Friendly Finances & Loans

Payday Loans, Another Alternative Form of Personal Loans

Many check cashing businesses offer small sum, short-term, high-rate, unsecured personal loans. These type of loans go by the name of: payday personal loans.

In a payday loan transaction, the borrower will provide to the lender items such as a paycheck stub, photo identification and a recent bank statement. The borrower writes a check to the lender for the amount and the lender’s fee. The lender agrees to hold the check until the customer’s next payday, up to 30 days. At that time, the borrower may redeem the check with cash, allow the lender to deposit the check or roll over the loan by paying another fee.

Payday lenders advertise their services as a way to cover unexpected expenses like car repairs and avoid bounced check fees and late payment penalties. Potential payday loan customers should be aware of the risks and responsibilities involved with this sort of lending.

Let’s say you want to borrow $200 until you get your next paycheck in two weeks. You write a postdated check to a payday lender for $230 (15% of $200 = $30 lender’s fee + $200 loan amount = $230) and get $200 cash in return.

If you are unable to repay the loan after the agreed-upon 14 days have elapsed, you may elect to extend the loan for another two weeks by paying an additional $30. If you choose to roll over the loan, you will have paid $60 in lender’s fees for a one-month loan of $200.

You may wish to consider these alternatives before choosing a high-rate payday loan:

Ask to borrow money from a friend or relative.

Find out if you can delay paying a non-interest bill such as a utility bill and make payment arrangements with the utility company.

Ask your creditors for more time to pay your bills. Find out what they will charge for this service a late charge, an additional finance charge or a higher interest rate.

If you do decide to use a payday loan:

Borrow only as much as you can afford to pay with your next paycheck and still have enough to make it to the next payday.

Always comparison-shop before selecting any loan. Compare the finance charges of credit offers to get the lowest cost. Also, find out what the total fees and penalties will be if you don’t pay the money back on time.

And finally, take a payday loan from a trusted payday loan lender like Payday Loan Trust.

Cultural forces influence how well partnerships develop. Each company’s management style, whether autocratic or consensus based, may be a factor. Is the organization’s culture past oriented or future oriented? Is the corporate culture closed or open? Are organizational structures flexible or rigid? Are partners willing to collaborate on all critical issues? Later in the Explore stage, as we shall see, we use this information to select, approach, and create an appropriate partner. But before taking this step, completing Exercises 12 and 13 will put you in a better position to analyze your current situation. You have just increased your Partnering Intelligence. Now you can decide whether partnering is right for you—and if so, what characteristics you will be looking for in a future partner.

We have seen the importance of exploring both the ethereal and material realms of the organization. We have witnessed the systemic nature of organizations and how vision, values, ethics, and culture affect the organizational mission, strategies, processes, products, and services. We have reviewed the steps and tools for conducting an internal needs assessment. Now it is time to build quality into the process by adhering to the Plan–Do–Check–Act (PDCA) cycle. This is accomplished by listing the tasks that need to occur in the Assess Stage of Partnership Development under each step of the cycle. Below is a sample of what to do in each step. You may want to use this example as is or modify it to meet your particular objectives. Either way, it will help you accomplish the task in less time and with greater efficiency and higher quality.

A self-assessment process gives us insights into who we are personally. Organizations that commit to this process must also assess themselves to know their leadership style, express their visions for the future, and devise strategies and processes to realize that future.Here’s where a critical question emerges: To get where we want to go, can we use the resources we already have, or do we need to look for a partner? At this point the organization has to think hard. The decision to go it alone—to forgo the partnership strategy and maximize or expand present resources through other means—may be the wisest alternative. The whole point of the Assess stage has been to secure a firm foundation for future growth. In the process, by using the Partnership Continuum as a guide, we can choose to move toward developing a partnership. Or, just as important, we can decide this is not our best route to the future. The internal assessment is needed to reveal our own interests and what we require in a partnership.

Work processes are how the strategies will be implemented. They are the actions that fulfill the strategy and meet the specific needs of the customer. The most successful organizations use process management—a business science that documents, measures, analyzes, and improves its processes. The sandwich chain, for instance, has an order-taking process, a sandwich-making process, a dining room– cleaning process, a supply-ordering process, and many other processes that support its strategies for serving its customers. By using structured methodologies such as process management, an organization controls the quality and reliability of its product or service to enhance its success in the marketplace.

By now you may be wondering what all this has to do with partnerships. Having the ability to map out your vision, mission statement, strategic directions, and processes will enable you to figure out the direction in which you want to  move. Understanding your business from this holistic perspective gives a total picture of what’s happening now. Upon reflection, you can start to assemble the pieces for the next future state. Understanding your business and its processes is key to determining your needs. Once these needs have been identified, you’ve increased your Partnering Intelligence.

Perhaps in the future the sandwich company could offer prepared sandwiches for sale in a grocery store as a fourth growth opportunity. This could present an opportunity to develop a partnership with a grocery store chain. Does this fit into its current strategic directions? At the moment it does not, since the three strategic directions it has identified are focused on other delivery systems.Nevertheless, it could expand its strategic directions to include grocery store customers and significantly increase its potential market. By taking an inventory of strategic directions, an organization can determine what partnerships are appropriate today and look toward expanding its business in the future.

Strategies detail what you are going to do to get where you’ve said you want to go. In the example of the sandwich chain, the organization planned to install drive-through windows at all its restaurants to meet the needs of its take-out customers. Strategies relate to meeting customer needs and are implemented by processes developed to carry out the strategy.

Analyses that deal with the integration of high-yielding instruments in bond portfolios must take into account the market inefficiencies mentioned above. Otherwise, false conclusions cannot be ruled out. Because of the biased correlations between individual bonds, historical estimates of the volatility of high-yield indices are too low. Generally, this causes suboptimal portfolio weights that are too high for the risk incurred. Occasionally this effect is also observed for small cap stock indices and real estate indices.

Subsequently, we will transfer a technique Blundell and Ward (1987) proposed for the desmoothing of appraisal based real-estate indices to the highyield sector. The method presumes that the serial correlation in high-yield index returns is exclusively caused by nonsynchronous trading and that the “true” time series follows a random walk. Firstenberg et al. (1988) and Geltner (1993) propose alternative approaches to desmooth empirical time series.

All of the examined asset classes exhibit significant positive autocorrelation. There are two main reasons that should be noted. As mentioned earlier, one reason is the illiquidity of certain segments of the international bond markets. The high-yield sector is a typical example for a rather illiquid market segment. Broad high-yield indices represent the investment universe of institutional investors with regard to speculative grade corporate bonds. There are several qualitative criteria that benchmark indices generally have to satisfy. Among the most important are transparency, stability and representativeness. With respect to the adequate mapping of short- and medium-term fluctuations of high-yield bond prices, the last point is critical. The low liquidity of many high-yield bonds causes irregular and nonsynchronous trading. Rajan (2000) points out that about threequarters of the index constituents are traded less than once per month.

Information that is relevant for the valuation is comprised in the prices of those bonds with a significant time lag. Thus, price changes of individual bonds may seem uncorrelated even if they were caused by a common factor. This nonsynchronicity induces positive serial correlation in index returns and biases the traditional estimates of index volatility such as the annualized standard deviation of returns.

Levy (1992) points out that lower partial moments of first order are consistent with second-order stochastic dominance. The concept of stochastic dominance has several important advantages. It requires no distributional assumptions, takes all the moments of the return distributions into account and requires only very mild assumptions about investor behavior. With respect to the comparison of the performance of several investment choices, it allows to create two different groups. The efficient set contains the desirable alternatives, the inefficient set those investments that are found to be stochastically dominated by at least one other investment. The preference criteria are that the investor prefers more to less, is risk averse and prefers positive skewness. For all utility functions, investment G dominates F stochastically

Our study displays the composition of the optimized portfolios. As a comparison the market capitalization weights should be kept in mind. Roughly speaking, the market weights of government bonds, agencies and mortgage-backed securities with respect to the US bond market are 26, 12, and 32 percent. Investment grade and high-yield corporate bonds are responsible for 23 and 7 percent of the market value of outstanding US bonds. In this context, municipal bonds are excluded because they do not play a significant role in the portfolios of international investors.

Across all of our optimization approaches, the MRPs and TPs are mainly made up of agencies and mortgage-backed securities, whereas government bonds are not represented in any of the portfolios. Despite its high volatility the high-yield sector seems to provide significant diversification benefits.

However, it should be noted that the high-yield weight decreases when skewness and kurtosis are considered during the process of portfolio construction. In the sample period investors willing to accept the risk of a pure government portfolio would have been best off to invest a large part of their assets in a broadly diversified portfolio of investment grade and high-yield  corporate bonds. Thus, they would have earned an excess return of 6–8 bp per month over government bonds.

Develop as accurate as possible a projection of the future operations in which the money is going to be used or the operation of the project, taking into account sales, costs and other relevant financial issues. Typically, the projection should be broken down for each year of the period of the investment.

Quantify positive and negative cash flows for each year of the projection, and the annual net totals of cash inflow or outflow.

Estimate the value of the cash flow for the final year of the projection. A conservative and prudent approach that is widely adopted is to assume that the final year’s cash flow will continue in perpetuity.