Credit Matters

Invoice Discounting/Factoring and Business Finance Providers

Question

What are the main types of credit insurance?

There are three main types of credit insurance

The Whole Turnover Policy is the most popular policy purchased, which accounts for the majority number of policies issued. This type of credit insurance coverage protects all sales within a single policy. The policy offers the credit manager with an update financial advice on all principal and major customers. Here, the insured will generally carry the uninsured variable of each credit limit. Indemnity is normally 80% to 90%. At the beginning of the policy, an evaluation is made of turnover that is likely to be declared. The underwriter will agree on an annual premium rate charges against these declarations.

The Single Risk / Single Debtor Cover, as its name suggests, is normally for one single buyer (or possibly 2) and is offered by a limited number of underwriters.

The Principal Customer /Key Accounts Cover is more appropriate when a small proportion of the company’s customers represent a large percentage of the turnover. This coverage is particularly for customers above an agreed level of exposure, and the premium is only paid on the turnover that has been declared with these customers. Underwriters usually have to agree cover on these principal customers or key accounts and there are no discretionary limits.

Question

What do I do if I can't meet my monthly repayments?

The most important thing to do is contact the lender as soon as possible to see if they'll agree to an alternative payment plan. In some cases, they'll offer a plan to make up the payments you've missed. Or they may agree to change the terms of your loan to something more affordable

Question

Can you detail all the penalties and fees?

A favorite tactic of any lender-auto, mortgage or personal loan-is to bury an assortment of fees and penalties in the fine print of your car loan. Make certain you're clear on all the fees that are included.

The dealer/supplier may also include penalties for paying off the loan early. Try to avoid them if at all possible; they can be problematic if you decide to refinance the loan down the road. It doesn't hurt to ask what the early termination costs might be and how to avoid or minimize them.

Question

What's the interest rate on the loan?

The most important factor in any financing deal is the interest rate. Ask the dealer/supplier for the APR (annual percentage rate), which is the best apples-to-apples measurement for comparing loans. Be sure to ask him how they compute their APR, because many lending institutions use different methodologies. You'll get a sense of exactly what a lender is including in the interest costs.

Some will only quote you the base or wholesale rate, when in actual there will be commission built into the quote, which should force out a gross rate. If you are going to get a comparison quote, then it's best to get the monthly payment and balloon/residual figure (if any) so that it can be checked for any rate discrepancy.

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