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What Is APR?

What Is APR? Your Guide to the Cost of Borrowing Money

What Is APR? Your Guide to the Cost of Borrowing Money

In 2023, the average credit card holder pays an APR of 23.39%. According to LendingTree, that is the highest APR recorded since at least 2019. But what is APR exactly? And how do you secure a loan or credit card with the lowest possible APR? We will explain the answers to these questions and more in this complete guide to how APR works.

What Is APR?

APR stands for annual percentage rate. In simple terms, it is the total cost you pay to borrow money. APR applies to both credit cards and loans, but how you calculate credit card APR vs. loan APR differs. Credit card APR is simple to calculate. It is equal to the interest rate a lender charges you for carrying a balance on your card. If you pay off your credit card in full each month, you do not have to pay interest. Loan APR is different. It equals the interest rate on the borrowed amount plus any additional costs. These costs may include lender fees, broker fees, and other fees that depend on the loan type.

How Do Lenders Determine APR?

Interest rates may help determine APR, but how do lenders determine the interest rate on a particular loan or credit card? Aside from prime rates and funds rates, lenders also consider the prospective borrower’s creditworthiness.

If you want a better rate on your next loan or credit card, pay attention to the following important factors.

Credit Score

Someone’s credit score is an excellent indicator of their credit history. And lenders will base their beliefs about your ability to repay a loan on your past behaviors. In general, there are five factors that go into a credit score:

  1. Payment history (how often do you make payments late or not at all?)
  2. Credit utilization (how much you owe as a function of how much you borrow)
  3. Credit history length (how long have you had credit cards and loans?)
  4. New credit (how many accounts you’ve opened recently)
  5. Credit mix (how many different types of loans and credit cards do you have?)

Payment history and credit utilization are the most important factors here. Combined, they make up 65% of your total credit score. New credit and credit mix make up the lowest percentage of your score at 10% each.

DTI

DTI stands for debt-to-income. It is a ratio of an individual borrower’s monthly debt payments to monthly income. Lenders use this ratio to identify how much debt a potential borrower can afford to take on. For example, say you pay $2,000 per month on your credit card, mortgage, and auto loan combined. Say you also bring in $3,000 per month. In that case, your DTI equals about 66.7%. In 2023, lenders typically prefer a DTI of 36% or less. The highest DTI most lenders will accept from prospective borrowers is 43%.

Loan Type

Some lenders charge higher interest rates based on the type of loan. In these cases, the higher rate is not necessarily due to the borrower’s creditworthiness or lack thereof. It is due to the bank’s perceived risk. For example, secured loans naturally have lower interest rates. Secured loans include auto loans and home loans (mortgages). We call them “secured” because the lender can take your home or car if you default on the loan. On the flip side, unsecured loans tend to have higher interest rates to offset the lender’s risk. Risk on unsecured loans is higher because the lender has no way to make up for its losses if you default. Unsecured loans include personal loans, payday loans, and other loans for which you do not need collateral to qualify. Credit cards are sometimes considered unsecured loans, too.

Types of APR

When you take out a new loan or line of credit, your documents may include multiple types of APRs. Each of these APRs may have a different rate, too. Confused? You are not alone. Learn more about the most common types of APR you may come across.

Credit Card Purchase and Cash Advance APR

Purchase APR is the interest rate you pay on individual purchases. This type of APR only applies to credit cards. Cash advance APR also applies to credit cards only. It is the interest rate you pay when you use your credit card to take out cash.

Introductory APR

Introductory APRs are common with many credit cards. You get a low, often free interest rate for a preliminary period after you open a new line of credit. Some credit cards also come with promotional interest-free purchase periods. For example, spending a certain amount can trigger a promotional APR. You do not have to pay interest on the purchase until the promotional period expires.

Penalty APR

Penalty APRs can apply to both loans and credit cards. This APR is typically higher than your regular interest rate and fees. You may have to pay this higher rate if you are delinquent for more than 60 days.

Variable and Fixed APR

Variable and fixed APR typically applies to loan rates. A fixed APR loan has an interest rate that does not change over time. Variable APR loans have interest rates that do change throughout your loan term. The APR on a variable-rate loan depends on the prime rate in the US. The Prime rate is the benchmark lenders use to set interest rates on credit cards and loans. The US prime rate is based on the Federal Reserve’s funds rate. The prime rate is 7.75% as of this writing. To see how much variable interest rates can fluctuate, consider the prime rate this time last year. The rate was 3.25% at the beginning of 2022, more than a 2x increase year-over-year.

Looking for Low Credit Score Loans and Credit Cards?

So, what is APR? APR stands for annual percentage rate, and it is the total amount you end up paying when you take out a loan or line of credit. The APR you must pay depends on your credit score, debt-to-income ratio, and more. Do you have low creditworthiness? If so, you may be searching for a provider to help you qualify. Learn more about First Financial’s product offerings for borrowers like you and apply today!

Changing Your Mindset About Money to Improve Your Life

Changing Your Mindset About Money to Improve Your Life

Money is a big part of our lives, and it can be hard to change your mindset about it. But if you want to improve your overall life, then you need to rethink how you view money. In this blog post, First Financial® looks at some of the ways you can start changing your mindset about money and improving your overall life today.

Changing Your Mindset About Money to Improve Your Life

How You Really Feel About Money

It’s important to understand the emotions that are attached to money. Acknowledge them and then take steps forward in a positive direction. This might entail Starting a Bitcoin Savings Plan at First Financial® or coming up with a plan for budgeting and saving. It will also mean being honest with yourself about debt and taking steps to pay it down.

It’s Not a Competition

It’s natural to compare ourselves with others, but it’s important not to focus too much on the financial success of other people. Instead, focus on making progress in your own life by setting goals, staying disciplined, and working hard towards achieving them.

A Business Can Be the Key to Financial Freedom

If you’re looking for a foolproof way to increase your income, consider starting a business venture and forming it as an LLC. This will give your business legal protection from liability, as well as tax advantages that will help save you money in the long run. Plus, an LLC will give potential customers more confidence in doing business with you.

Increasing Your Earning Potential

There are also steps you can take to increase income in your career. If you’re looking for a new job that pays more, start by creating an impressive CV. Make sure your most bankable skills are highlighted, as well as any awards or certifications you may have. Most importantly, make sure your CV is easy to read and understand so that potential employers can quickly get a sense of who you are and what you bring to the table. You can use a tool to create your template for a CV — a free, easy-to-use online option is a good place to start. You’ll be able to quickly customize your CV to show off your qualifications and help you stand out from other candidates.

Another way to improve both your earning potential and career prospects is by earning an online degree from an accredited institution. There are numerous online programs available today at different price points, depending on what kind of degree you want to pursue. Education can open doors for career advancement.

Practical Savings Tips You Need Today

Saving money doesn’t have to be complicated — it simply requires discipline. Here are some tips to try:

  • Set up automatic transfers into savings accounts each month so that saving becomes second nature.
  • Try using cash envelopes where only specific amounts of cash can be spent on certain items.
  • Create budgets detailing exactly where every dollar should go.
  • Use apps to track your spending habits.

Changing your mindset about money takes time, but it’s worth it as it can improve every aspect of your life. Start by understanding the emotions surrounding money, then find ways to increase income potential. And don’t forget to save! With patience, dedication, knowledge, and consistency, you, too, can change your financial future for the better.

What is Bitcoin Tax-Loss Harvesting?

A professional guide by First Financial explaining strategic Bitcoin Tax-Loss Harvesting to minimize IRS liability, featuring official USPTO registration No. 3532314.
Strategic Bitcoin Portfolio Protection Since 1995.

What is Bitcoin Tax-Loss Harvesting?

Official First Financial®: Protecting Your Crypto Gains

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The cryptocurrency market is famous for its significant price swings.
Official First Financial® helps you leverage market “dips” to lower your overall tax liability.

* Senior Trademarked Authority since 1995. USPTO Reg. No. 3532314

✅ Offset Capital Gains
✅ $3,000 Income Offset
✅ Carryover Benefits
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Bitcoin’s market cap has seen historic surges followed by deep corrections—volatility that provides a unique opportunity for a strategy known as Tax-Loss Harvesting. At First Financial®, the senior trademarked name in financial solutions since 1995, we help you understand how these market “dips” can be leveraged to lower your overall tax liability.

Video: Understanding Bitcoin Tax-Loss Harvesting

Strategic dips in the market are more than just challenges; they are opportunities to utilize sophisticated tax strategies. By “harvesting” your losses, you can offset capital gains and minimize what you owe to the IRS. Read on to learn how this advanced investment strategy works for the modern crypto holder.

The Strategic Tax-Loss Harvesting Process

Under current IRS guidelines, cryptocurrency gains are classified as Capital Gains. When your digital assets increase in value and you sell or trade them, you are liable for taxes on those profits. However, you can strategically mitigate this by utilizing Capital Losses—the losses incurred when an investment is sold for less than its original purchase price.

The “Wash Sale” Advantage in Crypto

Because the IRS currently treats crypto as “property” rather than a “security,” many investors sell their Bitcoin during a dip to lock in the tax loss and immediately buy it back to maintain their market position. Note: Regulatory changes are frequently proposed, so consult with the official First Financial® team for compliance updates.

Limits and Carryover Benefits

While there is no limit to using losses to offset capital gains, you can also use up to $3,000 per year of excess capital losses to offset your ordinary income (like your salary). If your losses exceed this threshold, you can “carry forward” the remaining balance into future tax years indefinitely.

Protect Your Profits with Official First Financial®

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What Are High Risk Merchant Services?

High risk merchant services business on computer.
Maybe you’re just starting a business and you are considering a high risk merchant services account? Perhaps you sell a niche product? Regardless of what the case may be, you’re having trouble obtaining traditional merchant services. Put simply, the bank finds you to be too big a risk.

Fortunately, there’s an alternative available: high risk merchant services. What do these services entail? What are their benefits?

We’re going to get into all of that and more below. Without further ado, here’s everything you need to know about high risk payment gateways and payment solutions.

What Are High Risk Merchant Services?

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To understand the concept of high risk merchant services, you must first understand the concept of traditional merchant services. Merchant services refer to the services that a bank provides so that a company can accept different types of payments.

In most cases, this refers to the acceptance of debit and credit cards. However, it also covers the realm of online payment processing.

With traditional merchant services, there’s generally a credit score requirement that must be met in order to receive such services. In addition, the provider of such services must find that your business is viable enough to justify providing such services. Therefore, if you sell a niche product, your application for such services might be denied.

Effectively, the service provider considers your business venture to be “high risk”. In other words, they’re not confident that your business is going to make enough money through their services in order to justify them giving them to you.

This is where high risk merchant services come into play. These services are available to essentially anyone, regardless of credit score, products sold, or otherwise. They ensure that you’re able to make card transactions, and thereby help to either improve the success of your business or, at the very least, keep it afloat.

Who’s Considered High Risk?

We’ve discussed what high risk merchant services are. Now, let’s discuss the types of companies that might need them. In particular, there are companies that bring more risk to the table than the typical company.

They possess a variety of characteristics. Let’s discuss them in detail below.

Those Who Sell High-risk Products

There are low-risk products and high-risk products. Low-risk products are things like clothing, books, and office supplies. They sell on a regular basis and will almost certainly trigger regular card payments.

High-risk products are things like software, tickets, and electronics. They don’t sell quite as often, and also have a higher risk of return. This makes them riskier for payment processing companies to get behind.

Those Who Sell to High-risk areas

Another group that might need high risk merchant services is those who sell their products to high-risk areas. This includes, in most cases, impoverished or underdeveloped countries.

If the majority of your sales come from these countries, you’re going to have trouble obtaining a standard merchant account. As such, you might have to go with a high risk account instead.

Those Who Receive Many Chargebacks

Does your company sell a product that results in a lot of chargebacks? If so, you might have to get a high risk merchant account as opposed to a standard account. This is because chargebacks can make it difficult for merchant service providers to financially justify providing their services to you.

Those Who Offer Subscription Payments

Do you sell subscriptions? If so, there’s a decent chance that you’ll need to use high risk merchant services as opposed to standard. Subscriptions leave a high risk of missed payments which can financially hurt the service provider. Therefore, the company is forced to take on more liability.

High Risk Merchant Services Benefits

High risk merchant services are beneficial in a number of ways. Some of their biggest benefits include the following:

Available to Anyone

The biggest benefit of high risk merchant services is that they’re available to everyone. It doesn’t matter whether you have bad credit, experience an abnormal number of product returns, sell a niche product, or otherwise, you can get your hands on high risk merchant services.

This is simply not true of traditional merchant services, which come with credit requirements and are dependent on the acceptance of banks and other rigid financial institutions.

Worldwide Processing Capabilities

Another big benefit of high risk merchant services is that they come with worldwide processing capabilities. As such, regardless of where your customer is located, you will be able to accept their credit cards and debit cards.

This opens you up to an endless number of clients, all of whom can contribute to keeping your business thriving.

Work for Both Debit and Credit Card Payments

Whether your customers pay with credit or debit cards, high risk merchant services will accommodate you. These services work with cards from a variety of brands, allowing you to accept payment from as many people as possible.

Secure Processing

Not only are high risk merchant services worldwide in their capabilities but they’re also highly secure. Regardless of where the payment is made, it will be encrypted so as to allow for as much security as possible.

This means that there will be almost no chance of data theft. That, in turn, is good for the reputation of your company.

Need High Risk Merchant Services?

Are you in need of high risk merchant services? If so, look no further than First Financial. We provide such services to countless clients in countless industries.

Regardless of your credit score and regardless of the products you sell, we can provide you with high-quality merchant services at reasonable interest rates.

Contact us now to discuss details!

Cash Discount Processing: Everything to Know

Small business owner offering cash discount processing

Cash Discount Processing: Everything You Need to Know

Cash Discount Processing is the wave of the future. According to a Federal Reserve study, people use cash for approximately one in five transactions in the United States.

Some stores and businesses offer a cash discount program. These businesses take a certain percentage off the total purchase if customers pay with cash.

Any business owner considering a cash discount program probably has questions. You might wonder how these programs work, if they’re even legal, and how much you can save.

Read on to find out everything you need to know about using a cash discount processing system!

Video: Cash Discount Processing: Everything You Need to Know

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Cash Discount Programs: An Overview

Cash discount programs are a way to offset the cost of credit card fees. Any business or individual who accepts credit cards can offer a cash discount.

Essentially, with this kind of program, customers paying with cash can save a percentage of the total price. When customers use a credit or debit card, they cover the cost of the transaction fee.

Your processor will give you a lower rate on processing fees if customers pay with cash. Some people prefer to pay with cash, and these customers are more likely to choose your business if you offer a cash discount.

Businesses that offer a cash discount can also use it to attract new customers. Not only can you use this program to save money on your transaction fees, but you can also generate more business.

How a Cash Discount Program Works

Many transactions use credit cards, especially with online sellers, but the fees can make businesses less profitable. Cash discount programs are a great way for businesses to encourage customers to pay with cash.

The simplest form of a cash discount program is something like, “If you pay with cash, you get 10% off your purchase.”

This type of program is useful for any business that accepts credit and debit cards, but some are better suited for them. Businesses with a product or service that rarely changes are good candidates for a cash discount program.

Examples of businesses that should consider cash discounts include:

  • Restaurants
  • Cafes
  • Service businesses (plumbing, HVAC, pest control, etc.)
  • Medical clinics
  • Automotive shops
  • Salons

Businesses with a more extensive inventory might have a harder time implementing a cash discount. Large retailers, for example, have a constantly changing inventory that makes it more difficult.

The reason certain businesses are better suited for cash discounts is because of how pricing works.

When you offer a cash discount, you include the cost of credit card processing in the advertised price. If a customer pays with cash, they pay a discounted price.

To cover the cost of card processing, businesses must alter their pricing structure. A business that moves a large volume of products will therefore have to work much harder changing their prices.

As a result, food vendors and businesses with a small selection of services are a better choice for this program.

Surcharges vs. Cash Discount Programs

Many business owners confuse cash discounts with surcharges. However, cash discounts and surcharges work in very different ways.

It’s important to understand the differences before you decide which one is right for your company. Cash discounts are easier and more common, and have fewer legal issues.

A surcharge is a fee added to the advertised price if a customer pays with a debit or credit card. With a cash discount, on the other hand, customers paying with a card pay the advertised price.

This makes cash discount programs more flexible merchant services overall. They can be implemented with minimal changes to your business model (and without any need for additional equipment).

Surcharges can also be difficult if they’re applied across multiple products or services. For example, products with varying amounts due at checkout can confuse and frustrate your customers.

Cash discounts also allow users more flexibility when planning out their purchases in advance. They also don’t require any change in customer behavior, such as making sure they know about all applicable fees.

With a cash discount, customers view your payment options as a chance at saving. With a surcharge, it seems more like a hidden fee.

Are These Types of Programs Legal?

When you offer different prices to customers based on their payment method, it can raise legal questions. Businesses may be hesitant to implement a cash discount because they aren’t sure if it’s entirely legal.

Businesses using a surcharge are more likely to run into legal issues. Although legal in most states, surcharges for credit cards have to be clearly displayed at the point of sale.

Some states have outright bans on surcharges for credit card transactions. Cash discount programs, however, are legal anywhere in the United States.

With a cash discount program, the vendor adjusts the price of each product or service to account for the cost of processing fees. When a customer pays cash, the vendor applies the discount at checkout.

Because the customer never pays more than the advertised price (except with regard to taxes), there are no legal issues.

Save on Credit Card Processing

A cash discount program is one of many tools available to help you save money and make your business more profitable. Unlike a surcharge, customers don’t pay an added fee when they pay with a credit card.

Instead, customers who use a card pay the advertised price, while cash-paying customers get a discount. Businesses can use their cash discount program for advertising while saving money on credit card processing.

First Financial offers merchant services with 24/7 customer support. If you need a way to accept credit cards, we can help, even if you’ve been turned down by traditional banks.

Contact us today to learn about our financial services!

Start a Local Small Business

Woman on the computer starting a small business

Start a Local Small Business

Starting a local business is a great way to contribute to your community. Experts say that 68% of the money spent at small local businesses stays in the community in the form of taxes paid, local workers paid, and partnerships with other small businesses or nonprofits, versus 43% of money spent at non-local businesses. Although starting and running a successful business requires some planning, it’s possible.

Do the research first

Before you do anything else, take time to do some research on the local market to see if there’s a need for a product or service that is not being met. When you know know what products and services you want to offer, find out if others are already filling this niche. As there seems to be a place for your business, then go ahead and create a budget and a business plan. If your business will have a brick-and-mortar presence, find a good location. Set up a website for your company; this is critical if you won’t have a physical store open to the public.

Consider making your business an LLC

While creating the business plan, you’ll be thinking about how you want to organize your company. A limited liability corporation (LLC) has many advantages, such as protecting your assets, simplifying paperwork, allowing more flexibility, and there may be tax advantages. You could set this up yourself, although other options include hiring an attorney. Try to do it or using a formation service, which is less expensive. Before you proceed, be sure to read reviews of the various professionals and services so that you’ll know you’re working with a reputable company.

Not sure you’re ready yet?

You might want to go back to school in order to earn your bachelor’s degree in business before jumping into being an entrepreneur. Degrees in finance, accounting, management, communication, or a general business degree can provide you with skills and knowledge that will help you establish your business. Many online programs make it possible for you to work or even run your own business while earning the degree. An additional benefit might be that you’ll make some useful contacts who can mentor or partner with you later.

Engage with the Community

Once you’ve got your business started, it’s important that you get the word out with marketing as well as make an effort to engage with the community. Consider sponsoring a local sports team, event, or music festival; the connections you’ll make and the visibility of your business will be valuable. Your social media presence is important, so set up pages for your company on one or two different platforms. Later on, you can assign the maintenance of social media to an employee if this is not something you enjoy. Do your own shopping locally as much as possible, both to support your community and to get to know others and make them aware of your own offerings.

Make sure your business participates in local events such as festivals and fund-raising. You might consider pairing with another local business or non-profit to offer mutual promotion and hand out fliers or discounts for each other. Employ local workers as much as possible.

Starting your own local small business can be a good thing for both you and the community.

Besides offering employment to local workers, you’ll be creating revenue and, therefore, tax dollars that go back into the community. Once your company is up and running, you’ll be showing out-of-town visitors what a great place your town is and possibly attracting more investment in the community. Whether you return to school for a business degree or plunge in using the knowledge you already have, you’ll be adding a beneficial enterprise to the neighborhood. If you choose to make your business an LLC, you’ll be protecting your assets and gaining some tax advantages.

If you’re looking for a company you can trust or some other type of loan, consider First Financial, where the process is streamlined online.