By Joseph Reinke, CFA, CEO of FitBUX
One of the greatest appeals of an income share agreement is their flexibility and affordability relative to other financing options.
To understand the added benefits of FitBUX’s innovative Hybrid Income Share Agreements, let’s compare them to fixed rate loans and variable rate loans in two distinct scenarios: when you earnings go down but also when your earnings increase.
Fixed Rate Loans: predictability without flexibility
With fixed rate loans, your monthly payments are the same every month. While this predictability may be a good thing, it also leaves no room for unpredictable events, good or bad, that may may happen due to a change in your personal situation:
For instance, if your earnings decrease (if you lose your job, go back to school, etc…) then the affordability of your loan will decrease: since the cost of your loan (i.e. the impact of your set monthly payment amount on your overall financial situation) will be comparatively higher.
On the positive side, if your earnings increase, the affordability of your loan will increase since, comparatively, your set monthly payment amount will translate into a smaller percentage of your increased earnings.
With fixed rate loans, you have no flexibility with regards to your repayment amount…the problem is, “life is not a straight line”.
Let’s compare this to another typical product used to finance student loans, ie variable rate loans.
Variable Rate Loans: unpredictable flexibility that is outside of your control
With variable rate loans, your monthly payments will vary, which at first may seem like a good thing since as seen above, your financial situation is likely to evolve over time.
The problem is that these payment fluctuations are based on events that are completely out of your control. Bankers and Wall Street determine if your payments go up or down. Therefore, your earnings can go up or down and you still will not know the affordability of your loan. Also, in the current economic situation, interest rates have nowhere to go but up, which means that your payments are very likely to go up. However, you will not pay off the loan any faster since the increase in interest rate means that a higher percentage of your payments will go towards interest payment rather than principal repayment..
FitBUX Hybrid Income Share Agreements: the best of both worlds
FitBUX Income Share Agreement, monthly repayment amounts are based as a percentage of earnings: if your earnings go down, so do your payments. If they go up, your payments follow suit for unmatched flexibility.
When it comes to predictability, with a FitBUX Hybrid Income Share Agreement, you will know exactly what you will be expected to repay. Predictability is good.
In addition, and unlike a variable rate loan, the entirety of your monthly repayment amount is used to repay your borrowed amount since there is no concept of interest vs. principal payments. In other words, if your earnings increase significantly over time, you will end up repaying your agreement faster since, in absolute dollars, you end up repaying more on a monthly basis.
Ultimate flexibility and predictability to repay student loans. In a sometimes unpredictable world, we think it just makes sense.
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