Personal loans have become a cause of worry; here’s why

The Central Statistical Office (CSO) and some other experts have recently asserted that the large “discrepancies” in the expenditure-side GDP estimates are because of inadequate data and are statistically unbiased. These discrepancies were there in the past as well; over time, as more data became available, these got rectified or minimised. Further, such inconsistencies are not specific to India’s national accounts but a fairly common feature across countries; India is no outlier in this regard. So, when the statistical authorities have been transparent all along, we should have no misgivings.

But at another level, does transparency help us analyse India’s current macroeconomic data any better? Not really. Maintaining that the demand-side discrepancies are solely explained by inadequate data on expenditures is perhaps stretching the argument because these are residuals benchmarked to the production-side estimates; the latter themselves are under scrutiny for being overestimated. The concerns of critics could therefore be legitimate and cannot easily be brushed aside.

Think about the fact that if the expenditure-side GDP data, especially at quarterly frequency, are no good, then how certain are we in inferring that the current phase of GDP growth is consumption-driven? What if in the future, a large share of the discrepancies were apportioned to investment instead? Analysing such macro data therefore, can at best be tentative, both in its direction and magnitude. Reason enough why analysts seek buttressing evidence from many other high frequency indicators. The suspicion persists because not a single such indicator has aligned consistently with the national accounts’ narrative of accelerated value addition and growth in the last three years.

The worry is that the quarterly GDP estimates, an early indicator of the business cycle position, could gradually lose credibility as more analysts begin constructing Indian counterparts of the Li Keqiang index–pushing decision-taking by key agents into highly uncertain territory. The probability of policy error on the part of the government and RBI could compound. Boardrooms of businesses could turn to solving demand puzzles, delaying investment decisions. And bankers could end up making wrong and risky resource allocations!

The intention of this article is to flag one such issue: Concern about rising personal loans. Discretionary consumer spending is the current buzz; accelerating production of consumer durable goods in the general index (IIP) is a sure green shoot; and rising personal loans in credit portfolios of most commercial banks is settled evidence to support the proposition of a consumption-led, cyclical recovery. What then is there to worry?

Pose here a question: Is this trend sustainable? Is this based upon fundamentals of rising real incomes of consumers or merely bank-led in anticipation of a future? Deliberate these observations in recent months: bike sales suddenly picked up into double-digit territory, when the expected monsoon rains are yet to shower in any good measure; and large numbers of cars purchased by government employees even as the Seventh Pay Commission award is yet to be implemented. What is to be inferred from this?

Banks, both public and private, have been under tremendous pressure to grow their assets when they are either shy of lending to industry, or have seen very little loan demand. In such an environment, it is not surprising they are only too keen to lend to households. Hence, their personal loan portfolio has grown sharply; while nominal growth is touching 20% year-on-year, the inflation-adjusted growth in personal loans is trending at 14%, a historical peak.

Think of the contrast–credit to industry at decade-lows, credit to households at decade-highs! Is there a herd behavior, everyone rushing in, hoping for a safe bet? From the banks’ standpoint, there should be very little reason to worry; their assessment of incomes could be consistent with the national accounts’ narrative of consumption-led growth. When incomes are rising but investment remains subdued, it is but logical by the national income identity that consumption must have been growing, boosted by real purchasing power of consumers due to sharply falling inflation. How comfortable can we be with such an assessment?

While the confidence is attributable to GDP acceleration, the growth in value added has slowed–the difference owing to increases in net indirect taxes accruing to the government. And at a finer level, growth in nominal disposable personal income (ie income net of direct taxes) has been trending down. By an aggressive push to personal loans, have banks stretched household balance sheets and exposed themselves to further default risks? Is the growth in credit card outstandings an early signal? The worry should be that historically, India hasn’t ever witnessed such high growth in real personal loans, even in the heydays of rapid economic growth between 2003 through 2011.

The answer could therefore depend upon the uncertainties around assessments of demand conditions. Specifically, what if growth had been much slower than estimated? There could be several reasons why criticisms have some merit that needn’t be ignored: say for example, how readily is the estimated buoyancy in manufacturing value added growth explained by higher corporate profit margins from lower input prices relative to output prices even when volume growth remains muted? Hasn’t that also been true for other commodity importing countries including China, where the manufacturing share in GDP is so much higher?

Even conceding that India has specific advantages in creating large value additions by a million hitherto unmarked small firms, how did this additional demand dissipate? If it wasn’t spent on buying goods, which is what the weakening IIP and non-oil, non-gold imports point to, then it must be spent on purchase of services, pushing up their prices, which is what retail services’ inflation suggests. Then why deflate services’ activities like trade and finance with wholesale price indices, when consumer prices appear closer to producer prices of services? Can past practices justify such an inconsistency when the whole exercise was to switch over to modern national accounts compilation methods? Indeed, if one were to deflate these components with CPI inflation, growth estimates could slow down, raising questions about assessment of demand conditions.

Surely then the expectations that household real incomes will continue to grow, delinked from weaker balance-sheets of the private corporate sector, be suspect? If banks continue to expand personal loans, they could end-up stretching household balance sheets into vulnerable limits no sooner. It is to be hoped that bank branches are exercising abundant discretion in assessing creditworthiness of individual borrowers, and not letting down their guard in the effort to meet targets set by respective boards. Moreover, such growth is too brisk for any regulatory comfort; one expects this has not escaped RBI’s eagle eye. The economy could hardly afford to damage its household balance sheets when a large section of corporate balance sheets remain stressed and unrepaired.

The author is a New Delhi-based economist

Houston City Council To Consider Raising Limits On Personal Campaign Loans

An empty Houston city council chamber

Under the current ordinance a candidate for mayor cannot be reimbursed for personal loans to their campaign in excess of $75,000. Those seeking a city-wide office (controller and at-large council offices) are limited to reimbursement for personal loans in excess of $15,000, while district office candidates are limited to $5,000 personal loan repayments.

Though the request for increased limits came from current council members, Mayor Sylvester Turner said it will have little effect on the current council.

It doesnt impact the overwhelming members of the city council thats being considered, Turner said. It doesnt apply to the Mayor Pro Tem (Councilmember Ellen R. Cohen, District C). It doesnt apply to me, the mayor added.

Following Wednesdays council meeting Mayor Turner was hesitant to disclose which members of the current council suggested altering the ordinance, or discuss concerns that raising the loan limits would benefit wealthier candidates. He did say that there is no intention to raise the $75,000 limit for mayoral candidates.

Thursdays meeting will take place in the City Council Chamber at 2:00 pm

Taking out personal loans in 2016 – Essential tips you need to follow

Personal loans are a great avenue to explore especially when you’re going through some dire financial issues during the middle of the month. We all face various monetary problems but we all don’t end up getting personal loans as most of us are not aware of the ways in which we should get one and others are confused about the right step to take. Nevertheless, it is a fact universally acknowledged that personal loans actually help cash-strapped people stay on top of their finances by boosting their reserve for a fixed time period. If you too have been thinking of taking out personal loans, here are some tips that you need to take into account so that you don’t fall into trouble in the near future.

  • Ensure that the personal loan is the best option for you: There are many different purposes of using personal loans. For instance, you could use them for combining your high-interest unsecured debts, for purposes of home improvement or for investing in your business. Hence the first thing that you should do is to check out whether or not the personal loan that you’re looking for serves your needs. There are secured personal loans and unsecured personal loans and you can choose anyone between them.
  • Select the right lender: Financing sources which offer personal loans include credit unions, banks, and online lenders. Each of them offers a wide range of interest rates and their terms and conditions vary from one another. You should choose the best lender who will offer you the most comfortable terms and conditions in accordance with the loan amount that you take out.
  • Don’t forget to read the fine print: You should be sure about reading the fine print of the loan agreement as there is the most confusing information which you should be aware of. If by mistake, you forget to read the fine print, you might end up signing on a paper which doesn’t have anything favorable for you. The lender will always try to deceive you and get more money from you but you shouldn’t allow them to do so.
  • Ensure having a good credit score: Your credit score is the most important number that is to be checked by your lenders before giving you personal loans. If you think you don’t have a good credit score which can help you qualify for a loan, you should immediately opt for credit repair. Ultimately you have to approach the lender with a good score so that he doesn’t turn down an offer on your face.
  • Don’t take more than what you can afford: Before you apply for a personal loan, you should take a look at your present financial situation to know how much loan you can comfortably afford. There are some lenders who can give you more than what you can afford. Don’t fall into this trap.

To know more on loans and its kinds, you may check out CashFloat so as to learn more about such loans. Try and manage your finances in the best way possible so that you can pay off the loan on time.

Look who takes out personal loans

Perception — mine, at least — appears to be trailing reality.

I know the market has changed for personal loans. Yes, there are still high interest loans offered to low credit score borrowers, but many consumers with solid credit have won some really good deals in recent years.

And yet I was surprised by results of a poll about who takes out personal loans.

The survey of 2,000 adults commissioned by Discover Personal Loans found that about 60% of consumers who have taken out a personal loan self-identify as being in good or excellent financial health. A nearly identical percentage of consumers who have never taken out a personal loan also indicate theyre in fine financial shape.

Of course, one persons notion of good financial health might not match anothers. Even so, the fact that both groups are feeling fine is worth noting.

RATE SEARCH: Let Bankrate help you find the best personal loan rates today.

More life experience

So, who exactly takes out a personal loan?

The Discover survey conducted by Rasmussen Reports found that personal loan borrowers skew older. While just 36% of adults ages 18 to 34 indicate they have taken out a personal loan, 49% of adults ages 35-54 and 54% of adults 55 and over say they have.

Those results track with a Bankrate survey taken in January that showed the older you are the more likely you are to have taken out a personal loan.

Dan Matysik, Discover’s vice president of personal loans, says awareness of loan options might play a role in why borrowers tend to be older.

I do think that the financial experiences of the borrowers come into play, Matysik says. As people have different financial needs over time, they become aware of the different financial products.

What matters when shopping for a loan

Discover also asked borrowers what matters most when taking out a personal loan. More than 6 in 10 borrowers said interest rate was the top consideration. I tip my hat to you, survey takers, because thats the No. 1 thing I suggested borrowers should look at, too.

CarMax turns to online financing as used-car sales hit a bump

n>CarMax Inc (KMX.N), the biggest US used-car dealer, is rolling out a new online financing initiative that could help offset sluggish demand as cheaper gas prices and a stronger job market drive sales of new cars.

The company is rolling out an online financing offering this year to customers at 10 stores in the United States to help them pre-qualify for a loan before a store visit, hoping to improve customer conversion rates.

Many customers want to understand their financing options during their online research process, prior to coming into the store, CarMax Chief Marketing Officer Jim Lyski told Reuters.

Richmond, Virginia-based CarMax reported on Tuesday lower-than-expected first-quarter revenue and profit as store traffic dropped and comparable unit sales at its used-car stores slowed to a near halt.

The company has been fighting slowing growth in sales largely due to weakness in used-car pricing as new-car sales gain steam.

Being pre-qualified for financing before the store visit helps build the customers confidence …, CarMax President Bill Nash said on a post-earnings call on Tuesday.

CarMax is late to the online financing party, however.

AutoNation Inc (AN.N), the largest US new-vehicle dealer, launched an online financing offering in late December, allowing its customers to value a trade-in vehicle, determine car payments and apply for credit online.

While it may be too early to gauge if CarMax can get enough benefit from the latest offering, Wall Street analysts have broadly welcomed the initiative.

People want to be able to buy a car similar to how they buy other retail goods. Thats the kind of convenience CarMax needs to offer, MorningStar analyst David Whiston said, adding that it would lead to higher conversions for CarMax longer term.

CarMaxs shares were down 2.6 percent at $46.87 in late-afternoon trading on Wednesday. Up to Tuesdays close, the stock had fallen about 11 percent this year, compared with little change in the Dow Jones US Specialty Retailers index .DJUSRS.

(This story corrects to rolling out a new online financing initiative from is banking on a new online financing process in paragraph 1. Also removes paragraph 9, which referred to Beepi, Carvana and Vroom denting Carmaxs online traffic, as the information could not be verified)

(Reporting by Ankit Ajmera in Bengaluru; Editing by Sweta Singh and Sriraj Kalluvila)

You may not be able to get a co-borrower for your personal loan

Bankrate reviewed the personal loan applications of nearly a dozen banks and credit unions. In each instance, the institution allows for joint applications on personal loans. But a number of online lenders explicitly forbid co-borrowers.

This may be an important consideration for people with damaged credit.

Often a (joint borrower) can make the difference between getting approved and getting rejected, says Bruce McClary, vice president of public relations and external affairs with the National Foundation for Credit Counseling. Taking on a (co-borrower) can not only help you get approved when otherwise you might not, but you might also qualify for better rates.

RATE SEARCH: Need a personal loan? Let Bankrate help you find the best loan rates today.

Settlement brewing in Pfister’s wrongful-death claim

The wife of William Styler, convicted of killing Aspen native Nancy Pfister, has yet to respond to a wrongful-death claim against her because a settlement is pending.

That’s according to court documents filed last week in plaintiff Juliana Pfister’s claim against Nancy Masson, who previously went by Nancy Styler, in her personal bankruptcy case. Juliana Pfister, the daughter of Nancy Pfister, filed the adversary action Feb. 26 in the US Bankruptcy Court of the Eastern Division of Massachusetts, the venue for the case.

“The parties have reached an agreement in principle that is expected to lead in a few weeks to the parties being able to dismiss this adversary proceeding,” said a brief filed Monday by attorneys for both Pfister and Masson.

Neither returned phone messages this week. Pfister’s Aspen attorney, David Bovino, declined comment, as well.

This week’s brief was the fifth motion filed by Pfister and Masson seeking to extend filing deadlines in the case.

Masson declared bankruptcy in July. On Aug. 6, William Styler, whom she divorced earlier in 2015, hanged himself in a Canon City prison. Styler, 67, was serving a 20-year sentence for the second-degree murder of Nancy Pfister, who was slain at her Buttermilk Mountain home in February 2014.

Styler’s death triggered a $1 million life-insurance payment to Masson. The bankruptcy court approved $150,000 of those funds to be managed by the case’s trustee. But in March, after Juliana Pfister filed the adversary action to the bankruptcy case, Judge Joan N. Feeney froze the remaining $850,000 that Masson collected pending the outcome of the wrongful-death claim.

Bovino called the judge’s order a “huge win” at the time.

Masson, once charged in Nancy Pfister’s murder before her then-husband confessed to authorities in June 2014 that he acted alone, introduced a sworn affidavit in March saying she did not “participate in any way in the murder of Nancy Pfister.”

Juliana Pfister’s wrongful-death action contends Masson did, arguing that her then-husband wasn’t physically equipped to pull off the murder by himself. Nancy Pfister was found beaten to death from hammer strikes to her head. Her body, which was placed in a closet, was wrapped from the neck down in a heavy-duty trash bag. Her neck was wrapped with an electrical extension cord, her head shrouded in kitchen trash bags, the suit says. She was 57.

Juliana Pfister originally filed a wrongful-death lawsuit in January against Masson in Pitkin County District Court. That case, however, was put on hold after she filed an identical claim in Masson’s Chapter 7 case.

rcarroll@aspentimes.com

Puerto Rico’s debt, humanitarian crises focus of briefing, prayer service

Eric LeCompte, director of Jubilee USA, spoke briefly about the urgency of Puerto Ricos situation, and introduced Father Enrique Camacho, director of Caritas Puerto Rico.

Father Camacho described his work with the poor, providing food, aid, shelter, emergency relief and help for the sick and elderly left behind by young people fleeing high income taxes.

Five times more people need help now than they did in 2011, he said, citing a 12 percent unemployment rate and a 56 percent poverty rate for children. Even professionals are in personal bankruptcy are coming to my office asking for help.

Father Camacho discussed families divided by the migration of young people to the mainland United States.

We have a lot of elderly people living alone because their sons live in the US, he said. He described a common situation for many on the island: a grandmother who fell and waited in the hospital from 2 pm to 6 am before getting help from the only doctor.

We are sad, Father Camacho concluded, because we dont see a solution.

In 2014, Puerto Rico tried to enact legislation that would allow them to restructure their $72 billion debt that has been keeping them out of the market for prospective investors. The Supreme Court ruled this legislation, called the Puerto Rico Public Corporation Debt Enforcement and Recovery Act, unconstitutional on the basis that because Puerto Rico is not a state, it is exempt from Chapter 9 of the federal Bankruptcy Code, which authorizes states to restructure their debt.

US Rep. Pedro Pierluisi, a Democrat who is Puerto Ricos sole member of Congress, also known as the Resident Commissioner of Puerto Rico, tried in 2015 to introduce a bill that would allow Puerto Rico to file for Chapter 9 bankruptcy, but the bill failed to pass the House of Representatives.

Now, in 2016, US Rep. Sean Duffy, R-Wisconsin, has introduced a new bill titled commonly called PROMESA, Puerto Rico Oversight, Management and Economic Stability Act, will set up a seven-member advisory board to oversee Puerto Ricos budgets and financial plans for at least four consecutive fiscal years, or whenever criteria outlined by the measure are fulfilled. In addition, PROMESA allows employers to reduce their workers salaries to below the national minimum wage. The bill also will also authorize Puerto Rico to use some debt relief to revitalize their public utilities to help their citizens who are without food, water, and power.

Overall, PROMESA seeks to establish a process for the gradual and constitutional restructuring of Puerto Ricos debt while providing the island with the necessary funds to continue running. The bill has passed the House, and must pass the Senate before July 1 to become effective in time to help Puerto Rico.

How Investors Can Benefit From Financing Their Next Car

By Eric Jorgensen

Learn more about Eric on NerdWallet’s Ask an Advisor 

When buying a car, you have two options: take out a loan to finance the purchase or pay for it in cash. There are pros and cons for each approach, and as with any financial decision, it ultimately depends on what works best for your situation.

But one notable benefit of financing is that it frees up money for investing. So if you have good credit and plan to buy soon, while rates are low, financing your purchase could be the smarter move.

Lets look at how financing and investing could be more profitable in the long run.

How financing works

When you apply for a car loan, lenders will look at your credit score to determine how much of a risk you are as a borrower. The interest charged on the loan is driven by your credit score: The better your score, the lower the interest rate and the lower your payment. If you have an above-average credit score  — say, over 750 — it’s likely that you can get a very low interest rate; in some instances, it could be as low as 0%.

You also have to decide how long you want to make payments. Typically, the range is from three to six years, but it’s best not to go over five years. The longer you stretch out your payments, the lower the monthly payment will be — but note that longer terms can also carry higher interest rates.

Your monthly payment is also based on how much money you pay upfront as a down payment. For example, if you buy a $30,000 car with no money down, financed for five years at 3.5% interest, you can expect to pay approximately $550 a month. However, if you put $10,000 down and everything else stays the same, your payment would drop to approximately $370 a month.

So how much should you pay each month? (Note that I did not ask how much you could afford.) In reality, it’s best to keep your monthly payment below the amount you can technically afford based purely on your expenses and income. Just think of all the other costs of owning a car like maintenance, insurance, fuel and other expenses that may come up.

I recommend keeping car payments below 5% of your net income after taxes. As a financial advisor, the last thing I want to hear is that someone can’t save money because they are “car poor.”

Biggest benefit of financing: Investing

Paying cash requires disciplined saving in low-risk buckets — perhaps bond funds or high-yield savings accounts. To buy a $30,000 car, you’d need to save about $470 a month over five years, assuming a 3% rate of return, or $500 a month with a 0% interest rate. For many, that’s a pretty high amount considering other savings needs.

New cars depreciate quickly, some estimate by as much as 20% when you drive off the lot, 30% by the end of the year, and 50% within three years. It’s not a good idea to take a large amount of cash and sink it into an asset that is going to immediately lose value.

Today’s low-interest-rate environment makes financing, rather than paying cash, an attractive option.

Assume you have determined the amount you can spend each month and can purchase a car by putting down no money, or the bare minimum amount. This allows you to instead invest, or keep investing, the money you could have used as a down payment.

Using the above example: If instead of using it as a down payment, you invested $10,000 for five years at an average annual rate of 6%, your funds would grow to nearly $13,400, a potential $3,400 gain. If you used the $10,000 as a down payment on the car and then invested the $180 a month difference in your car payment ($550 $370) under the same conditions, your funds would grow to just about $12,400, a gain of $2,400 over the original down payment amount.

Note that when you invest, theres no guarantee that the market will do well and your money will grow. But the longer you keep your money invested, the better are your chances of seeing positive returns.

At the five-year mark, interest on the auto loan could cancel investment gains. However, if you withdraw $10,000 from your investment account for a down payment, youll forfeit any gains over five years and much more over your lifetime. During low interest rate environments, like the one we are currently in, it makes more sense to minimize the down payment and let your investments compound.

If you paid 100% cash, you miss out on the opportunity to invest and grow those funds and you’d have to build up new savings.

Drawbacks to financing
Interest

Besides the purchase price, the other cost to consider when you finance a car is how much money you’ll pay in interest over the years of your loan. With a five-year loan, no money down and a rate of 3.5%, you’re paying about $2,750 extra over the life of the loan, making the total cost of the car $32,750; this increases to about $6,900 at an 8.5% interest, making the total cost $36,900.

And note that if you are purchasing a new car before your old car is paid in full, in most cases you end up rolling your remaining debt into the new loan, increasing what you owe, and subsequently increasing the amount you pay each month. It also means there is the potential for a significant gap between the new car’s value (what you’ll get from insurance in the event of an accident) and what you owe. Say you buy a $30,000 car and you still owe $7,500 on your old car. This means you finance $37,500, but the best you can hope to be covered by insurance is $30,000.

Insurance costs

Also know that when you have a loan, you may be required to get complete auto insurance coverage, even for a used car that may not be worth it. When you own a car outright, you decide what amount and types of insurance to purchase. This means you don’t have an opportunity to decrease your monthly spending by purchasing insurance based on your needs rather than what the loan terms dictate.

Rate fluctuations

However, it’s also important to remember that interest rates won’t stay low forever. This means payments will be higher in the future and could make financing the more expensive option. And remember, if you don’t have a high enough credit score, you also won’t have the benefit of getting a low rate on your loan. In these cases, you will need to put more money down to drive the monthly payment down, making financing less attractive.

There are many variables to consider when deciding how to buy a car, and it ultimately depends on your situation and how much you can realistically afford. By financing your car and investing the amount you would have used as money down, you could potentially make more than if you pay part or all of it upfront. However, this only works if you actually invest the money and don’t spend it on something else.

Eric Jorgensen is a fee-only financial planner with MainStreet Financial Planning in Silver Spring, Maryland.

This article also appears on Nasdaq.

The not-so-cheap UK Personal Loans

The not-so-cheap UK Personal Loans
Personal_Finance / Debt Loans
Jun 20, 2016 – 10:07 AM GMT

By: MoneyFacts

Unsecured personal loans can be ideal for people who have debts to consolidate or who want to make a purchase with a fixed repayment plan. Its not surprising, therefore, that in the current low interest rate environment this type of finance is proving to be popular with many borrowers.

However, these loans are not always the best option, and the latest research from Moneyfacts.co.uk reveals that anyone looking to take out a smaller loan may be shocked by how much they will be charged in interest compared to alternative forms of borrowing.