Banzai, Author at Country Bank- Made To Make A Difference

No matter how tech savvy you are, cybersecurity should be top of mind anytime you use the internet. If that sounds overwhelming, don’t stress. You don’t need to be an expert. Good cybersecurity isn’t complicated. Whether you’re messaging with friends, streaming music, watching movies, buying clothes, or paying bills, there are basic cybersecurity rules anyone can follow.

Use the Right Cybersecurity Tools

The first line of defense against hackers and thieves who want your personal and financial info is to make sure the antivirus software on your device is up-to-date. Antivirus software helps protect against malware, which is a file or code that can infect your device, steal sensitive information, and more. If you don’t use antivirus software, there are reputable providers who offer basic versions for free. Just make sure you run the software’s updates as they are available.

To go beyond the minimum, it may be worth the money to subscribe to security software that protects specifically against more dangerous types of malware, like spyware, which mines your personal info, and ransomware, that encrypts your files until you pay a ransom to regain access. Do your research to make sure the security software you subscribe to is legitimate and worth the cost.

For security software recommendations and reviews, check out resources like ConsumerReports.org and PCMag.com.

Limit Personal Info Shared Online

Your personal online behaviors are a valuable protection against cyber threats. Limit the personal information you share online. This includes:

credit card and bank account numbers
address
phone number
other identifiers

It’s also smart to think twice before posting social media comments with personal thoughts and details about your life. True, hackers can use this information to guess passwords or as part of impersonation schemes, but your public social media posts could also hurt your relationships or career.

Remember, you can’t control how your opinions are perceived and it’s almost impossible to remove something entirely once it’s posted online. Current or potential employers may monitor your social media, and the more information that’s out there, the more likely it can be used against you. So be smart about what you say online.

Use Social Media Protections

Protect yourself on social media by adjusting your privacy settings and options.

Restrict who follows you on social media. Consider limiting how much colleagues and other professional acquaintances know about your personal life.
Don’t accept friend requests from people you don’t know.
Block your tweets and posts from search engines, so they’re only visible to your followers. Remember that any follower can screenshot what you write, even if they can’t retweet it.
Don’t link your social media accounts. Anytime you link an account, you’re increasing the visibility of whatever you post across multiple platforms. Personal information that’s available in many places makes you more vulnerable to phishers.
Don’t post personal information that is commonly used for passwords or password security questions, like the name of your elementary school or first pet’s name. Avoid posting about where you bank and shop. Even seemingly harmless facts can help scammers locate you.
Don’t post anything you don’t want the world to read.

Protect Your Passwords

Use strong, unique passwords on every site where you have an account. This is crucial for sites that access confidential personal or financial information.

Too obvious passwords provide no protection. The same goes for reused passwords. If a hacker cracks one account, they’ll try that password for every single account connected to your email address.

You’re not alone if you find it difficult to keep track of all those different password combinations. Try a password manager. A password manager creates, encrypts, and securely stores your passwords in a vault and you can access any of those passwords with a single complex password.

Password managers can also store other info like credit card numbers and PINs. Many reputable password managers offer a basic service for free, with a small fee for premium features or multiple devices.

Don’t Click or Open Unfamiliar Links

Scammers are getting more sophisticated with email and text messages, so don’t click any links or open attachments from sources you don’t recognize. They may even send links to websites that look exactly like a website you trust. Look for other telltale signs that a message is a scam.

Incorrect company names or URLs. Scammers often use slightly different spellings or extensions to trick you into thinking they’re legit.
Poor spelling and grammar. Real companies don’t often make typos and definitely check spelling before sending messages to clients.
Generic greetings. Official messages are nearly always personalized with your name instead of a generic greeting.
Urgent calls to action. Keep an eye out for red flags like “your account is suspended, ”reset your account password now,” or other high-pressure calls to action.

Shop Safe Online

Online shopping is common and generally safe. That said, always look for a security padlock symbol to the left of the company’s name in the URL bar. Click this icon to visit the site’s security certificate.

Double-check the URL begins with HTTPS. This indicates the data you send and receive is encrypted.

If you still want to buy from a vendor that’s selling directly on social media or want to use a site without proper security in place, it’s best to use a service like PayPal.

Your PayPal account is linked to your credit card or bank. Purchases you make via PayPal are encrypted and the seller has no access to your account number. Still, anytime you use PayPal, make sure your security software is updated and avoid any financial transactions using public Wi-Fi.

Disclaimer

While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

Neither Banzai nor its sponsoring partners make any warranties or representations as to the accuracy, applicability, completeness, or suitability for any particular purpose of the information contained herein. Banzai and its sponsoring partners expressly disclaim any liability arising from the use or misuse of these materials and, by visiting this site, you agree to release Banzai and its sponsoring partners from any such liability. Do not rely upon the information provided in this content when making decisions regarding financial or legal matters without first consulting with a qualified, licensed professional.

In today’s uber-connected online world, the risk of identity theft is hard to avoid. But there are ways to minimize identity theft risks and stay ahead of scammers and thieves who want your personal information.

Know the Risks

According to the Pew Research Center, nearly 30% of Americans were impacted by at least one of three kinds of major identity theft within the previous 12 months of being surveyed. The most common was fraudulent charges on their credit or debit card (21%), while 8% had someone take over their social media or email without their permission, and 6% had someone try to open a credit card or get a loan in their name.

Unfortunately, when scammers assume your identity, you may be liable for their debts and charges, or out whatever cash was spent.

Use Credit Card Protections

Use credit cards to limit your cash liability. Most credit card companies have zero-liability fraud protection policies, and federal law limits cardholder liability to $50, no matter how much was charged.

To benefit from this fraud protection, you need to report changes within 30 days. Make it a habit to regularly review transactions on your statements and immediately report any unauthorized purchases or transactions. It can be a hassle to deal with these issues, even if you aren’t on the hook for charges. Better to minimize the risk with identity theft best practices.

Be cautious about giving anyone, including friends and family, your key numbers and other financial information. Even if you can trust them with this info, they may be less careful with it than you.
Choose unique PINs. Avoid using your Social Security number, birthdate, or variations that are easy to guess.
Don’t keep your PIN written down in your wallet.
Keep a list of your relevant account numbers in a secure place. Include details on how to cancel or suspend cards if you lose them or suspect fraudulent activity.
Tear up or shred receipts and bills before you throw them away.

Look for Security Signs

Before you shop or otherwise engage with a website, check for important security safeguards. Reputable companies use an SSL certificate to verify the website’s identity and provide an encrypted connection.

Checking for an SSL certificate is simple—look for a lock symbol to the left of the company name and “https” in the URL.

Watch Your Links

Phishing links often imitate legitimate companies or websites as a way to procure your personal information. Before you click any link or attachment—even those from companies or people you know and trust—check for typos, misspellings, or other red flags. It’s possible they were hacked and the link will allow scammers to access your info or download a virus to your device.

Be wary of pushy calls-to-action or limited-time offers that require your personal information. Deals that seem too good to be true often are.

Telemarketing Traps

Offers of free trips, discounted magazine subscriptions, and the like are the most common form of telemarketing. Sometimes, these calls are legit. Other times…not so much.

Fraudulent phone calls were the second-highest contact method used in fraud reports, according to the Federal Trade Commission (FTC) Consumer Sentinel Network. (Text was no.1). This category accounted for $203 million in money lost, with a median loss of $1,500.

Telemarketing fraud impacts all ages, but it’s the top contact method for fraud reports for people ages 70-79 and 80 and older. The most common scams include business imposters, tech support scams, prizes, sweepstakes and lotteries, and government imposters.

If you receive an unsolicited phone call from a company you don’t know, ask them to send you information in the mail about their products or offer. Even if the call is from a company you’re familiar with or have done business with in the past, be careful about giving out personal information over the phone.

This includes your:

Bank account information
Credit card numbers
Social Security number

Report suspicious calls to the FTC by filing a consumer complaint form or calling the hotline, 1-877-FTC-HELP.

You can also add your number to the Do Not Call List, but keep in mind there are still millions of violations of numbers on the list.

Resources for Victims

To learn more about fraud and its impacts on your financial security, visit Fraud.org, the National Consumer League’s Fraud Information Center website.

Contact your bank or credit card company if you think your account has been compromised. Then visit IdentityTheft.gov to report the theft and find out next steps.

Disclaimer

Although it’s tempting to try and run a business on your own, it’s usually a good idea to get professional help.

Hiring lawyers and accountants can help keep you out of legal and financial trouble, while public relations experts get your company in the public eye.

Technology consultants keep you aware of the solutions that will work best for your business. And having a good relationship with a particular credit union, bank, or banker is helpful as you attempt to make major financial decisions, such as arranging a line of credit or securing loans.

Keep in mind that professional advice can be expensive. In general, it’s a good idea to figure out the areas where expert help could provide the biggest boost, and hire professionals to achieve it. As you have more money at your disposal, you can hire other specialists when you need them.

You can also get business counseling at no cost from retired executives through an organization called the Service Corp of Retired Executives (SCORE), sponsored by the Small Business Administration. To find a local chapter, you can go to their website, Score.org.

A local Small Business Development Center can also help you navigate building your business. These centers offer free or low-cost training and assistance for things like business planning, accessing capital, and regulatory compliance. SBDCs are partnered with the SBA and funded in part by Congress. Find your local center by going to the America’s SBDC website.

Financial Guidance

Running your own business is challenging enough without trying to handle your company’s tax planning and reporting. Most business owners would agree that hiring an accountant is a good investment.

Accountants can work with you and your financial officer or controller to keep your business financially sound. Some areas that accountants can help you with include preparing profit and loss statements, audit reports, and earnings projections. An accountant can also troubleshoot for you and help you fine-tune your budget.

Many accountants will help you organize your records for more efficiency. And if you need a loan, your accountant can help you determine what type might be appropriate for you.

Attorneys

As a business owner, you’ll probably need to work with an attorney. If you have business associates who work with an attorney, ask for their recommendations. You can also contact your local business association for referrals.

In the early stages of your business, a lawyer can help you decide what type of structure (sole ownership, partnership, corporation, or franchise) will work best for you. As you grow, an attorney can foresee various business needs, such as zoning regulations, employment practices, and workplace safety. It’s also important to retain a lawyer if you are applying for trademarks or patents, because many legal issues arise during the application process. Finally, it’s crucial to have an employment lawyer review your employee handbook to make sure you cover all the bases, legally speaking.

It’s essential to find someone who’s experienced in business law, preferably someone who has worked with businesses like yours. You may also want to think about the size of the firm. A smaller firm may give you more personal attention, but a larger one usually offers a wider range of services.

Finally, you should find out how you’ll be charged for the legal services you need. Most lawyers charge an hourly fee, and the cost of each consultation depends on the lawyer’s billing rate. That generally depends on level of experience, the part of the country where you live, and the type of firm it is. Some lawyers charge a flat fee for a specific service, regardless of the amount of time it takes.

Specialized Consultants

Hiring an advertising or marketing specialist will help you create an image and brand for your business. A small advertising agency or independent specialist may be ideal for your small business’s needs.

You can also employ a public relations (PR) firm or add a public relations specialist to your staff to help you gain exposure that you otherwise may not be able to attain. A PR agent can write press releases, manage your social media presence, and generally educate the public on the latest happenings in your business.

Technology consultants can help keep you updated with the latest software and manage the operation of your systems. If you want to teach your employees how to maximize their productivity, cultivate working relationships with clients, and more, a soft consultant may be just the answer.

In short, while there are no guarantees, it may be worth the time and money to research and hire a professional that can help take your company to the next level.”

Disclaimer

Building a business costs money—usually more than you can generate from your operating revenues alone. Securing the funds you need will require careful planning and preparation.

Whether you’re a fully operating business looking to add a new truck to your fleet or build a new location, or if you’re just starting out, you’ll need money to turn your plans into reality. It might help to work with an accountant to calculate estimated costs for reaching the next level of development.

The Basics

Before you borrow, list your basic business expenses. Each time you expand your business, these costs are likely to increase:

Employee salaries
Rent
Electricity, heating, air conditioning, and fuel
Paper and other office supplies
Purchasing or leasing operating equipment
Decorating or remodeling costs
Legal and professional fees
Insurance
Taxes
Machinery and power tools

Give Yourself Some Credit

One option to increase your funds is to get a line of credit, which is a type of loan that gives you short-term or seasonal funds.

Basically, a line of credit is very similar to a credit card, with the notable exception that interest on a line of credit is lower and may be tax deductible. You borrow cash, using your business assets as collateral, and pay back the principal and interest on any outstanding balance each month.

A long-term credit loan usually lasts up to five years, and is helpful if you want to have money for operating costs until your business turns a profit. Lenders typically require that you provide collateral or sign a promissory note on this type of loan and pay it back in installments. Of course, you should always be wary of getting into unnecessary debt or borrowing more than you can afford to pay back.

Do You Qualify?

If you’re thinking about taking a loan to build your business, there are several qualifications that banks normally expect from you, as the owner, and your business. Before you apply for a loan, make sure that you can provide potential lenders with the following:

Business plan (not always required)
Balance sheet and income statement
Cash flow projections
Profit and loss reports
Personal financial statements for all business partners
Personal income tax returns
Information on business debts

Getting the Loan

You may want to investigate banks that have a history of offering loans to small and growing businesses, since they may be more familiar with your situation and easier to work with.

It’s a good business practice to have a strong relationship with a specific institution, as that could make it easier for you to get loans when you need them. If you don’t use one particular bank or credit union, you might want to open a business banking account or secure small lines of credit before applying for a big loan.

All potential lenders will probably ask how much you are investing personally in your business venture. Among other things, it’s a way to assess your commitment to the business.

A Little Help

Since 1993, the Small Business Administration (SBA) has extended Microloans to businesses to help finance machinery, office space leases, equipment, and other basic necessities.

The most you can borrow with a Microloan is $50,000, and the average amount that borrowers use is about $13,000. Although the term of the loan depends on the size of the loan and what you’re using the funds for, the longest term for a Microloan is six years.

The SBA can also help you create a loan package and secure funds through a program called Lender Match. You can qualify for the loan if your business qualifies based on SBA standards.

For more information, go to SBA.gov.

Disclaimer

Not all card swipes are created equal. A debit card may look like a credit card, but instead of borrowing money to make purchases, debited funds come directly from your checking account balance. You don’t pay interest with a debit card, and you don’t build your credit history, either.

How Debit Cards Work

Like cash, debit card payments are often subtracted instantly, although some purchases may take a few days to clear your account. If you don’t have enough money, purchases are typically declined and won’t go through.

Your checking account may include overdraft protection to use your debit card even without the money to cover a purchase. But this service isn’t free. You’ll likely owe a fee for the overdraft, and need to replenish the account so your balance isn’t in the red. The average overdraft fee is $35 per instance, so it’s not a smart strategy for overspending.

How to Get a Debit Card

If you’re not offered one, request a debit card when you open a checking account to easily access your money. You can also use it at ATMs to withdraw money from your account—this service is typically free at your bank and network ATMs, but there could be extra charges. Most debit cards carry daily transaction limits and caps on how much you can withdraw from an ATM.

What is a PIN?

When you set up a debit card you receive a personal identification code, or PIN, which is a four-digit security code. You enter your PIN on a keypad most of the time when you use a debit card, but it isn’t always required. Your PIN is always required to withdraw money from an ATM. Never share your PIN with anyone and don’t store it in your wallet or write it on your card.

Should I use a Debit Card Online?

You can make purchases with your debit card anywhere a credit card can be used. Debit cards work online, too, but this comes with a higher risk because it’s linked directly to your checking account. If your debit card number is stolen, thieves can access all your money.

Federal regulations limit your liability for fraudulent purchases to $50, but you must notify your bank within two days of discovering your card or card number is compromised. If you wait longer than two days, you could be on the hook for up to $500. Also, funds from unauthorized charges won’t instantly return to your account, which could cause cash flow problems or overdrafts.

What about Prepaid Debit Cards?

Prepaid debit cards aren’t linked to your checking account. They are loaded with a specific amount of money that must be replenished when funds run out or replaced with a new card. Many prepaid debit cards charge activation and other use fees, and some can only be used at specific retailers.

Debit Cards vs. Credit Cards

When you make a purchase…

Debit cards: Amount is deducted directly from your checking account
Credit cards: Amount added to your balance and must be paid later

When you make cash withdrawals…

Debit card: No fees if you use an ATM within your bank network
Credit cards: Upfront fees for cash advances that also accumulate finance charges at a higher APR

Do they accrue interest?

Debit cards: No, purchases come immediately out of your account
Credit cards: Yes, interest is owed on any balances not paid in full by required date

Do they build credit history?

Debit cards: No, debit card transactions have no impact on your credit history
Credit cards: Yes, credit card are part of your credit history, for better or for worse

Do they offer purchase protections?

Debit cards: Fewer protections against fraudulent purchases
Credit cards: More protections against fraudulent purchases

Disclaimer

Borrowing money makes it possible to afford things that you couldn’t otherwise, but make sure you understand what you’re signing up for to avoid falling into overwhelming debt.

Paying it Back

Let’s be clear right from the beginning: when you pay for something with credit, you’re still on the hook for that money. Often, you’ll have to pay back even more because of interest. The type of credit you use and the specifics of the agreement will determine how much interest you’ll have to pay, the size and frequency of your payments, and more.

It’s extremely important to recognize that credit can be dangerous. If you borrow too much or at too high of an interest rate, you can end up owing more than something is worth or being in a position where you’re struggling to pay back everything you borrowed.

3 Types of Credit

There are three types of credit that you’ll interact with most often:

Revolving credit is a type of credit where you can borrow, pay off, and borrow again up to a predefined amount of money. At regular intervals (usually a month), you’ll need to pay back at least a minimum amount. If you don’t pay off what you borrowed completely by that time, the unpaid amount will carry over to the next billing cycle and begin accruing interest. The most common examples of revolving credit are credit cards, HELOCs, and other lines of credit.

Installment credit is a type of credit where you borrow an amount of money all at once and pay it back in predetermined chunks or installments. These regular payments could last for only a few months or multiple years. Almost all loans are examples of installment credit, so that would include car loans, mortgages, and student loans.

The final type of credit, and one that you may not even think of as credit, is open credit. This is when you use something and then pay for it afterward in regular intervals. The most common examples of open credit are bills, like for your cell phone or utilities. You use the service on credit and then pay for what you used on your next bill. These types of bills don’t usually charge interest but will add fees if the amount isn’t paid on time or in full.

Common Credit Terms

To be an informed credit user, you’ll need to understand these vocab terms.

Annual Fee – A fee charged every year for using certain credit cards.
Credit Limit – The total amount you can borrow at one time when using revolving credit.
Credit Score – A number between 300 and 850 meant to show lenders how trustworthy you are. Your credit score is created based on your credit history, or how well you’ve used credit in the past.
Default – When you don’t pay what’s owed on a debt. This can cause a few things to happen including acceleration, where the whole debt is due immediately, damage to your credit score, and your debt being sent to collections.
Down Payment – An amount of money you pay upfront when taking out a loan for a large item like a house or car. Your down payment will go toward the cost of the item and lower the amount of money you have to borrow.
Finance Charge – A fee charged for the use of credit. Most often this fee is a percentage of the amount borrowed. One of the most common types of finance charges is interest.
Grace Period – The amount of time you have to pay off what you’ve borrowed before interest starts to accrue. This usually only applies to revolving credit. If you pay it all off before the next billing cycle, you won’t owe interest.
Interest Rate – A percentage of the borrowed money that must be paid back to the lender on top of what was borrowed. The interest rate can be fixed, meaning it stays the same, or variable, meaning it changes with that market.
Minimum Payment – The lowest amount you can pay back by a certain date in order to avoid fees.
Principal – The amount initially borrowed for a loan.
Term – The length of time you have to pay back the money borrowed and interest accrued on a loan.

Rules for Using Credit

These rules can help keep you out of trouble:

Always pay off your credit card in full so that you avoid paying interest.
Pay more than your minimum on loan payments so that you pay it off faster and pay less in interest (but be aware, some loans have early payoff penalties).
Keep your debt to income ratio (DTI) below 28%. To find your current DTI, add up how much you pay each month in debt payments and divide it by your gross monthly income.
Don’t borrow too much at once. It’s best to keep your credit utilization ratio, or the ratio of how much you borrow versus how much you’re approved for, under 30%. So, if your credit card has a $10,000 limit, it’s best to never borrow more than $3,000 at once.
Try to pay at least 20% down when buying large items like a house or car. The higher the down payment, the more you own of the item. This means you won’t have to borrow as much and you’re less likely to end up owing more than it’s worth if the market changes drastically.

How you use credit will have a big impact on your life. Good credit—where you use credit wisely and follow the steps above—can allow you to buy things you couldn’t get otherwise. Bad credit—where you spend more than you can afford to pay back—will affect your ability to borrow in the future.

Disclaimer

Making payments on a loan with suboptimal terms can make you feel trapped. Luckily, refinancing can help you find more suitable terms for the loan.

Essentially, refinancing replaces an old loan with a new one with terms that are better for your situation. But it’s not all fanfare and applause—there are tradeoffs associated with refinancing.

What Can Be Refinanced?

While mortgage loans may be most commonly refinanced, you can refinance auto, personal, and even student loans. You can even “refinance” credit card debt by transferring the amount left to pay to another credit provider with better terms or taking out a loan to pay off the debt.

Not all lenders will refinance your loan, though. Just like how you had to convince a lender that you were a good fit for your original loan, you’ll need to do the same when you refinance. Lenders will consider your income, credit history, and credit score.

Some types of loans involve extra consideration. Auto refinancing, for example, can be difficult since cars depreciate and lose their value quickly. A lender will be less likely to refinance your auto loan if the car is old, has high mileage, or isn’t worth enough for them to feel like it’s a safe investment.

Benefits and Risks

The benefits of refinancing could include lowering your interest rate or monthly payment, or changing the length or type of your loan. But it’s likely every benefit will come with a corresponding drawback. Sometimes lowering your monthly payment requires extending your loan, which can mean that you pay more overall. Shortening your term can make it harder to afford your payments if your financial situation changes unexpectedly. If you refinance federal student loans, you could lose access to debt forgiveness or government relief programs.

The benefits of refinancing could include lowering your interest rate or monthly payment, or changing the length or type of loan.

Another major drawback comes from the cost of refinancing. When you refinance a loan, you’re taking out a new loan to pay the other off. That means all the fees and processes that went into the original loan will apply again, as well as any prepayment penalties on the previous loan. These can quickly add up to be a pretty significant cost.

Some lenders will allow you to roll those costs into your new loan amount and pay it off over time, but that can make the actual amount that you pay the same or more than your previous loan. Before you agree to a refinance, it’s important to make sure that the price of doing so will actually come out in your favor.

When to Refinance

The best time to refinance depends on multiple factors. If interest rates have dropped since you got your loan or if your credit score has improved significantly, it may be worth trying to lower your interest rate with a refinanced loan. If you’re struggling to make your monthly payments, lowering your payments by getting a longer term, even if it means paying more overall, can help take some of the strain off of your budget. Many people also refinance for extra cash, this is called a cash-out refinance. But be wary of this, it could mean taking on more debt needlessly. In the case of mortgage refinancing, you could be in trading equity for more debt.

Finding the Best Deal

To figure out if refinancing will be the right for you, you’ll need to do some calculations. Determine how much your original loan will cost by adding what you have left to pay and the amount you will pay in interest. Next you’ll need to do some leg work. Reach out to potential lenders to get quotes. As long as you do this in a short period of time (usually about a month), talking to multiple lenders should only count as one hard inquiry on your credit report. If you have multiple inquiries spread out over a longer period of time, it can impact your credit score significantly.

Once you have quotes from potential lenders, you can then take those numbers to your current lender and see if they can beat it. Once you’ve found the best deal, compare the difference between the refinanced loan and your current one. Do you end up coming out on top? If so, refinancing may be one of the most powerful moves you can make to help overcome debt.

Disclaimer

If you’ve ever financed a car or taken out a mortgage, you’ve likely heard the word “amortization” tossed around.

It’s a complicated word that actually has several meanings, but when it comes to loan amortization, the definition is fairly simple: it’s the process of spreading a loan into a fixed payment over time. In other words, amortization is what makes it possible for you to make a large purchase, like a home or car, with affordable payments that eventually lead to a zero balance.

The Basics of Amortization

When your loan is amortized, your regular payment actually consists of two parts (even though you only make a single payment): interest and principal. Interest is the cost of borrowing money, and is usually a percentage of the amount you borrow paid back to the lender. Principal is the actual amount of money you borrowed. Each payment funnels money to cover both interest and principal.

When you first take out a loan, a higher portion of the payment goes to interest and less to principal. This is because your loan balance is so high that the interest owed is higher than what you owe in principal. As you make payments that lower the loan balance, less interest accrues on the principal, so a larger portion of your payment goes toward principal. Eventually, you’ll pay off the loan entirely.

For instance, say you have an amortized loan payment of $1,000. In the early months of your loan—and maybe even early years—it could be that $700 of your payment goes to interest and $300 goes towards the principal. Over time, you’ll pay down the principal and less interest is owed. In the later months of your loan, even though your payment is still $1,000, you’d have $800 going towards principal and only $200 going towards interest.

Amortized loans have an amortization schedule that shows you how much of each payment goes to interest and principal, and how those ratios change over time. Or you can try an online amortization calculator to estimate payments and see how interest rates and other loan terms impact amortization.

Where Amortization is Used

Many financial products use amortized loans to make payments affordable for borrowers. This includes:

Mortgages: A home mortgage is a common example of an amortized loan. Your monthly payment goes towards both the interest on the loan and a portion of principal. At the beginning of the mortgage, you pay more in interest and less in principal. This is not true for an interest-only or balloon-payment mortgage, which are non-amortizing loan types.
Auto Loans: An auto loan is usually similar to a mortgage. Your amortized payment goes towards both interest and principal. You may hear the term “front-loaded” when discussing terms of a car loan—that simply means more of your payment will go toward interest than principal in the beginning of the loan, just like an amortized loan.
Personal Loans: Many—but not all—personal loans are amortized. How can you know? If you have a fixed interest rate and fixed repayment terms, your loan is likely amortized. If you have questions, ask your lender.
Student Loans: Student loans are generally amortized because they often have fixed interest rates and repayment terms.

What Loans Are Not Amortized?

Not all loans are amortized. Interest-only or balloon-payment mortgages are non-amortized loans. Revolving lines of credit, like credit cards and home equity lines of credit (HELOCs) are not amortized loans.

When you charge money on a credit card, you’re essentially taking a “loan.” But credit cards typically only require a minimum monthly payment that goes solely towards interest and may not reduce the principal balance of the card at all. The remaining balance carries over to the next month, and accrues more interest, which contributes to rapidly rising balances.

Ways to Maximize an Amortized Loan

If you want the predictability of an amortized loan, but don’t want to pay as much in interest, there are a few options:

Make additional payments: Sending extra payments directly to the loan principal reduces the balance faster. The lower the loan balance, the less you’ll pay in interest. The key is to make sure that extra payments are applied directly to the principal —talk to your lender for details.
Round up monthly payments: Try rounding up your monthly payment to the nearest hundred or thousand dollars. The extra paid should go directly to your principal, but confirm with your lender.
Refinance into a shorter term: If interest rates drop, you may benefit from refinancing your loan into a shorter term. Paying a mortgage off in 20 years instead of 30, for instance, makes a huge difference in interest paid overall. For example, with a $250,000, 30-year home loan with 20% down payment and 5% interest, you’d pay an estimated $186,511 in interest over the lifetime of a loan. With a 20-year term and all else the same, the interest drops to $116,778. That’s $70,000 in savings.
Try bi-weekly payments: Instead of making one payment a month, try paying half the amount every other week. These bi-weekly payments mean you essentially make one extra payment a year. This works especially well if you get paid bi-weekly.

A note of caution: Make sure there aren’t prepayment penalties for paying your amortized loan off too early. If you have non-amortized loans, such as credit card debt, it’s likely more beneficial for you to focus on paying down those balances first instead.

Understanding how loan amortization works can help you make more informed borrowing decisions and empower you with the knowledge to make strategic financial moves.

Disclaimer

The Small Business Administration (SBA) is a US-based institution which helps reduce risk to lenders, making it easier for small businesses like yours to get a loan.

Loans backed by the SBA (“SBA loans”) provide many benefits to small businesses, including long repayment options with reasonable interest rates. They also help lenders by guaranteeing a portion of the loan. If the business can’t pay it back, much of the loan can be covered by the SBA. This allows banks and credit unions to offer loans that could otherwise be considered too risky.

Because there are so many benefits to an SBA loan, there are a lot of requirements that must be met by the business (and its owners) in order to qualify for a loan. Documentation of each of these items is very important. Because loans are offered by individual lenders, your bank or credit union may also have additional requirements to qualify. Your financial institution can give you a complete list of specific requirements.

For now, here’s a list of the minimum necessary documentation for any SBA loan.

To Meet the Basic Requirements for SBA Eligibility:

Be a for-profit business in an eligible industry.
Qualify as a “small business” under SBA guidelines.
Anyone who owns 20% or more of the business must be a U.S. citizen or legal permanent resident.

Needed Documentation

The following is a list of the basic documentation required for SBA loans:

For 7(a) loans and microloans, you will need SBA Form 1919 or SBA Form 912. These document your personal background. Financial institutions usually provide their own forms for 504/CDC loans.
Anyone in company management will need to submit a resume.
A business plan.
A statement of how long you’ve been in business.
Your personal tax returns.
Your business tax returns.
You’ll give approval for your bank or credit union to check your personal credit score.
Your business credit score, usually reported by FICO Small Business Scoring Service (SBSS).
A year’s worth of personal bank statements.
A year’s worth of business bank statements.
A Balance Sheet for your business. (Don’t have a Balance Sheet? Learn how to make one here: Bookkeeping Coach.)
A Profit and Loss Statement for your business. (Don’t have a P&L Statement? Learn how to make one here: Bookkeeping Coach.)
A copy of your business debt schedule.
A signed personal guarantee to pay back the loan with personal assets in the event of a default.
Legal documents, such as franchise agreements, business licenses, proof of incorporation or organization (for Corps and LLCs), leases, and third-party contracts.
You may also be asked to document the collateral you are willing to offer to help secure the loan.

For 504/CDC loans, there are a few additional requirements:

Documentation that at least 51% of the real estate purchased is owner-occupied.
Documentation of successfully reaching goals of job creation or public policy.
An environmental impact statement.

Disclaimer