The Finatical

Week of March 28th, 2023 - Credit-Builder Loans, State IRA Programs, Mortgage Rates Rise

Aditya Bagga

Ksheeraj Sanga

Aniket Bose

, and 2 others

Mar 29, 2023

Topic Breakdown - Credit-Builder Loans

Introduction

Credit-builder loans are a financial tool designed to help people improve their credit scores. Unlike traditional loans, credit-builder loans have a lower interest rate and are repaid over a longer period of time. The idea is simple: you borrow money, make regular payments, and gradually improve your credit score. Basically, credit-builder loans are a great option for those who want to improve their credit score without falling into the trap of high-interest loans. While there are some cons to consider, the benefits of a credit-builder loan far outweigh the risks if used correctly.

Purpose

Credit-builder loans can be used for a variety of purposes, such as consolidating high-interest debt or covering unexpected expenses. They can also be used to establish credit for people who have no credit history. For example, young people who are just starting out in their careers may not have any credit history, which can make it difficult to access credit cards or other types of loans. Credit-builder loans are not only a great way to build credit but they also offer some benefits that traditional loans do not. For example, many credit-builder loans report to credit bureaus, which means your payment history will be reported to credit reporting agencies. This can help you establish a credit history, which will make it easier for you to obtain credit in the future. Another benefit of credit-builder loans is that they are typically smaller than traditional loans. This means that you can borrow a smaller amount of money and make smaller payments over time. This can be beneficial for those who are just starting out and do not have a lot of disposable income. In this way, credit-builder loans can also help you establish a good payment history. If you make regular payments on time, it shows lenders that you are responsible for your finances. This can make it easier for you to obtain credit in the future, as lenders will see that you are a responsible borrower.

Drawbacks

While credit-builder loans are a great way to build credit, there are some drawbacks to consider. Firstly, they can be more expensive than other types of loans depending on where you get the loan from, so do your research. Secondly, if you miss payments, it could have a negative impact on your credit score, which defeats the purpose of taking out a credit-builder loan in the first place. Finally, credit-builder loans are not a quick fix - it takes time and discipline to see the benefits of a credit-builder loan.

Financial Trends

State IRA Programs Bridge Income Inequality

Historically, there has been a major gap in the income and wealth department between people of color and white households, but the new state-run retirement programs are attempting to help workers of all races to find equality in pay. According to the U.S. Bureau of Labor Statistics, there were more than 67% of private-industry workers who had access to retirement plans in 2020, but a significant amount of employees were either left out or restricted from these programs – turning out to be mainly workers of color being restricted. Additionally, smaller companies and upcoming startups are less likely to offer their workers any retirement plans, with roughly 78% of them that work for companies having less than 10 employees having access to a plan.

In order to combat this issue, state-facilitated individual retirement account savings programs have been implemented to try to close the racial savings gap that exists in our economy today. According to Georgetown University’s Center for Retirement Initiatives, there have been more than sixteen states enacting new initiatives designed to help private-sector workers save and eleven of them already have auto-IRA programs. It is essential for the U.S. states to play an effective and supporting role for the private pension system, particularly in narrowing down the racial and gender saving gaps. Furthermore, state-facilitated retirement savings programs should turn their focus to an underserved corner of the market, small businesses, as they offer the least retirement savings programs.

Mortgage Rates Rise To High Of 7%

According to Mortgage News Daily, the average rate on the 30-year fixed mortgage went back to its high rate of over 7%. As a result, the mortgage rates have been loosely following the yield on the U.S. 10-year Treasury, as more economists fear that inflation is not cooling off and causing bond yields to yield higher profits. After the real-estate market underwent pending home sales, it has recently faced a lot of struggle bringing in revenue for the past four weeks. In order to keep real-estate investors, banks are forced to increase mortgage interest rates and they have increased by 100 basis points since the start of February.

This has caused the number of mortgage applications from homebuyers to have been falling for the past month, and last week recorded merely 28 applications. While the interest rates were still relatively low, the housing market was seeming to recover for the upcoming busy spring season for purchasing homes; however, that recovery has now come to a standstill and only rising interest rates are the only component. Consumers are already having to deal with record levels of debt, including mortgage, personal, auto, and student loans, and with even higher interest rates, there is going to be a lot of financial distress burdened on the heads of consumers having to make difficult financial decisions in the future.

Financial Guidance

“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” — Suze Orman

The reality of our society means that money will dictate the vast majority of our lives. As such, the lack thereof will more often than not cause us to ask questions or ask ourselves what if this or that. However, having financial freedom and security will help you alleviate those worries and concerns.

Term of the Week

Becker’s Model of Crime: Becker’s Model of Crime is a formula that allows people to determine whether to commit a corporate crime or not based on various factors such as the current utility (usually in current wages or benefit), payoff, probability of getting caught, and the imposed fine if caught.