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 www.cuna.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
    • 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 www.consumer-action.org 221 Main St., Suite 480 San Francisco, CA 94105 Phone: 415-777-9635 E-mail: info@consumer-action.org