Avoiding Loan Predators

The best way to avoid loan predators is:

  • If a lender or store is in a hurry to give you credit something is probably not right
  • If you are offered 0% Down and 18 months NO INTEREST – Read the terms. DO NOT LET THEM EXPLAIN THE TERMS TO YOU. Here’s how this works:
    • Let’s say you see a new laptop and it cost $2,909 with tax and everything included. It’s fast and you want it. It’s advertised at 0% Down and 18 months with no interest. The fine print reads, “for those who qualify.” They tell you that you qualify and your feeling pretty good because you qualified. Then, they show you on a document that your minimum payment is $135 per month. They quickly tell you all the required information, but you heard only one thing and that’s 135 per month and you want this baby. You sign and it’s yours.

The minimum monthly payment of $135 looks good and you feel good, right? STOP. Do the math. The price of $2,909 divided by 18 equals $161.11 per month. After 18 months, you only paid $2,430. That means you still owe $479. Now, for the big “ouch.” The fine print that you signed says that if you don’t pay the entire amount off in 18 months, you will owe 27%* interest on the entire $2,909. So, that means that on top of the $479 that you still owe, you will owe an additional $785.43. Now, add everything together and in reality you will owe $1,214.43! If you pay the minimum payment of $135, you will have about another nine months’ worth of payments left. UGH! In the end you will have to pay $3,694.43 for the computer. (This model is based on simple interest of 27%*. If compounded daily the amount paid would be more.)

How to beat them and get 0% down and 18 months at no interest? Divide the total amount of what you are going to purchase by 18 months and that’s your monthly payment. In the above scenario your actual payment is $161.11 per month. If you can afford that payment and you know that you’ll make every payment on or before the due date, then sign. Make sure your last payment is for the exact amount, to the penny, that is left to be paid. Now you just paid $2,909 over 18 months at 0% interest.