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Financial Word of the Week: Lien

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FWOTW

What is a Lien?

When a borrower uses collateral to get a secured loan,the lender has a legal claim to that collateral. That legal claim is the lien. Lenders most commonly place a lien on a home for a mortgage and on a car for an auto loan. When a creditor places a lien, the creditor must be paid and the lien released before the property can be sold. For secured loans, the lien is created voluntarily.

Liens and Car Loans

When you buy a vehicle using an auto loan, the lender places a lien on the car title with your state motor vehicle office (depending on where you live). That lien will remain on the car title (even if the car is subsequently transferred) unless the lender issues a lien release. A lender releases a lien by notifying the proper officials, usually upon payment in full of the loan. This is an important step to research when selling or buying a vehicle privately. When you buy or trade-in with a car dealership, they usually assist with this process.

Liens and Mortgages

Houses and other real estate can have more than one lien. If you have a mortgage and use your home for another loan or line of credit, the second lender will put a lien on your home. One lender will have a first lien, meaning that in the event of non-payment, they get paid first. The other lender has a second lien position, meaning they will be paid after the first lender.

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UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.

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Financial Word of the Week: Equity

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FWOTW

What is equity?

Think of equity as a form of ownership. When you take out a secured loan to make a purchase, you obtain physical ownership of your purchase, but not full legal ownership. If you sold that purchase before fully paying off the loan, you would still need to pay off the rest of the loan. Equity is the difference between the value of that item and the amount still due on the loan.

For example, if your car is worth $20,000, and you owe $15,000, your equity is $5,000.

shutterstock_161197448_equity

So what does this mean for me?

For consumers, equity normally refers to houses, other real estate, and sometimes cars. Another way to think about equity is a fraction of ownership. When you first buy a home, your equity is approximately equal to the amount you put into your down payment. Over time, you pay down your mortgage and build equity in your home. Every payment you make lowers the amount owed to your lender and increases the amount you own.

How does this relate to a Home Equity Line of Credit?

A Home Equity Line of Credit, or HELOC (in the financial industry, we pronounce this “hee-lock,”) allows you to borrow using the equity in your home. Since HELOCs are revolving credit, they let qualified homeowners borrow money against the equity in their home whenever they need it. Because HELOCs are secured loans, they can provide credit at lower costs than unsecured loan, subject to the policy of the lending institution.

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UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.

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Debunking credit score myths

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In an earlier blog post, we explained why credit scores are important and how to improve yours. For many people, it can seem as if their score was pulled blindly from a hat. So let’s take a look and debunk a few myths.

Credit Score Myths

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Ms. Stokes is a senior vice president and director of Private Banking at UMB. She is responsible for driving sales and relationship management activities. She works closely with the Wealth Management leadership team and regional presidents to grow business and helps to develop roles in wealth management, relationship management and presentation skills. She joined UMB in 2009 and has more than 30 years of experience in the financial services industry. She earned a bachelor’s degree in business administration from the University of Missouri- Kansas City and a Bachelor of Arts from the graduate school of retail banking.

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9 Financial Habits for Millennials

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Attention Millennials and those who hate labels but happen to be somewhere between 18 and 31. Here are nine habits to start today to give you more money at the end of the month. Come to think of it…these tips are universal, so watch no matter how young or old you are.

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Based on Nine Financial Resolutions for Millennials by Alexandra Talty. Forbes. December 10, 2013.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.

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Financial Word of the Week: Secured Loan and Collateral

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FWOTW
What is a secured loan?

The word secured brings to mind images of armored trucks and locked vaults. Both can guard cash and valuables, but not a loan.

A secured loan is a loan in which the borrower pledges property (e.g. a car, house or other property) to the lender to act as a source of repayment if the borrower cannot pay back the loan.  The property that is pledged is called collateral.  If you do not make the payments as required on the loan, the lender may sell the collateral to cover the amount owed.  Usually a lender will require security for high dollar loans or when your credit is not good enough.

The opposite of a secured loan is an unsecured loan, which does not require collateral.  A lender may give you an unsecured loan when the borrower’s credit history is strong and the amount loaned is for lesser amounts.  Most credit cards are unsecured loans.

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So what does this mean for me?

Secured loans can help you make large purchases and pay them off over time. If everyone had to save for the full purchase price of a house, most people could not afford to be a homeowner until middle age, if ever. Because of the security provided by collateral, banks can provide lower cost credit options through secured loans. Your first step before borrowing should be to do a financial checkup (stay tuned for next week’s blog post to learn more about that) and figure out if you’re financially ready for that large purchase.

 

Statistics Source: New York Fed Household Credit Quarterly Report

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.

 

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UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.

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Credit Score: understanding the number

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Cholesterol, blood pressure, glucose, credit score…all numbers that mean nothing unless someone explains what is good and what is scary. Just like a doctor breaks down why your cholesterol level should be below 200, we’re here to explain what an ideal credit score could be. And you don’t even have to cut cheese out of your diet.

Your credit score (the most popular being the FICO® Score named after the organization that created it — the Fair Isaac Corporation) can range from 300 to 850 because it’s an adjusted scale. (You get 300 points just for having a credit history…so most adults have a higher score than 300 just by being “on the grid.”) In case you’re afraid to get the pronunciation wrong, FICO is pronounced “f-eye-ko,” like “psycho.”

Why does it matter? If you’re ever going to purchase a house or car or apply for a job, lenders and potential employers will be checking your score to assess your reliability and financial history.

While there are some schools of thought that advise consumers not to obsess over credit scores, the most popular being financial author and radio host Dave Ramsey, the FICO Score is a factor in 90 percent of lending decisions in the United States. And many in those anti-credit score camps still encourage you to be aware of your credit reports to check for errors and work on problem areas.

Most important step: check your score and your reports! Even if you’re worried because of past mistakes with late payments or credit card debt, it’s better to know where you stand and start taking action. No ostrich-like behavior!

head in sand_156983825

Good news—unless you’re within the 7 percent of the nation with a score between 350 and 549 (and if you are, stop reading this post and call a credit counselor), there is no need to stress. At a score of 550 or more, you can sometimes qualify for a loan. Your motivation for raising it as high as possible will be to get the best interest rates.

Most creditors consider a score above 700 to be acceptable to give a consumer the best rates. If your score is below 700, here are some tips that can help you bring it up. You may be surprised how quickly you can make a change (1-3 years instead of the 7-10 years it takes to start fresh after declaring bankruptcy).

How to raise your score:

1)    Understand how the score is decided

Credit Score Formula

In order of greatest to least weight:

  • Payment history – Did you pay all your bills on time? This includes student loans, car payments, credit card bill, etc.
  • Amount owed – for example, you still owe $10,000 before you can pay off your car, $15,000 in student loans and $500 on one of your credit cards.
  • Credit history length – something positive about getting older! The longer you have a credit history, the higher your score rises.
  • New credit – did you recently open a slew of store credit cards in order to get a discount on a shopping spree? You may be paying for it in the form of a lower credit score.
  • Type of credit used – Credit bureaus look at mortgages vs. auto loans vs. student loans vs. credit cards. Some are better for your score than others.

2)    Stay on top of your bills
The best way to improve on your credit score is to pay your bills on time. Have a steady income and live within your means so your bills don’t pile up until you’re completely buried in credit card and loan debt.

3)    Ask about your custom credit score
Lenders might also look at your custom credit score in addition to your traditional credit score. A lender will use your custom credit score to get a closer look at the risk factors that are related to what you are trying to fund with the line of credit.

4)    Discuss internal credit scoring
Not every creditor is required to report your credit. Some major lenders use their own internal credit scoring systems to help them make a decision. Lenders use these internal scores to predict future behavior of their customers. When you answer questions on the loan application form, the responses will go in to creating a custom score for you.

5)    One size doesn’t fit all
What makes you appealing to one lender will not make you appealing to all. If your credit has been damaged, be sure that any new information is reported to credit agencies.

6)    Pay the minimum
If you can’t pay the entire balance of a credit payment, at least pay the minimum due. Paying the minimum will keep your credit score from dropping even lower than it would if you don’t pay the bill at all.

7)    Keep checking
You have rights as a consumer under the Fair Credit Reporting Act. Check your report (not score) once a year for free at AnnualCreditReport.com‡.

This video from the Federal Trade Commission’s website does a great job at explaining why you need to check your report and how to do it.

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When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Ms. Stokes is a senior vice president and director of Private Banking at UMB. She is responsible for driving sales and relationship management activities. She works closely with the Wealth Management leadership team and regional presidents to grow business and helps to develop roles in wealth management, relationship management and presentation skills. She joined UMB in 2009 and has more than 30 years of experience in the financial services industry. She earned a bachelor’s degree in business administration from the University of Missouri- Kansas City and a Bachelor of Arts from the graduate school of retail banking.

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Financial Word of the Week: Revolving Credit vs. Installment Loans

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FWOTW

Ever been in a meeting with your banker or a cocktail party conversation where a financial term stumps you? Are you considering buying a house or want to plan for the future, but have no idea where to start? Well, look no further. We’d like to be a resource for you and to make all that financial jargon easier to understand. And by the time you’ve read a few of these, the added bonus will be impressing your friends with your new financial wit!

So now, we bring you the perfect (and easy) way to increase your financial knowledge.

What is the difference between revolving credit and installment loans?

Many forms of debt fall into one of two categories: revolving credit and installment loans. When you borrow money from a bank, you can choose to borrow a certain amount and pay it back in a set number of months (in installments) with an installment loan. Or you can choose revolving credit where you do not have a set end date. Instead, these accounts have a credit limit, which is the most you can borrow. At any time, you can use your credit line up to that maximum amount. As you make your monthly payments, your line becomes available again, if you need to use it. By contrast, an installment loan pays out only once at the beginning of the loan, such as a one-time purchase, and cannot be used again as you pay it down.

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So what does this mean for me?

You have choices when you need to borrow money. Some customers enjoy the flexibility of revolving credit options, like a home equity line of credit (HELOC) or credit card. Others prefer the fixed terms and certainty associated with an installment loan. As we will discuss over the next few weeks, different lending options have different criteria, different benefits and different costs.  The most important thing to remember is that a loan or line of credit should fit your budget. Different accounts have different payment options, allowing you to choose a payment plan that works for you.

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UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.

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Target Credit/Debit Card Security Breach

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You may have seen the recent news that Target experienced a breach in electronic security‡ with their customers’ debit and credit cards. While UMB has security protocols in place, we ask that you remain vigilant as well. You can use our online or mobile banking options to check balances and transaction history 24/7. If you see any suspicious activity on your account, please contact our customer service associates as soon as possible. That number is 800.821.5184.

Credit card

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When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.

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Simplifying your credit

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When was the last time you downloaded your credit score? If you can’t remember or you have never checked it, you should consider taking a look at it soon. But you’re not alone. Two thirds of the population have not downloaded their credit report in the past year, despite the fact that the average American owes $118,000 in debt. This includes mortgage, student loans, credit card debt, etc.

Pie Chart Downloaded Credit Report in Last 12 Months

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Why do you need to know your credit score? High debt combined with little to no information about your credit score could put you in a risky financial situation. If you have so much debt that you can’t keep up with it and your regular monthly bills, you might end up paying a bill late or forget to pay it at all. This will lead to a lower credit score. Then when you go to apply for a home or car loan, you could be either denied or receive a higher than normal interest rate based on your lowered score.

Unfortunately, this has become a very common scenario. Many people are living month-to-month and often carry over their credit card debt each month just like their regular bills. One third of working adults don’t pay bills on time in part due to the number of accounts they have. Many have trouble keeping up with monthly expenses, requiring them to dip into savings to cover regular expenses.

Pie Chart Pay Bills on Time

Did you know that there are ways to reduce your loan interest rates and monthly payments? You can also reduce the number of payments you owe and even earn money with rewards points from certain credit cards.

To simplify your credit, consider the following options:

  • Use the bill pay option with your bank

    This saves time and you can go to one place to manage all of your bills and schedule them to pay once per month.

  • Consolidate your debt

    Consolidating your debt allows you to have one payment for all your debt and you can usually obtain a lower interest rate. This can allow you to pay your debt in less time for less money.

  • Reduce the number of credit cards you use

    This is another way to help you keep track of your spending and bills. Consider using a credit card that allows you to earn rewards. When you use the card you can earn points toward purchases, helping you save money.

  • Take advantage of low interest rates

    If you refinance your current mortgage to the low rates available now, you can save on your monthly payment. This is also true of auto loan rates.

If you feel overwhelmed by debt and monthly bills, take advantage of these ways to simplify your credit to help you work on becoming debt-free. Even if you don’t have much personal debt, it’s still a good idea to consider these tips to organize your finances, save money, and monitor your credit.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Burditt serves as senior vice president of customer experience in UMB’s Consumer Division. He is responsible for developmental and strategic direction of the UMB consumer customer experience. He joined UMB in 2011. Mr. Burditt earned a Bachelor of Science degree in agricultural journalism from the University of Missouri-Columbia. He also is a graduate of the Greater Kansas City Chamber of Commerce’s Centurions program.

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