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Consumer Action’s Managing Money Project
Be careful where you get credit
Not all credit is good credit
Managing Money Project www.managing-money.org
Not all credit is good credit
Some loans are “predatory” Designed to prolong the debt Make the most money off the borrower
Some loan offers are scams Be cautious of any loan offer in which you are asked to
pay money up front
Managing Money Project www.managing-money.org
Where can you get credit?
Credit is available from many sources Not everyone can qualify for all loans It pays to get all the facts before you borrow Loans are legal contracts
Read all the fine print If you are deceived, contracts may be void
Managing Money Project www.managing-money.org
Banks
Banks make “secured” and “unsecured” loans When you take out a secured loan
You must guarantee the loan by putting up some personal property
such as a car or your home
Unsecured loans Usually for smaller amounts of money Made to people with excellent credit
Managing Money Project www.managing-money.org
Credit Unions
You must be a member of the credit union in order to get a loan Credit unions offer secured and unsecured loans Often have lower interest rates on loans than banks
Can you belong to a credit union? Ask at work, your church or your union Check to see at www.cuna.org
Managing Money Project www.managing-money.org
Credit Cards
Credit cards are issued by banks and credit unions Use them to buy items or services
You can receive cash advances but these are an expensive way to get cash
All cards have a credit limit Charge more than your limit and you’ll be charged a fee
If you don’t pay your card’s balance off each month by the due date, you are charged interest
If you are late with a payment, you will be charged a late fee up to $39
Your interest rate might jump, too
Managing Money Project www.managing-money.org
Low Limit Credit Cards
Some companies issue low credit limit cards to people with poor credit
Credit limits are $500 or less Very aggressive fees on low limit cards Easy to exceed limit
Companies issue more than one low limit card per customer
Managing Money Project www.managing-money.org
‘Unsecured’ Credit Cards
Offered to people with poor credit High upfront fees and other costs
Fees appear on first billing statement Low credit limits Fees eat up your credit limit
Managing Money Project www.managing-money.org
Charge Cards
Charge cards, like credit cards, allow you to charge purchases
You must pay your bill in full each month, which avoids interest payments and helps you manage spending
Unlike credit cards, you can’t carry a balance on a charge card
Managing Money Project www.managing-money.org
Retail Charge Accounts
Some businesses such as hardware companies or other local stores allow you to buy goods on credit
You must apply for these accounts You sign for purchases
The store sends you a bill each month You must pay immediately If you do not pay the bill in full, an interest charge is
added
Managing Money Project www.managing-money.org
Finance Companies
Finance companies lend to people who are high credit risks The rates tend to be much higher than bank loans
Many finance companies offer auto and home equity loans Used car loans can be especially high priced You must pay off the loan even if the car can no longer
be driven
Managing Money Project www.managing-money.org
Installment Plans
Many stores allow you to buy things on time, such as household appliances
You make a down payment and then pay the balance plus interest on a monthly basis
Zero percent interest offers Pay the entire balance off within promotional period If any of the balance remains after the promotional period
ends, you’ll be hit with retroactive interest on entire balance If you fail to make a payment the store can repossess the item
Managing Money Project www.managing-money.org
Rent-to-Own Stores
These stores have new and used household items that you can rent by the week or month or that you own after making a set number of payments You agree to make weekly payments for as long as you want
the item You have the option to buy the product if you make all the
required weekly payments, usually for a year or more This is a very expensive way to buy things
A $200 TV can end up costing well over $1,000 If you don’t pay, the store will take the item back and you will
lose all the money you’ve paid
Managing Money Project www.managing-money.org
Illegal Lenders
Some lenders (“loan sharks”) operate outside the law They charge very high interest rates These lenders often use threats of violence to get people
to pay
Managing Money Project www.managing-money.org
Money Shops
Companies offer “quick money” to people in desperate circumstances These often are very bad deals
Some loans offered by walk-in, storefront lenders have interest rates of above 20% High late fees drastically increase the amount you owe if
you miss even one payment
Managing Money Project www.managing-money.org
Payday Loans
Check cashers offer to make short-term loans or cash advances secured by personal checks or your next direct deposited benefits check or paycheck
The price of such loans is very high Check cashers are making payday loans at effective
annual interest rates of well above 250% People who don’t pay can be pursued under bad check
laws
Managing Money Project www.managing-money.org
Pawnshops
Accept personal property, such as jewelry, electronics, cameras, musical equipment or guns, as collateral for loans based on the value of the goods Most pawnshops will lend you less than half an item’s resale
value You have several months to repay the loan and are charged very
high interest rates until you do so Many pawnshops also charge storage costs and insurance fees
If you do not repay the loan, or if you default on interest payments, the pawnshop can keep and sell your things
Managing Money Project www.managing-money.org
Car Title Pawn
A twist on the pawnshop, these companies ask you to sign over the title to your car as security for a loan representing only a fraction of its value Interest payments and fees quickly add up, making it
hard or impossible to repay the debt If you default, the company takes your car and sells it
You could lose a car worth tens of thousands on a loan of a few hundred dollars
Managing Money Project www.managing-money.org
Debt Consolidation
Loans to pay off your creditors Charge very high interest rates and fees
Managing Money Project www.managing-money.org
Home Equity Loans
Banks and other reputable companies allow you to borrow money against your home’s equity Your equity is the estimated value of your house minus
the amount you still owe Your home’s value is the guarantee that you will repay
the loan Unscrupulous lenders might give you a loan they know
you can’t repay just so they can take your home If you are unable to make the payments, you can lose
your home
Managing Money Project www.managing-money.org
Tax Refund Loans
Loans are made based on federal and state tax withholding on your W-2 form Why pay to borrow your own money? Electronic filing means you can get your refund in 8-10 days Free tax assistance available
Interest rates on these short-term loans can be very high—40% at the low end and 200%-plus on the high end
Now companies are making loans based on your pay stubs—before you even get your W-2
Consumer Action’s Managing Money Project
About the project
Managing Money was founded using a cy pres award from the Griego v. Rent-a-Center class action settlement. © 2007
Consumer Action’s Managing Money Project
Consumer Actionwww.consumer-action.org
221 Main St., Suite 480San Francisco, CA 94105Phone: 415-777-9635E-mail: info@consumer-action.org
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