Many lenders in California like to discuss a loan with both husband and wife because the wife often sets the family budget. Besides, many creditors believe both parties should acknowledge how loan payments will affect their lifestyles. As a rule of thumb, bank managers are reluctant to grant loans where repayments may necessitate a cutting back on personal spending because people find it very difficult to change their lifestyles. In fact, sometimes lenders will require additional security such as bonds or stocks to protect a loan. On personal loans, this security may take the form of a collateral mortgage on a home or, in the case of a loan to buy a car, a mortgage on the vehicle itself.

While your local bank branch is not in the business of lending risk capital for new ventures, such funds are available for the individual who has income from other sources or a net worth which can provide the bank with some security. Credit Unions have been a growing forced across the country and in some states, such as California, are major competitors of the mainstream banks. So, don’t overlook this source. If you have a history of not paying back your debts, or have a habit of switching jobs or residences often for no apparent reason, be prepared to knock on a lot of doors before you get your loan. While lenders want new business, they like to see some stability in your life. As a backup to the interview, lenders usually obtained a credit report on the applicant – and I would be better to say in today’s new century all applicants have their credit reports pulled up.

There is more to interest than just the rate When borrowing or lending money (and remember we are really lending money every time we put in a savings account or term deposit), most people have a tendency to concentrate completely on the interest rate. There is another factor in the transaction that is just as important, and of which we should never lose sight. It is this: how often is the interest rate going to be compounded? Or, another way of putting it: how often is the interest going to be calculated and collected, paid or added to the loan, as the case might be?

If you are borrowing money, you want the interest compounded as infrequently as possible. Shoot for annual compounding if you can. On the other hand, when you’re lending money, you want the interest compounded as frequently as possible. Daily, would be great. Just to illustrate how important the compounding factor is, here are the annual interest rate figures on a $10,000 loan with interest at 20%. If interest is compounded:

• Annually it would be $2000
• Semi-annually it would be $2100
• Quarterly it would be $2155
• Monthly it would be $2194
• Weekly it would be $2209
• Daily it would be $2213

So, as you can see, if interest is compounded daily, it would be almost 11% higher than the compounded annually. Or, put another way, on a daily compounding you’re actually paying 22.13% compared to 20% on the annual basis. Big bucks. Never overlook the compounding which ever end of the loan you’re on.