Loan Schedule

A loan schedule is a report that gives details about loan repayment, usually in regard to a mortgage or other structured interest loan. There are several items listed in a loan schedule, including the principal, or the amount of money owed. This figure is the amount of the loan after the down payment has been subtracted. The loan schedule also lists the interest rate and shows how much interest in included in each payment.
A loan schedule is intended to give both borrower and lender a good record of the particular terms and conditions of the contract at a glance. Sometimes called an amortization schedule, it details how many payments are required to pay off the loan in full, the frequency of the payments, and how much principal and interest is paid down with each timely payment. Amortization is a calculation, which divides the principal by the number of months allowed for repayment of the loan. The interest is then calculated in accord with the length of the loan and the current rate.
You will notice in the first payments on your loan schedule that your interest payments are higher than your principal payments. It usually works this way until about half way through the life of the loan. You will notice that the amount of interest being paid each month goes down, while the amount of principal being paid each month increases. When you reach the half way point, you will see that the payments begin to even out. Then, you will begin to pay more principal than interest each month, until the loan is paid off.
Be sure to ask whether or not you are allowed a grace period for loan payments. A grace period allows you between five days and two weeks to make your payment after it is actually due, without being penalized. There are many reasons for grace periods, but one reason is that it helps the lender avoid restructuring the loan schedule every time a payment is a day overdue.
Also, remember that interest payments are often tax deductible, so bring your loan schedule along when you visit your accountant or tax preparer. If each of your payments throughout the year has been made in a timely manner according to the terms of the loan, your loan schedule will provide an accurate record of the interest paid, which can be deducted. Many lenders will also send out an additional record of interest payments around tax time.

Think it through before lending money to a friend

Question: A good friend of mine is in a tight spot financially. I'd like to help her out, but I'm worried that lending her money might sour the friendship.

Answer: Adding money issues to a friendship can result in an explosive situation. The first thing you need to do is determine why your friend is having financial problems. Is this a temporary state, or does your friend always seem to be struggling? If financial panic is a recurring theme, you need to understand that in most cases the problem runs deeper than a lack of funds. Sometimes people overspend to assuage feelings of inferiority or inadequacy. Or they run up debts trying to find happiness through expensive possessions. Others are never inclined to set aside money for unexpected expenses and are consistently flattened by them. Unaware of the true reason for their financial irresponsibility, people like this usually have difficulty changing their fiscal habits.

If your friend is always experiencing financial problems, any money you give them will just serve as a Band-Aid, and sooner or later your friend will be in dire straits again.

Ask yourself: Can I afford the loan? What would happen if your friend never paid me back? How would you feel? If you cannot afford it, or if you are not willing to relinquish your hold on the money, don't make a loan. On the other hand, if your friend is ordinarily financially responsible and you are sure you won't need the money soon, draw up a loan agreement detailing how much you are lending, when exactly your friend will repay you, and whether both of you would feel better if the loan had interest.

One 2 One Lending provides the tools to “Get it in Writing.” The AgreementBuilder will walk you through step by step in creating a promissory note and loan schedule. This way your money will help not only your friend and it won't destroy the friendship.

How can I determine what interest to charge?

While there are some regulatory and legal guidelines you are always safe by checking the IRS Applicable Federal Rates (AFR) at http://www.irs.gov/taxpros/lists/0,,id=98042,00.html.

The Four Costliest Mistakes

The Four Costliest Lending Mistakes
by Suze Orman

It's never easy to say no to someone you love, especially when they come to you in need of cash. But lending a financial hand can leave you out of money and out of sorts with your friends and relatives. I often hear from people who have loaned money to someone they care about deeply, only to have to deal with the fallout when they don't get repaid.

Four Pitfalls to Avoid. According to Circle Lending, a company that helps formalize loans between individuals, about 14 percent of loans between friends and family end up in default, compared to just 1 percent or so for bank loans. To protect yourself financially and emotionally, make sure you don't fall for my top four costliest mistakes individuals make when loaning money to friends and family:

1. Not being suspicious enough.
When someone comes to you for a loan, your first thought should be, Why? That is, why do they need the money, and why are they asking you for help.
Be incredibly cautious about why they need the money. A friend who gets hit with unexpected health-care bills and is worried about putting them on his credit card at 18 percent interest is a lot different from a friend who needs you to bail him out to settle a gambling debt, or to finance a vacation.
You also need to think hard about why they haven't been able to get a loan from a more conventional source. If a family member comes to you for a loan to start a business, you should ask -- out loud -- why can't he or she get a loan from a bank or the Small Business Administration.
My point is that there are plenty of folks in the business of lending money. If your relative or friend can't get money from one of them, it should set off an alarm for you.

2. Lending what you can't afford to lose.
Never loan money that you truly need. The best litmus test before you agree to give a loan is to ask yourself if you would be comfortable giving the money away as a gift. If the money is too central to your own financial well-being, then just say no.
There's no guilt or shame in that. If you're dealing with someone who truly loves you, they'll understand. All it takes is a bit of honesty: "As much as I would love to help, I don't have that sort of money to share right now, given all my bills and retirement goals." You aren't saying, "No, I won't loan you money." You're saying, "My own financial situation makes it impossible for me to help you right now."

3. Overlooking the extra risk of loans for new businesses.
Say your brother is excited about a business idea, and he wants you to loan him $20,000 to help with the startup costs. This loan is the riskiest of all; your money is actually an investment in a business that may never make a penny.
The only way you're going to be repaid is if the business is a big success. But that's a big "if." It's important to be extra careful with such "dream" loans; the odds of repayments are a lot lower than advancing money to someone who has a steady source of income that will allow them to quickly start repaying you in installments.

4. Skipping the formalities.
Handshakes, hugs, and kisses are not good enough for sealing a loan agreement. Put everything in writing. In fact, that's another good way to size up the credibility of the person who needs your money: They should tell you right off the bat that they want to sign a formal loan document that spells out all the terms of the deal.
That's a sign that they respect not just you, but the importance of what they're asking you to do. If you have to ask for a contract, that should be yet another warning signal.

Do the Paperwork. You can purchase a simple loan document (called a promissory note) for $10 from legal services web site Nolo. Once you fill it out, all parties should sign it in front of a notary; it's just a nice bit of formality to have in your pocket in the event that anything goes wrong.
Spell out the specifics in the note: What interest rate you will receive, when the payments are due, how much is due with each payment, and what penalty will be paid for a late payment.

Piquing Your Interest. Yes, you read that right -- you should charge interest. The IRS will actually let you get away without the interest requirement if all loans between two parties are under $10,000. (Over that amount, you must charge interest or risk running into a rat's nest of tax issues involving the gift tax.) No matter how small a loan, charge interest. Again, it's about respect: The person you're loaning money to needs to take this very seriously. I recommend using the Applicable Federal Rate published by the IRS. Actually, it's three different rates -- one each for short-term (under three-year), midterm (between three- and nine-year), and long-term (more than nine-year) loans. The rates are tied to the commensurate Treasury rates; right now, all three are hovering around 5 percent. By the way, that interest is taxable.

Keep to a Schedule. I also recommend starting the repayment period as soon as possible. Don't settle for a lump-sum promise down the line. That puts too much pressure on you to be patient, and on your friend or relative to come up with a big chunk of cash all at once.
Instead, set up a monthly or quarterly repayment schedule and spread it out over an agreed-upon number of months or years. In fact, the smartest move is to have the payments deposited directly from their bank account into yours.
That reduces the chances of anyone getting sloppy or lazy -- and increases the chances that your personal relationship won't be undone by your financial relationship

Strangers loan money on Internet

Colin Nash, 35, was struggling with $12,000 in credit card debt late last year. Meanwhile, Michael Fisher, 24, was looking for a new investment. So, Fisher loaned Nash $200. The two men, however, had never met.

Nash and Fisher are members of Prosper.com, the U.S. leader in a growing trend known as peer-to-peer lending, which facilitates loans between complete strangers.

Social lending has been around since the days when needy families turned to the richest man in town, but the Web is breathing new life into the practice. Loans on Prosper and Facebook's LendingClub have risen to $100 million this year from $27 million in 2006, according to Online Banking Report. By 2010, the report forecasts $1 billion in peer-to-peer loan originations.
"I'm sure banks are watching it," said Jim Bruene, the report's author.

Zopa.com, a social lending site founded in Britain in March 2005, also planned to offer services in the U.S. this year but its launch has been delayed, according to a company spokeswoman. The idea behind the sites is that borrowers can find better rates than traditional banks offer, while lenders can earn higher returns than from a savings account or other investment. Borrowers on Prosper post how much money they need -- up to $25,000 -- the purpose of the loan and what interest rate they can afford. Lenders bid on the loans of their choice, typically funding only partial amounts and diversifying their risk among dozens or hundreds of loans. Most loan requests are for debt consolidation, followed by small business and entrepreneurial purposes. The average loan amount totals just under $7,000. Prosper claims it has facilitated $98 million in loans since launching in February 2006.

Prosper's added appeal, however, goes beyond the bottom line. Photos and personal narratives accompany borrowers' requests: A father who needs $25,000 to equip a house and car for his son, who has recently begun using a wheelchair. A young couple seeking $5,000 for their wedding, who plead, "Please help us get married!" A group of young men in Montana who want $1,000 to purchase a professional wrestling ring.

The opportunities for social connection appeal to users, said Prosper co-founder and CEO Chris Larsen. Borrowers can appeal to lenders to look past a couple of late payments or spotty credit history, while lenders enjoy the satisfaction of seeing their money help someone in need.
"When you're dealing with people, it's 'I want to do well but I also want to feel good about how I'm doing well,"' said Larsen, who formerly served as CEO and co-founder of financial services company E-LOAN.

But the numbers matter. Each Prosper borrower is assigned a grade based on their credit score to help lenders evaluate their risk and the site verifies borrowers' identities. The average rate of return for lenders is 9.28 percent, with lower-grade loans earning 10.45 percent, according to Prosper.

Prosper makes its money by charging a 1 percent or 2 percent closing fee, based on the borrower's credit grade, and lenders pay an annual loan servicing fee of 0.5 percent to 1 percent. It also collects fees for late payments on behalf of lenders and reports to credit bureaus. After 30 days, a collections agency is assigned to delinquent loans.

"This is not a free lunch," said Greg McBride, senior financial analyst with Bankrate.com. "You have to keep up with these payments just as you would with any other financial obligation." Prosper's default rate hovers at about 2.7 percent, Larsen said, but that figure is expected to rise as more loans mature.

According to a July 2007 Deutsche Bank report, about 5 percent of all Prosper loans originated more than 6 months ago have defaulted, while payments are late on nearly 10 percent of all loans.

Prosper user Mike Kost, who has loaned out about $5,000 on the site so far, said he's observed an uptick in the number of borrowers missing payments, one reason he limits his loan bids to the minimum $50. "The risk is not a problem," said Kost, who writes a blog about Prosper. "It's when you don't get paid to take that risk that it's a problem."

Larsen has used Prosper to lend his housekeeper $25,000 to pay off high interest-rate loans and credit cards. People who know each other are turning to another social lending option. For Prosper borrower Colin Nash, loans made it possible for his wife to leave her coffee shop job to care for their children, including a second boy born in mid-November. He managed to shave several points off the rates on his credit cards, one of which had reached 24 percent, he said. "You can't walk into a bank and say, 'Come on man, I'm one guy and I don't want my wife to have to work,"' Nash said.

Software design engineer Michael Fisher said his decision to lend Nash $400 -- $200 for Nash's $12,000 loan late last year and another $200 for a second $8,000 loan in October -- was based on both numbers and shared experience. Fisher leads a group on Prosper of about 70 employees of Microsoft Corp., including Nash. It is one of thousands of affiliations on the site based on everything from hobbies to religion.
Since joining Prosper about a year ago, Fisher has loaned out about $15,000. He now has 272 active loans, only a handful of which have defaulted. The returns so far are beating most of his other investments, he said.

"It's just more fun to invest in Prosper, than to, say, invest in stocks," Fisher said. "You're closer to real people." But it's the borrowers who are crucial to the future success of peer-to-peer lending, according to Bruene of the Online Banking Report. "As soon as you put $10,000 out there to 10 people and eight -- or even one -- doesn't pay you back, would you want to do it again?" he said.

How can I benefit by lending someone money?

If you're alternative is using a credit card or a bank loan, make sure you know the interest rate and fees. Interest rates for credit cards may be as high as 20% or a car loan may be higher than 15%. Family and friends have each other in mind, and will probably charge much less. Additionally, the interest charged on the loan may be in excess of savings rates, which can be as low as 1%. Therefore, both the borrower and the lender can benefit from a private loan transaction.

Lending Money to a family member.

Shakespeare wrote that loaning money to a friend is a good way to lose both friend and money. So what do you do when a relative hits you up for a quick cash infusion? Tread carefully.
Often, the First Bank of Dad (or Mom) is the first place people turn when they have financial trouble, and many do have a need. A recent survey by Fidelity Investments found that 41 percent of U.S. households did not have emergency funds sufficient to cover three to six months of living expenses.
The first choice for cash during an economic catastrophe? Family and friends.
So if Uncle Bob puts the bite on you at the next family barbecue, here are some things to consider:
• Do you really have the money? "It's the same rule as gambling: Don't loan what you can't afford to lose," says Ira Bryck, director of the University of Massachusetts Family Business Center in Amherst. Even if you're driving a Mercedes and living in a good neighborhood, if you haven't got ready cash lying around, a loan might not be feasible.
• What's the money for? Are you loaning your daughter $500 to put groceries on the table while your son-in-law is out of a job? Or does Cousin Ed want $15,000 to start a mink farm? And if you're loaning money for a small business, is the venture stable enough that you're comfortable with the risk?
• Is the borrower likely to repay you? Look at the person's past behavior. If someone consistently borrows money and never pays it back, chances are he has no intention of repaying you.
• Could the loan cause a rift in the family? This comes up a lot with siblings who borrow from parents, says Bryck. The one who doesn't get the loan thinks the parents are playing favorites. Or the siblings accuse the borrower of draining the inheritance. Bottom line: If you're the lender, it's your money to spend. But be discreet if you want peace in the family.
• How much will the loan cost you, and is it going toward something that you value? If your nest egg earns 7 percent annually, and a family member wants to sideline $20,000 for five years, the real cost is $28,052. But you might feel it's a smart move if the cash helps Dad hang on to the house or enables your nephew to finish medical school.
• Does the relative have other options? If the kids are in the habit of going to the Bank of Dad because the rates are so good, it might be time to introduce them to your local loan officer or credit union. Conversely, if their credit is so poor that they can't qualify, you need to know why.
• Can you easily live without the money for the term of the loan? What will you have to do without if you give up the money? Even if you're "only" taking it from savings, will the loan rob you of a much-needed cushion if you're the next one in the unemployment line?

New payment reminder service

Keep loan payments on track, month to month, year to year. One 2 One Lending will send e mail reminders to the borrower on the lenders behalf to make sure that all parties are aware that the periodic loan payments are due on time.

Is it OK to ask someone to sign a promissory note?

The most important reason for asking for a promissory note is to preserve the relationship – not to test it. I you are uncomfortable asking for a note to be signed – imagine how uncomfortable you will be if you need to discuss a sensitive matter about the loan in the future, say a missed payment or a misunderstanding about the rate.
It is not wrong to ask for documentation between family and friends. In many ways it not only benefits the borrower and lender but also other family members who many have incorrect assumptions about the loan.
Disagreements are much less likely when the loan is in writing.

Welcome to the One 2 One Lending Blog

One 2 One Lending provides the tools to create a schedule of loan payments,
prepare a promissory note, bill and collect loan payments with set up email reminders as well as and take security for the loan, should the customer desire.

The interactive website (www.one2onelending.com) allows the customer to stay in
charge of the loan preparation and servicing by providing the proper tools and
information to build and collect the loan.