Don’t Fall Into the High Rate Trap!

October 31, 2008

Do me a favor. Go look through yesterday’s mail and count how many credit card and personal loan offers you received from banks or lenders you’ve never even heard of. And, of course, there are the ones from that “bank” that asks “What do YOU have in your wallet?”. I often wonder how large their advertising budget is, but I digress.

So how many did you have? Two? Three? More? Have you ever read the fine print for those “loans”? And what about “Convenience Lenders”, those corner check-cashing outlets, pawn shops or payday lenders?

Think an annual percentage rate of 24% is too much to pay on a loan? How about paying as much as 200%, or even 600%? Who would pay that much in finance charges to a lender, and why?

Believe it or not, millions of Americans pay those exorbitant interest rates when they borrow small amounts at those “Convenience Lenders”. Unknowing consumers often use these lenders for emergency loans, borrowing as little as $300 and paying back as much as double that amount.

There is, however, another segment of the population that uses convenience lenders on a regular basis. These people have become ensnared in a vicious cycle they cannot break. They were enticed with a pre-approved loan (much like those in your mailbox) for $1,500 to $2,000 to use as they saw fit. They took the offer without reading the fine print and later found that most of their loan payment goes to pay unreasonably high finance charges while their loan balance is hardly reduced. Expensive fees for processing and late payments usually accompany these high-rate loans.

Before you sign on the dotted line for any loan, make sure you ask the following questions:

1. What is the Annual Percentage Rate I will be paying?
2. Are there any loan processing fees?
3. If I miss a payment, will my interest rate increase?
4. Are there any late-payment fees and when are they assessed?
5. Can I get this loan at a lower rate somewhere else?

If you or someone you know is struggling with a high-rate loan, please refer them to MCCU. As a financial cooperative, part of our mission is to improve the financial well-being and quality of life for people in our community. We will work with them to lower their rate and save them from financial worry.

And I can’t stress this enough – please read the fine print on any loan document, especially the ones you receive in the mail. Sometimes if it seems to good to be true, it is.

Oh, and if you want to stop all those annoying credit card/loan offers you get in the mail and protect your identity at the same time, check out LifeLock and get 30 days free and 10% off for life!

Questions or Comments? E-Mail me at blogger@matadorsmoneymatters.com.

Posted in Loans