Be Careful Where You Get Credit - Powerpoint Slides
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Be Careful Where You Get Credit - Powerpoint Slides Be Careful Where You Get Credit - Powerpoint Slides Presentation Transcript

  • Be careful where you get credit Not all credit is good credit
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • ‘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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • 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
  • Debt Consolidation
    • Loans to pay off your creditors
      • Charge very high interest rates and fees
  • 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
  • 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
  • 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 221 Main St., Suite 480 San Francisco, CA 94105 Phone: 415-777-9635 E-mail: