Compound or simple interest for short term loans? - Posted by Rick (Atlanta)

Posted by DanM(OR) on March 11, 2000 at 11:53:12:

to add a couple of points. Hard money lenders do it all the time. Call them loan fees or origination fees. Check your local State Department of Finance for the rules.

For Ex. Here in Oregon the Usury Laws state that:

We can charge 0-10 Points (1%-10%) of the loan
We can charge up to 25% interest rate.

In your deals you could loan the $2000 with 10 (10%) points added to the loan. So you finance $2200 for the term. That way you guarantee yourself a better return and have more money out there working for you as David described.

Best of luck to you!

Dan

Compound or simple interest for short term loans? - Posted by Rick (Atlanta)

Posted by Rick (Atlanta) on March 09, 2000 at 10:33:04:

Lately I have been asked to loan small amounts of money ($2,000 - $5,000) for periods of one to two years for the purpose of reinstating mortgages in pre-foreclosure. To secure these loans, I have the deed conveyed to me for the term of the loan. What I have come to realize, however, is that I don’t really understand the time value of money or how to assess the yield of a loan.

Here are the typical figures from my amortization table:
Loan: $2,000
Interest: 15%
Term: 12 months
Payment: $180.52 x 11 + 180.48 final payment
Total interest $166.20

What’s up with that? $166.20 is only 8% of $2,000. Have I actually charged the equivalent of 8% simple interest? Should I have charged 15% simple interest and received $300 for the same loan? Considering the risk involved with these loans is there a good way to increase the yield?

I would be grateful if someone could set me straight on the profitability of short term loans. If,however, my questions are too simple minded to bother with, perhaps someone could recommend a good book on the subject.

Thanks,
Rick (Atlanta)

Re: Compound or simple interest for short term loans? - Posted by David Alexander

Posted by David Alexander on March 09, 2000 at 13:26:38:

Rick,

You have to remember that not all your money is out there all the time. In reality what is happening is you are getting 15% on the amount of principal that is being used, so when you recieve a payment you have part of the principal back and it ceases to work.

So the you have to make sure you are making getting enough return on your money to compensate for the time there will be for you to get enough of the cash back together and reinvest.

Lonnie Deals and seconds are a good source to get a little higher return and keep the money flowing with small amounts invested.

David Alexander

Re: Property Tax Loans - Posted by Arnelda E. Clark

Posted by Arnelda E. Clark on February 04, 2001 at 11:03:42:

I am looking for a short term loan to pay my property
taxes.

Property Tax Loans - Posted by Arnelda E. Clark

Posted by Arnelda E. Clark on February 04, 2001 at 10:59:25:

I am looking for a 60 day loan in the amount of
$1,300.00, to pay my property taxes.