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Be careful where you get credit Not all credit is good credit
Not all credit is good credit <ul><li>Some loans are “predatory” </li></ul><ul><ul><li>Designed to prolong the debt </li><...
Where can you get credit? <ul><li>Credit is available from many sources </li></ul><ul><li>Not everyone can qualify for all...
Banks <ul><li>Banks make “secured” and “unsecured” loans </li></ul><ul><li>When you take out a secured loan </li></ul><ul>...
Credit Unions <ul><li>You must be a member of the credit union in order to get a loan </li></ul><ul><ul><li>Credit unions ...
Credit Cards <ul><li>Credit cards are issued by banks and credit unions </li></ul><ul><ul><li>Use them to buy items or ser...
Low Limit Credit Cards <ul><li>Some companies issue low credit limit cards to people with poor credit </li></ul><ul><li>Cr...
‘Unsecured’ Credit Cards <ul><li>Offered to people with poor credit </li></ul><ul><ul><li>High upfront fees and other cost...
Charge Cards <ul><li>Charge cards, like credit cards, allow you to charge purchases </li></ul><ul><li>You must pay your bi...
Retail Charge Accounts <ul><li>Some businesses such as hardware companies or other local stores allow you to buy goods on ...
Finance Companies <ul><li>Finance companies lend to people who are high credit risks </li></ul><ul><ul><li>The rates tend ...
Installment Plans <ul><li>Many stores allow you to buy things on time, such as household appliances </li></ul><ul><li>You ...
Rent-to-Own Stores <ul><li>These stores have new and used household items that you can rent by the week or month or that y...
Illegal Lenders <ul><li>Some lenders (“loan sharks”) operate outside the law </li></ul><ul><li>They charge very high inter...
Money Shops <ul><li>Companies offer “quick money” to people in desperate circumstances </li></ul><ul><ul><li>These often a...
Payday Loans <ul><li>Check cashers offer to make short-term loans or cash advances secured by personal checks or your next...
Pawnshops <ul><li>Accept personal property, such as jewelry, electronics, cameras, musical equipment or guns, as collatera...
Car Title Pawn <ul><li>A twist on the pawnshop, these companies ask you to sign over the title to your car as security for...
Debt Consolidation <ul><li>Loans to pay off your creditors </li></ul><ul><ul><li>Charge very high interest rates and fees ...
Home Equity Loans <ul><li>Banks and other reputable companies allow you to borrow money against your home’s equity </li></...
Tax Refund Loans <ul><li>Loans are made based on federal and state tax withholding on your W-2 form </li></ul><ul><ul><li>...
About the project Managing Money was founded using a  cy pres  award from the Griego v. Rent-a-Center class action settlem...
Consumer Action www.consumer-action.org 221 Main St., Suite 480 San Francisco, CA 94105 Phone: 415-777-9635 E-mail: info@c...
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Transcript of "Be Careful Where You Get Credit - Powerpoint Slides"

  1. 1. Be careful where you get credit Not all credit is good credit
  2. 2. Not all credit is good credit <ul><li>Some loans are “predatory” </li></ul><ul><ul><li>Designed to prolong the debt </li></ul></ul><ul><ul><li>Make the most money off the borrower </li></ul></ul><ul><li>Some loan offers are scams </li></ul><ul><ul><li>Be cautious of any loan offer in which you are asked to pay money up front </li></ul></ul>
  3. 3. Where can you get credit? <ul><li>Credit is available from many sources </li></ul><ul><li>Not everyone can qualify for all loans </li></ul><ul><li>It pays to get all the facts before you borrow </li></ul><ul><li>Loans are legal contracts </li></ul><ul><ul><li>Read all the fine print </li></ul></ul><ul><ul><li>If you are deceived, contracts may be void </li></ul></ul>
  4. 4. Banks <ul><li>Banks make “secured” and “unsecured” loans </li></ul><ul><li>When you take out a secured loan </li></ul><ul><ul><li>You must guarantee the loan by putting up some personal property </li></ul></ul><ul><ul><ul><li>such as a car or your home </li></ul></ul></ul><ul><li>Unsecured loans </li></ul><ul><ul><li>Usually for smaller amounts of money </li></ul></ul><ul><ul><li>Made to people with excellent credit </li></ul></ul>
  5. 5. Credit Unions <ul><li>You must be a member of the credit union in order to get a loan </li></ul><ul><ul><li>Credit unions offer secured and unsecured loans </li></ul></ul><ul><ul><li>Often have lower interest rates on loans than banks </li></ul></ul><ul><li>Can you belong to a credit union? </li></ul><ul><ul><li>Ask at work, your church or your union </li></ul></ul><ul><ul><li>Check to see at www.cuna.org </li></ul></ul>
  6. 6. Credit Cards <ul><li>Credit cards are issued by banks and credit unions </li></ul><ul><ul><li>Use them to buy items or services </li></ul></ul><ul><ul><ul><li>You can receive cash advances but these are an expensive way to get cash </li></ul></ul></ul><ul><ul><li>All cards have a credit limit </li></ul></ul><ul><ul><ul><li>Charge more than your limit and you’ll be charged a fee </li></ul></ul></ul><ul><ul><li>If you don’t pay your card’s balance off each month by the due date, you are charged interest </li></ul></ul><ul><ul><li>If you are late with a payment, you will be charged a late fee up to $39 </li></ul></ul><ul><ul><ul><li>Your interest rate might jump, too </li></ul></ul></ul>
  7. 7. Low Limit Credit Cards <ul><li>Some companies issue low credit limit cards to people with poor credit </li></ul><ul><li>Credit limits are $500 or less </li></ul><ul><ul><li>Very aggressive fees on low limit cards </li></ul></ul><ul><ul><li>Easy to exceed limit </li></ul></ul><ul><li>Companies issue more than one low limit card per customer </li></ul>
  8. 8. ‘Unsecured’ Credit Cards <ul><li>Offered to people with poor credit </li></ul><ul><ul><li>High upfront fees and other costs </li></ul></ul><ul><li>Fees appear on first billing statement </li></ul><ul><li>Low credit limits </li></ul><ul><li>Fees eat up your credit limit </li></ul>
  9. 9. Charge Cards <ul><li>Charge cards, like credit cards, allow you to charge purchases </li></ul><ul><li>You must pay your bill in full each month, which avoids interest payments and helps you manage spending </li></ul><ul><li>Unlike credit cards, you can’t carry a balance on a charge card </li></ul>
  10. 10. Retail Charge Accounts <ul><li>Some businesses such as hardware companies or other local stores allow you to buy goods on credit </li></ul><ul><li>You must apply for these accounts </li></ul><ul><ul><li>You sign for purchases </li></ul></ul><ul><li>The store sends you a bill each month </li></ul><ul><ul><li>You must pay immediately </li></ul></ul><ul><ul><li>If you do not pay the bill in full, an interest charge is added </li></ul></ul>
  11. 11. Finance Companies <ul><li>Finance companies lend to people who are high credit risks </li></ul><ul><ul><li>The rates tend to be much higher than bank loans </li></ul></ul><ul><li>Many finance companies offer auto and home equity loans </li></ul><ul><ul><li>Used car loans can be especially high priced </li></ul></ul><ul><ul><li>You must pay off the loan even if the car can no longer be driven </li></ul></ul>
  12. 12. Installment Plans <ul><li>Many stores allow you to buy things on time, such as household appliances </li></ul><ul><li>You make a down payment and then pay the balance plus interest on a monthly basis </li></ul><ul><li>Zero percent interest offers </li></ul><ul><ul><li>Pay the entire balance off within promotional period </li></ul></ul><ul><ul><li>If any of the balance remains after the promotional period ends, you’ll be hit with retroactive interest on entire balance </li></ul></ul><ul><li>If you fail to make a payment the store can repossess the item </li></ul>
  13. 13. Rent-to-Own Stores <ul><li>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 </li></ul><ul><ul><li>You agree to make weekly payments for as long as you want the item </li></ul></ul><ul><ul><li>You have the option to buy the product if you make all the required weekly payments, usually for a year or more </li></ul></ul><ul><li>This is a very expensive way to buy things </li></ul><ul><ul><li>A $200 TV can end up costing well over $1,000 </li></ul></ul><ul><ul><li>If you don’t pay, the store will take the item back and you will lose all the money you’ve paid </li></ul></ul>
  14. 14. Illegal Lenders <ul><li>Some lenders (“loan sharks”) operate outside the law </li></ul><ul><li>They charge very high interest rates </li></ul><ul><li>These lenders often use threats of violence to get people to pay </li></ul>
  15. 15. Money Shops <ul><li>Companies offer “quick money” to people in desperate circumstances </li></ul><ul><ul><li>These often are very bad deals </li></ul></ul><ul><li>Some loans offered by walk-in, storefront lenders have interest rates of above 20% </li></ul><ul><ul><li>High late fees drastically increase the amount you owe if you miss even one payment </li></ul></ul>
  16. 16. Payday Loans <ul><li>Check cashers offer to make short-term loans or cash advances secured by personal checks or your next direct deposited benefits check or paycheck </li></ul><ul><li>The price of such loans is very high </li></ul><ul><ul><li>Check cashers are making payday loans at effective annual interest rates of well above 250% </li></ul></ul><ul><li>People who don’t pay can be pursued under bad check laws </li></ul>
  17. 17. Pawnshops <ul><li>Accept personal property, such as jewelry, electronics, cameras, musical equipment or guns, as collateral for loans based on the value of the goods </li></ul><ul><ul><li>Most pawnshops will lend you less than half an item’s resale value </li></ul></ul><ul><li>You have several months to repay the loan and are charged very high interest rates until you do so </li></ul><ul><ul><li>Many pawnshops also charge storage costs and insurance fees </li></ul></ul><ul><li>If you do not repay the loan, or if you default on interest payments, the pawnshop can keep and sell your things </li></ul>
  18. 18. Car Title Pawn <ul><li>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 </li></ul><ul><ul><li>Interest payments and fees quickly add up, making it hard or impossible to repay the debt </li></ul></ul><ul><li>If you default, the company takes your car and sells it </li></ul><ul><ul><li>You could lose a car worth tens of thousands on a loan of a few hundred dollars </li></ul></ul>
  19. 19. Debt Consolidation <ul><li>Loans to pay off your creditors </li></ul><ul><ul><li>Charge very high interest rates and fees </li></ul></ul>
  20. 20. Home Equity Loans <ul><li>Banks and other reputable companies allow you to borrow money against your home’s equity </li></ul><ul><ul><li>Your equity is the estimated value of your house minus the amount you still owe </li></ul></ul><ul><ul><li>Your home’s value is the guarantee that you will repay the loan </li></ul></ul><ul><li>Unscrupulous lenders might give you a loan they know you can’t repay just so they can take your home </li></ul><ul><ul><li>If you are unable to make the payments, you can lose your home </li></ul></ul>
  21. 21. Tax Refund Loans <ul><li>Loans are made based on federal and state tax withholding on your W-2 form </li></ul><ul><ul><li>Why pay to borrow your own money? </li></ul></ul><ul><ul><li>Electronic filing means you can get your refund in 8-10 days </li></ul></ul><ul><ul><li>Free tax assistance available </li></ul></ul><ul><li>Interest rates on these short-term loans can be very high—40% at the low end and 200%-plus on the high end </li></ul><ul><li>Now companies are making loans based on your pay stubs—before you even get your W-2 </li></ul>
  22. 22. About the project Managing Money was founded using a cy pres award from the Griego v. Rent-a-Center class action settlement. © 2007
  23. 23. 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
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