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In recent years, loan sharks and predatory lenders have been reinventing themselves by moving off the streets and onto social media. They’re using online platforms to both lure potential victims and intimidate those who miss a payment.

In light of the coronavirus pandemic, loan sharks are often looking to take advantage of those who are most vulnerable at this time and who feel that they have nowhere else to turn for help. They are often based in the local community and, if you are in a financial crisis, they may seem friendly and accommodating at the start. However, they can cause people immense misery in the long term.

If you are in a desperate situation, it may seem tempting to borrow money from a loan shark as a quick fix; however, you will always end up paying back much more than you originally borrowed.

Key Figures

• A loan shark is someone who lends money without authorisation from the Financial Conduct Authority (FCA).
• The UK’s Illegal Money Lending Team, which investigates and prosecutes illegal money lenders while supporting victims, is warning people to watch out for loan sharks online where they’ve become increasingly active. 
• Around 300,000 households across the UK have been the victim of a loan shark since the records began in 2014.
• One in ten of those met their lender on social media platforms like Facebook or Snapchat and even dating websites.

What are some signs that you may be borrowing from a Loan Shark?

If you have any doubt about who you are borrowing money from, the first thing to do is to check the Consumer Financial Protection Bureau’s database in the US, or the FCA website in the UK.

“Even though there are many legitimate online lenders in the US and UK, there are always going to be people out there looking to take advantage of you,” commented Michael Needham, co-founder of US loans connection service, Doddler. “Especially since the coronavirus pandemic, online loan scams have become extremely common,” he added.

Some telling signs that you may be borrowing from an illegitimate lender are:

Lack of paperwork and documentation.

Paperwork, contracts and documents always make things seem more legitimate, which is something that loan sharks avoid at all costs.

Refusing to provide you with information about the loan.

Most loan sharks will avoid giving you clear details about your loan, such as the interest rate, details of previous repayments and the total amount you owe.

Taking possessions for security.

Although this is sometimes a form of secured loan, some loan sharks will illegally use your personal possessions, such as a passport or bank cards, to act as collateral.

If your repayment amount keeps on growing.

Loan sharks might increase the debt or add extra charges at any time, even if you’re making regular payments. It’s important you get help because the debt can spiral out of control very quickly.

Threats of violence.

Loan sharks can sometimes use intimidation and threats to frighten people into paying back their loan. Some even become violent towards their victims if they fail to make their repayments on-time.

Avoiding bad money habits is as important as building good ones. Many people don’t realize some simple money mistakes and lose substantial money in the long run.

Here are 5 bad money habits that you should break in 2023.

1. Not Creating a Budget

One of the biggest mistakes you can make is not creating a budget at all. Many people start a budget and then don’t stick to it.

The root cause of Inaccurate planning, overspending, late payments, debt accumulation, etc. is not to have a personal budget.

If you don’t create or follow budgets, you’re shooting in the dark.

How to Break the Habit

Start with a simple budget plan like a 50-30-20 budget or envelope budgeting. Aim to divide your total income into necessary costs, debt repayment, and savings.

Then, analyze each segment and adjust. Keep reviewing your monthly budgets until you find the right mix.

You don’t need to get it done on the first attempt. Start slow and keep building.

2. Having No Emergency Fund

If the last couple of years has taught us anything, it is to create an emergency fund.

Despite facing regular hardships, many people fail to set aside money for emergencies. It can be an unexpected medical bill, a house repair, an uncovered vehicle expense, or a loss of income.

Without an emergency fund, you’ll always revert to expensive borrowings. That’s one reason people turn to high-APR credit cards or payday loans.

How to Break the Habit

Calculate your monthly mandatory expenses first. Then, open a separate savings account to accumulate funds.

Start building the fund by contributing as much as possible. Aim to accumulate for three to six months of your non-discretionary expenses.

You can’t build an emergency fund overnight. The key is to remain consistent. Start with smaller contributions, say $50 per week, that would be $200 per month.

Once you build the habit, you can contribute more and build quickly.

3. Always Carrying Credit Card Debt

No emergency fund is a major reason for carrying credit card debt all the time. Several other factors to this dilemma too.

People swipe a credit card for convenience without paying with cash. Then, switch to paying only the minimum payable even when they could afford to repay the full outstanding amount.

This habit quickly piles up interest costs and your credit card bill shoots up quickly. Then, you’ll keep repaying interest costs with no sight to wipe out the credit card debt.

How to Break the Habit

Think of a credit card as an emergency tool only, not for convenience. Always keep an eye on your credit card APR, interest-free period, and existing balance.

Even when you pay by credit card, repay the full amount to save on interest costs. Plan before using the card and calculate the total interest charges if you need a large transaction.

Once you build the habit of calculating the total cost of using a credit card for each transaction, you’ll shift to other sources successfully.

4. No Plans for Savings

Another major mistake observed in personal finance is not having any plans for savings. People forget a simple rule that you need to save now for your retirement life later.

Saving money for your future includes several other financial goals like a downpayment for a mortgage, a major house repair project, relocation, educational expenses, sponsoring your travel tour, and so on.

If you don’t save enough, you’ll always remain in debt. Moreover, you’ll never be able to invest or save for your retirement.

How to Break the Habit

If your budget doesn’t allow it, look for extra income through a side hustle or passive income. Alternatively, find ways to cut discretionary expenses.

Start a retirement plan as soon as possible. If your employer offers a 401(k), make sure to maximize the contributions. Else, start your own IRA and stay consistent with your contributions.

5. Spending More Than Earnings

It’s a common pitfall and we all are guilty of it at some stage. In one way or another, people keep spending money without realizing they’re exhausting their limited resources.

Spending on nonessentials or discretionary expenses is the biggest driver to overspending for most people.

These nonessential expenses include dining out excessively, unplanned trips, impulsive shopping, overspending on decoratives, always buying new over used, and so on.

Overspending never lets you save money. It accumulates debt and never lets you accomplish financial goals even if you don’t realize it.

How to Break the Habit

If you want to break the habit of overspending, prefer cash over a credit card.

Always make a shopping list, cut discretionary items, and stick to your preferred list. Avoid impulsive shopping by ignoring discounts/promo offers for nonessentials.

Then, stick to your budget and always automate your savings. It will take time to control your overspending habit but you’ll eventually get there.

It’s everyone’s dream to own a home one day to avoid expensive monthly rent payments and troublesome property owners. However, since buying a home is a huge investment, many cannot afford a one-time full-cash payment for a property. As such, most people rely on mortgage loans to purchase their first homes. 

Mortgage loans offer borrowers flexibility and a long repayment term, which is normally between 10 years to 30 years. You need to meet certain criteria to get the loan as lenders try to avoid defaulters and minimize risk. You can read about how to maximize your chances of getting a mortgage to access your chances. 

As time goes by you may want to trade your old mortgage for a new one with better conditions. This is termed mortgage/home refinancing. What is mortgage refinancing and how can it help you save money? Read on for answers.

What is mortgage refinancing?

Mortgage refinancing is the process of replacing a current mortgage loan with a new one. This doesn’t necessarily have to be with your current lender as a new lender can refinance the home. You can rely on trusted local mortgage brokers with knowledge and experience in the field for a competitive rate. 

The refinancing process takes the same form as applying for a new mortgage. The lender will assess your finances, ability to repay, and risk, to determine your eligibility and favorable interest rate. 

That notwithstanding, the new loan may come with different terms. You will have new repayment years and a fixed rate instead of an adjustable rate. Most important, you may have a lower rate, which is one of the main reasons for refinancing.

Mortgage refinancing attracts a prepayment or closing cost. Your old lender will charge a prepayment fee for deciding to pay the loan early. As such, consider such fees and other terms before taking the decision. Also, consider how long you wish to live in your home, and your ability to adhere to new payment terms, before taking a refinancing loan.

When to refinance your home loan 

As a homeowner, you should only refinance your home loan when it is beneficial to you. Only take this decision if it can help you save money by replacing a high-interest loan with a lower one. Or, change the current loan terms for a more favorable one. Refinance your loan when

• Mortgage interest drops significantly 
• When you obtain a better credit score
• Change the mortgage terms and conditions 
• You want to Change from an adjustable rate to a fixed rate
• You decide to shorten or increase your loan repayment period
• To obtain a lower monthly payment rate

When refinancing can save you money

When it replaces an expensive loan

Replacing an expensive loan with a cheaper one is the main reason most homeowners opt for a home refinancing loan. When mortgage market value declines, loan rates fall; hence, new mortgages will have lower rates. For example, if the APR on your current 30-year mortgage is 6.7 percent, and rates begin to decline, you can trade the old loan for a better rate. So, you can refinance your old 6.7 percent rate mortgage with a new 5.7 percent rate, to save one percent.

Also, if your credit ratings improve significantly after securing your first loan, subsequent loans will attract lower interest rates. Meaning, you can have a better deal with your improved credit rate if you decide to refinance your loan.

Currently, the Annual Percentage Rate (APR) on a 30-year mortgage is 6.7 percent, while that of a 15-year mortgage is around 5.9 percent. With this rate, most homeowners wouldn’t find it ideal to refinance their homes. However, on any good day with better rates, it’s a smart move to replace your old loan. Note: a high old rate is not the only reason borrowers refinance their loans. Here is how mortgage refinancing can help you to save money. 

When it changes your loan terms

Depending on your current financial status or loan goals, mortgage refinancing can help to increase or reduce your repayment terms. So, if you are 5 years into your 20-year mortgage, you have 15 years left to offset the loan. You can instead take a new 20-year to refinance the old mortgage. This will reset the repayment terms back to 20 years instead of 15 years. 

Contrary, you can settle for a 10-year refinancing loan to pay off the 15 years left on the current one. This will help you repay the loan 5 years earlier. Instead of 15 years, you will have a ten years payment term, with higher monthly payments. 

Converts an Adjustable-Rate Mortgage (ARM) or Fixed-Rate Mortgage 

Adjustable mortgage rates (ARM) initially offer lower ratings compared to fixed rates. With time, the periodic adjustments of the ARM will increase your rates to surpass that of fixed rates. With this, you may want to convert your adjustable rate to a fixed mortgage rate for a lower interest rate. It also reduces concerns about having future hikes.

On the other hand, you can also change from a fixed rate to an adjustable rate as a financial strategy. When mortgage rates begin to fall, homeowners with fixed mortgage rates may not benefit from it. Therefore, you can convert your fixed rate to an adjustable-rate mortgage through home refinancing. This helps you to benefit financially from falling rates and save money.

Home refinancing can be a great financial tool to help reduce your mortgage rate or improve the loan terms. It is a great way to build or increase your home equity if properly utilized. Several considerations should be made before opting to refinance your home. You can seek professional advice from any trusted local mortgage broker before making a decision.

The bottom line

Home refinancing can be a great financial tool if properly utilized and strategically used. It can help you restructure your loans, and help you to build your home equity. However, you need to be careful when making such a decision. Several considerations must be made to avoid future regrets. You can rely on your trusted local mortgage brokers for professional advice.