if the agreement of loan contains any prepayment penalties. If yes, the borrower should double check his need of a loan and the tenure for which he needs it.

Interest Rate Risk / Cost of Funds

Big businesses plan their ventures for long terms say 10 years, 20 years etc. For such big and long-term projects, the interest rates offered are normally floating rates. The viability of these projects is checked before they are started and there is a very important assumption of the cost of their funds throughout their project tenure. With floating rates, this assumption becomes floating. Economic situations where the interest rates rise, the cost of funds would also rise and that can make these projects unviable.

Processing Charges

For sanctioning a loan, most banks charge a processing fee which adds to the cost of your loan. This is normally charged in terms of percentage. Higher the loan amount, bigger becomes the processing fee.

Increased Compliances

When a business acquires loans from banks, they have a schedule of regular renewal and at the time of renewal, the banks recheck many credit points of the businesses. For example, if the loan is extended against inventory and receivables, the bank will assess the inventory statements and levels of receivables again before the renewal is approved. These things add to additional compliances for the business apart from their daily administrative headaches.

In spite of all the drawbacks, bank loans remain the most basic source of funding for individuals and corporates alike.

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Advantages and Disadvantages of Bank Loans | eFinanceManagement

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Borrowing and lending have become a commonality in businesses in recent years, and bank loans are an essential part of this system. Various types of bank loans are available to meet individual and business financial needs. As with any other product, there are advantages and disadvantages of bank loans.

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Loans and interests can be seen to affect the life of people to a great extent, especially, when it comes to north america, most of the taxpayers have their mortgages and car payments going on. which is affecting their life to a big extent as, a major part of their income is spent on these assets, sometimes, it's hard to make the ends meet, which may result in late payment or overduepayments, which leading to the application of different kind of interests and the consumer end up paying more, ending up affecting their life into deep debt.

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Information for corporations concerning different situations that may result in interest being charged, refunded, forgiven, cancelled or waived and information on pertinent loan or indebtedness elections.

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Loans and Interests are affecting the lives of different individuals to a great extent, loans can be seen to affect the basic requirements of individuals like spoiling the credit scores, it becomes really hard for them to buy houses, approve car loans etc.

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We've said it before and we'll say it again, your credit is the backbone of your finances. When your credit is strong and healthy so are all other aspects of your financial life. Furthermore, when your financial life is on point the rest of your life often follows suit. So, it should come as no surprise to you that bad credit can and will affect your daily life.

Depending on how you like to live your life, money is frequently the thing around which our lives revolve. Obviously, it's how we pay for everything we need (or don't need). So, what happens when your access is restricted to the money we need? Your life is greatly affected, both in the present and potentially far into the future.

Housing

If you're an adult living in Canada, chances are you need somewhere to call home, whether that's an apartment or a house of your own, you need a roof and four walls. To get this, someone (either a landlord or a lender) needs to put their trust in you. Trust that you'll keep your end of the bargain and pay for that roof and those four walls.

So, when your credit score is less than great, how does it affect...

A Mortgage Application

Bad credit will, without a doubt, prevent you from getting approved for the affordable mortgage you want ( click here for more information about applying for a bad credit mortgage). Because mortgages are typically the largest loan a consumer will ever take on, they require a lot of risk assessment. Do you make enough money to cover the payments plus any other financial commitments you might have? Do you have a history of responsible credit usage? Do you carry a significant amount of debt month to month? Has your irresponsible credit usage resulted in a poor credit score? These are all things a mortgage lender will want to know.

For most Canadians, owning a home is one of their life goals and a way in which they invest in their futures. Not being able to get approved for a mortgage until later in life means they'll be in debt further into their lives and have less time to devote to saving for retirement.

An Apartment Application

Because rent is almost always a set monthly price for an agreed upon time (typically one year), bad credit won't affect the price of an apartment but it can affect whether you get approved to live there. Bad credit can signal to a landlord that you have trouble managing your money and might not be the best at keeping up with your financial obligations, both of which are not qualities that landlords look for in a potential tenant. For those who need to rent an apartment right away and don't have time to wait to improve their credit, you may want to consider asking your potential landlord if having a cosigner is an option.
For more information on why landlord check credit, read this article.
Employment

What many Canadians who are a part of the work force don't realize is that your credit score can affect whether you're hired for a job you want. At this point, we think it's important to note that not all employers will check your credit before they hire you and those who do, must ask for your permission.

You might be wondering why a potential employer would want or need to check your credit and how having bad credit would affect your ability to be a good employee. The fact is, all employers check credit for their own specific reasons. Reasons that they don't need to justify for anyone, except maybe a potential employee who probably won't get hired if they don't consent to a credit check. Generally speaking, if the job you're applying for is in the finance industry or if you're going to be in charge of large amounts of money than you might expect your future employer to check your credit. An employer might also simply equate a healthy credit score and responsible financial practices with a general sense of trustworthiness.
For a more detailed look at the Canadian credit score, check out this infographic.
Access to New Credit and Loans

If you have bad credit, you're not likely going to be able to access the affordable credit and loans products that you want. But, bad credit does not come with a "no credit for life" sentence, you'll simply have fewer options. While this isn't a worst-case scenario, being unable to access new credit and loans can stagnate some people's lives, making it hard for them to achieve their financial goals, pay for expensive things they need, and afford to handle financial emergencies.
Looking for loans and programs to help you get out of debt? This is for you.
Being unable to get approved for a mortgage, personal loan, new credit card, or car loan can make it hard to live in an area and in a home that works best for you and your family. Pay for a medical emergency, or purchase the car you need to get to work every day or drive your children to and from school.

Interest Rates

When your credit is less than great, the interest rates you'll be offered are typically higher than the rates offered to those who have average to good credit. A higher interest rate on a loan can increase both your monthly payments and term, meaning the burden of debt will not only be greater on a monthly basis but over time as well. A higher interest rate on a credit card will accelerate the accumulation of debt if you are unable to pay off your full balance each month.
For a detailed look at how to repair bad credit, check out this article.
Over time, higher interest rates make it more difficult to stay on top of your debt, will increase the length of time you're in debt for, and therefore make it all the more difficult to focus your time and money on other financial goals, like saving for your retirement.

The Good News

You don't have to be in this situation forever, bad credit is not a life sentence. Your credit history and credit score are completely in your hands to change and improve and therefore positively affect your financial future. Your main plan of attack should be to get your foot in the door, take out a secured credit card, get a bridge loan, apply for a personal loan or car loan that has a higher interest rate. Then use whatever product you get to responsibly, always make your payments on time, and eventually, you'll build your credit back up to where you want it to be

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Infographic: How Bad Credit Affects Your Daily Life | Loans Canada

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We've said it before and we'll say it again, your credit is the backbone of your finances. When your credit is strong and healthy so are all other aspects of your financial life. Furthermore, when your financial life is on point the rest of your life often follows suit.

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Bank loans are helping small scale and large scale businesses in many ways and are helpful to several individuals in their daily life. whenever, a business borrows a specific amount of money, it has to return the amount with interest within a fixed period of time. Here is a short video discussing about pros and cons of bank loans faced by different individuals.

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Bank Loan - Sources of Finance (Pros & Cons)

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there are different kind of interests charged on different kind of things bought. when you borrow a loan to buy something then the bank calculates the amount of interest to be charge based on your income and also the assets that you own. it also depends on the thing that your are buying and also the market value that it holds. Here are two short videos explaining how the interest is charged and also how you can calculate the amount based on interest charged.

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Interest Rates | by Wall Street Survivor

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1. These days, the amount of loans borrowed can be seen increasing amount the youngsters especially, among those going to schools. some of them face a hard time paying off their loan once they graduate due to several factor one of them is also the interest and other factors includes unemployment etc. they also face a lots of problem in future with their credit scores as well. Here is a short video on credit scores.

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How Do Student Loans Affect Credit Scores?

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There are several ways loans can benefit you but there are some negative sides as well, for example: you can purchase things without liquidity, provides capital for operation, flexibility,  gives you accounting and tax advantages and cash discounts etc. whereas, the negative side includes the addition burden on costs of goods , processing fees, increased compliance and prepayment penalties and and charges.

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there are different kind of loans that can be borrowed from banks here's a list of some really famous kind of loans that are famous among different classes of people.

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Late payments or overduepayments can lead to the application of different kind of interests and the consumer end up paying more, ending up affecting their life into deep debt.