sign in sign up
<<
Home , Credit, Credit card interest, Loan

SPECIAL EDITION

51 Ways to Save Hundreds on and Cards Simple strategies for cutting costs any time, special tips just for … • Credit Cards • Home Loans • Auto Loans • Small “Emergency” Loans • Student Loans • Loans

FEDERAL DEPOSIT CORPORATION 51 Ways to Save Hundreds on Loans and Credit Cards

Cutting Your Costs: Simple Strategies for A Message to Readers Saving on Loans and Credit Cards You probably think of loans and Loans and credit cards provide great 2. Don’t have “too many credit credit cards as services — as ways consumer benefits, but as with any cards.” There are good reasons to to borrow money and buy things. form of borrowed money, you’ve got have at least two credit cards, but And of course, you’re right about to be careful about how you manage some people collect a stack of cards, that. But given the astounding array credit. Here are tips for saving money including those from stores and oil of credit-related services available on credit products — in your basic companies, several of which they rarely today, with their varying degrees of financial affairs, when shopping for use. One problem with having a lot complexity and costs, it’s smart to new credit, and when using loans and of credit cards is that lenders look at think of mortgages, credit cards and credit cards. the ones with no existing balance or a auto loans as products — tangible items that you should research and Getting a Grip on Credit very low balance and conclude that you have the potential to use them and get compare before you buy, and then 1. Pay your bills on time to maintain into . Even if you’ve proven in the use with care. a good credit record and qualify past to be a responsible user of credit, The Federal for low rates. Don’t wait until the these “extra” cards could come back to Corporation wants to help you last minute to pay your monthly bills. haunt you the next time you apply for reap the benefits of loans and credit Not only will you incur late- a mortgage or other . cards at the lowest possible costs. fees (see Page 4), but perhaps more That’s why this special edition of “There is a cost to having too much importantly you triggering higher our quarterly FDIC Consumer credit,” said Suzy Gardner, an FDIC costs. That’s because your News is a collection of 51 simple, examination specialist and an payment history on your and practical tips and other guidance expert in consumer credit issues. bills is one of the biggest factors in that can help you save hundreds, if “Although individual circumstances your credit report and . not thousands, of dollars. vary, having more credit available than A credit report is a compilation of how what you can reasonably use, need or In this special edition you’ll find you pay your bill, loans, afford can hurt you in the run.” ideas and information on topics rent, and selected other debts and bills. such as how to: get the best Example: You have several credit cards A credit score is a number that is based possible interest rates on loans and the combined outstanding balance on your credit report and reflects your and credit cards avoid paying on them is $15,000 below your credit financial responsibility. Both are part unnecessary fees; find “emergency” limit. Then you apply for a home loan. of your overall , which loans at affordable prices; and steer The mortgage lender may question can determine your chances for a low- clear of credit-related rip-offs and your ability to repay both a mortgage cost loan or a lower on a scams. credit card. and $15,000 worth of new purchases on your credit cards. And, your overall At the FDIC, we not only help While one or two late credit score can suffer, resulting in the keep your money safe in insured over a long period of time may not lender charging you a higher interest bank accounts, we also want to help significantly damage your credit rate or denying the loan altogether. you keep more of your money. history, if at all, making a habit of missing payments can result in a One solution is to cancel the credit interest rate on a loan or credit card higher interest rate, higher fees or cards you rarely or never use, and save you hundreds of dollars each both when you apply for any type of preferably well before you apply for year in interest payments. For example, loan or credit card. Lenders put more another loan. Start by closing your if you always pay your loans on time, emphasis on your recent payment newer credit card accounts — that’s but your credit report shows late history, so be particularly careful with because your credit score can be payments, you’ll want to correct that. payments in the months before you lowered if your credit history appears By federal law, you are entitled to apply for a loan. shorter than it really is. Another is to ask your card issuers to reduce one free copy of your credit report Consumers who pay their credit card your . every year from each of the three bill late may face a major hike in their nationwide credit bureaus — , interest rate — often to between 29 3. Check your credit report for and TransUnion. Each and 35 percent. Late payments on that accuracy. Something as simple as company issues its own report, so card also can trigger rate increases on correcting incomplete or erroneous it’s smart to check each one. Go other cards or loans, especially if your information in your credit record may to www.AnnualCreditReport.com credit record shows other signs of risk. be enough to qualify you for a better or call toll-free 1-877-322-8228 to

FDIC Consumer News Summer 2007  51 Ways to Save Hundreds on Loans and Credit Cards order free credit reports or for more 6. Focus on the long-term cost you don’t have to pass up a good deal information. Although you can ask of the loan, not the monthly just because the institution doesn’t to receive copies from all three credit payment. “Many car dealers or have an office in your area.” bureaus at the same time, you also can even mortgage lenders will entice However, Jackson also warned that spread out your requests throughout borrowers by asking how much they because con artists use the Internet the year to check for major changes or can afford to pay each month,” added to trick consumers into divulging inconsistencies. Kincaid. “It may be better to pay personal financial information, you Identity theft is another reason to slightly more money each month, should never respond to unsolicited regularly review your credit reports. but for a shorter time period, if it e-mails or to Web sites offering Make sure an ID thief hasn’t opened means you will be paying less in total products or services that appear credit cards or other accounts in your interest.” “too good to be true.” For guidance name to commit fraud (see Page 5). She also said that some people look on whether a bank is legitimate, call the FDIC at 1-877-275-3342 or use 4. Periodically review your existing so much at the monthly payment Bank Find, our online directory of loans and credit cards with an eye that they don’t notice certain fees insured institutions, at www2.fdic.gov/ toward saving money. “Talk to a or service charges that are imposed. idasp/main_bankfind.asp. (See more customer service representative at your “You’ve got to look at the full picture about frauds on Page 5.) bank to make sure you’re signed up for before signing a , the accounts and features that best fit including the APR and provisions 8. Read the fine print before signing your needs, especially if your financial of the loan that can increase fees,” up for any loan or credit card. situation has changed recently,” said Kincaid said. For example, realize that if you get Janet Kincaid, FDIC Senior Consumer You can also avoid unnecessary a new credit card promoting zero- Affairs Officer. “For example, if you interest charges if you pay for certain percent interest on new purchases and tend to carry a balance on your credit costs out of your own pocket instead you don’t pay off the entire balance by card, find out if you qualify for a credit of borrowing that money, too. Let’s the due date (typically after six to card with a lower interest rate or other say you’re getting a new mortgage 18 months), you may be charged features that can cut your costs.” and you’re offered the chance to add interest on all your original purchase amounts — not just on the remaining For tips on refinancing an existing loan the closing costs to the loan instead of balance — retroactive to the original or credit card, see Page 5. paying them upfront. Sounds good on the surface, but remember that you’re purchase date. The costs could be Shopping Tips not getting out of paying the closing more than if you had used a card costs — they’re added to the loan without a zero-percent offer. With a 5. Compare the products offered by balance, so your monthly payments , find out when your your bank and a few competitors will increase and you’ll be paying payments will or could change and and then negotiate the best deal. interest on the closing costs. how much higher the payments would “Don’t hesitate to let lenders know be under different scenarios. What you that you are shopping around for 7. Take advantage of the Internet. don’t read and don’t know can cost you the best possible terms and that you Not only can you research credit a lot of money. are not afraid to negotiate,” Kincaid products and comparison shop among stressed. “Competition can be a good hundreds of lenders over the Internet, 9. Don’t pay for expensive insurance thing.” but you can also apply for a loan or coverage you probably don’t need. credit card online from those same Many lenders sell disability, life One of your most important shopping lenders. insurance or other similar protection aids for a loan or credit card is the plans which, as an example, might APR — the . “The Internet is, without question, cover minimum loan payments due This required disclosure shows the the fastest and easiest way for if the borrower becomes ill or dies. total cost, including interest charges consumers to find out about and Credit protection programs may and other fees, expressed as a yearly compare the various types of loans be the best or only coverage for rate. When you’re comparing loans and credit cards offered by certain people who want this kind of from different lenders, make sure you around the country,” observed protection, such as some consumers use the same dollar amount and time Michael Jackson, Associate Director who are ill or who are concerned about frame so you can compare the APRs. of the FDIC’s Division of Supervision making loan payments if they lose That way there’s no confusion about and . He added their job. But these plans may be far which loan will cost less. For a good that if you find an interesting offer more costly or more limited in purpose example of how the APR can help you from a far-away bank or an Internet- than other options, such as traditional shop for credit, see the discussion of only lender, “in most cases you can insurance not tied to loans. payday loans on Page 9. apply for and finalize the loan online; continued on next page

FDIC Consumer News Summer 2007  51 Ways to Save Hundreds on Loans and Credit Cards

Before purchasing a credit protection It is also possible to pay your loan interest rate on your credit card may product, consider if you already have, or credit card bill online, but it’s be subject to negotiation. or would be better off with, traditional recommended that you pay about two Also talk to your if you’re insurance. Look at your savings and days before the due date to be sure it having problems repaying a loan. other , because you may have is processed on time. Also know your Explain the situation and any unusual sufficient emergency funds to do what ’s cut-off time for circumstances. Many lenders will agree these programs promise if you become recording payments each day. If you’re to temporary or permanent reductions sick or unemployed. Also remember bumping up against the deadline and in your loan interest rate, monthly that most credit protection is optional. you can’t pay online, consider calling payment or other charges. Open your card company and asking for Using a Loan or Credit Card communication is key. Again, it helps if other options, such as providing bank you’ve had a clean record in the past. 10. Avoid or limit interest charges. information to authorize an While it may sound like a bargain to electronic fund transfer from your 14. If you have a serious debt pay the minimum due on your credit checking account. “Even though there problem, a reputable counseling card so you have more money to spend may be a small service charge for these service might help you avoid losses. on other things, the long-term costs of options, it will likely be less than a A variety of organizations specialize this strategy can be staggering. That’s late-payment fee,” said Kirk Daniels, in helping borrowers deal with debt because rates can a supervisor in the FDIC’s consumer overload, minimize the damage to be quite high — with the best of rates affairs section. credit histories and, in the worst cases, often being in the low double-digits. avoid foreclosures that could result in Should you pay the old-fashioned Instead, try to pay all or as much as the loss of a home or other property. way — by regular mail — allow possible of your outstanding credit Their services range from helping enough time for delivery and card balance to avoid interest charges. people establish a budget to talking processing by sending your payment “The amount you pay toward your with lenders to discuss modifying the about a week before the deadline. credit card bill each month can have terms of a loan. But be careful before greater long-term consequences for 12. Closely review your account signing an agreement with a credit your than how much money statements and other mailings from counselor because some may offer you save or invest each month,” added your lenders. Check your statements questionable or expensive services, and FDIC Consumer Affairs Specialist as soon as they arrive to look for others may be scams. Howard Herman. errors, unauthorized withdrawals Start your search by asking people and other matters you might want to Similarly, many people send in you trust for referrals. Then check question or challenge. The sooner a more than the amount due on their with your state Attorney General, problem is detected, the easier it is mortgage (see Page 7) and other loans local consumer protection agency and to correct. And if you don’t report an so they can pay off the debt faster and the Better Business Bureau about any error within prescribed time limits, reduce their total interest cost. complaints against the organization. you may not be covered by some 11. “You’ll also want to know as much as Avoid late-payment fees. These federal consumer protection rules. are penalties, typically $30 or more, possible about the services, the fees, charged by your lender when you don’t Also, don’t assume that literature inside the qualifications of the counselors, make a loan or credit card payment a loan statement or credit card bill is and how much input you will have on time. One way to prevent late junk mail. It could be your only notice in working out the details of any fees is to arrange, at no charge, for of new fees, an increase in the interest commitments with your lender,” added an automatic withdrawal from your rate, or other significant changes. If Sam Frumkin, a Senior Policy Analyst checking account to cover these and you don’t monitor these mailings, you in the FDIC’s Division of Supervision certain other recurring (such could pay more for banking services and Consumer Protection. as a utility or insurance bill). The and not even realize it. In addition, the FDIC and other automatic debiting of your account 13. Don’t be afraid to ask for a banking regulators have been urging also takes the hassle out of making break. Do you think the fees for your borrowers who are delinquent on a scheduled payments and saves on mortgage application are a bit steep? mortgage loan and at risk of losing postage. However, be sure to record What about the fee you were charged their home to get help from a specialist these automatic payments in your for being late with your loan or credit called a “housing counselor.” To find checkbook, said FDIC attorney card payment? Depending on the a reputable one in your area, contact Susan van den Toorn. “If you don’t,” circumstances, your lender might be the U.S. Department of Housing and she cautioned, “you might end up willing to reduce an interest rate or Urban Development (1-800-569-4287 accidentally overdrawing your checking waive a fee or penalty, especially if or www.hud.gov/offices/hsg/sfh/ account and subjecting yourself to fines and damage to your credit score.” you’ve been a good customer. Even the hcc/hcs.cfm) or the Homeownership

FDIC Consumer News Summer 2007  51 Ways to Save Hundreds on Loans and Credit Cards

Preservation Foundation (1-888-995- 4673 or www.995hope.org). Refinancing: Tips for Mortgages and Other Credit 15. Don’t be afraid to complain. Your Here are ways to save money by 18. Consider refinancing an bank’s managers probably would prefer refinancing — by paying a loan off auto loan if you expect to make you bring a problem to their attention “early” with a new, better loan. payments for several more years. It and be given the chance to fix it may be harder to find a better interest rather than see you take your business 16. Know when refinancing a rate because your car has probably elsewhere or tell all your friends about mortgage makes sense. According depreciated in value. But if the savings your bad experience. If you don’t get to the Consumer Action Handbook from a lower interest rate more than satisfaction from a customer service published by the Federal Citizen offsets any closing costs, refinancing representative or another employee, Information Center, “Consider can make sense. consider talking to a supervisor. refinancing your mortgage if you can get a rate that is at least one 19. If you’re still having problems, If you have multiple student percentage point lower than your consider contacting the institution’s loans, look into the potential existing mortgage rate and if you plan federal regulator. The FDIC and other benefits of consolidating them to keep the new mortgage for several banking regulators cannot intervene into one new loan at a lower years.” Also consider the extra fees for in many disputes but can help you interest rate. Compare the rates, the new mortgage. understand your consumer rights. terms and costs. “It may not be worth The appropriate agency also can seek 17. Be smart about dropping one consolidating if it means losing a good corrective action if the institution is credit card for another. Transferring fixed-interest rate, giving up a long in violation of a law or regulation. To an outstanding balance to another before loan payments are find out which government agency credit card can give you a lower due, or running up other costs that regulates a particular lender, you can interest rate, but find out how long would exceed those on your existing loans,” said Sam Frumkin, a Senior contact the FDIC (see back page). Q the new interest rate will last and how it will change. Also see if there’s a Policy Analyst in the FDIC’s balance transfer fee. Division of Supervision and Consumer Protection. Q

Borrower Beware: How to Avoid Fraudulent or Deceptive Deals 20. Steer clear of fraudulent consistent on-time payments by a and it can take months to repair the or deceptive offers targeting consumer can legally repair a credit damage. Notify your card issuer about borrowers. Unscrupulous record. any problems as soon as possible to individuals try to lure consumers Mortgage foreclosure frauds: Thieves help limit your losses. into questionable, high-cost deals may contact homeowners at risk of How can you avoid credit-related or fraudulent transactions, usually losing their home to foreclosure and fraud or deception in general? “Deal involving new loans or credit cards or propose to help by “paying your with financial institutions or other offers to help deal with debt problems. mortgage” while you temporarily companies you know or that you Here are examples: “rent” your home from them. They have independently verified as being “Predatory” loans: People from non- then trick you into signing documents legitimate,” explained Randall Howe, bank or home improvement industries that transfer the ownership of the a fraud specialist at the FDIC. When may use false or misleading sales property to the crooks. In other scams, in doubt, he said, you may contact the tactics to make high-cost loans to phony companies claiming to be FDIC for guidance (see the back page) consumers in need of . Victims housing counselors offer to negotiate a or call your state or county’s consumer who can’t afford the loan may be new loan or perform other services for protection office. pressured to refinance. Borrowers who very high upfront fees and do little or As for preventing , pledge their house as could nothing in return. safeguard your personal and financial lose it in a foreclosure. Credit card fraud: Identity thieves steal information and monitor your credit Credit repair scams: Con artists may personal information and apply for card statements and credit reports promise to erase a bad credit history new credit cards or make counterfeit for signs that a thief has stolen your or make easy loans to people with cards. Under federal law, if a thief uses identity. spotty credit histories. Most charge your credit card or card number the For more specific recommendations, exorbitant fees or never provide the most you are liable for is $50. Even so, go to www.fdic.gov/quicklinks/ promised money. Only steady and ID theft in general can be costly to fix, consumers.html. Q

FDIC Consumer News Summer 2007  51 Ways to Save Hundreds on Loans and Credit Cards

Taking Charge of Your Credit Cards Read and save the Many of our general tips starting on no grace period before interest begins Page 2 can help save you money on accumulating. Also, stay on top of fee “disclosures” describing credit cards. For example, we said it’s increases by reading and saving the important to pay your credit card bill disclosures sent in monthly statements a card’s features and fees and other debts on time to avoid late- or other mailings. so you know how to save payment fees and additional interest Avoiding additional charges isn’t costs. Here are more suggestions. money. When it comes the only reason to become an avid 21. When choosing a credit card, reader of your credit card company’s to information about the ask yourself if you plan to pay the literature. Potential cost savings balance in full each month. Many built into your card also are worth terms of your credit card, people don’t pay their bill each exploring. For example, your credit be a pack rat. month — they always carry a balance card may automatically include, at and pay interest on it. Yet many of no extra charge, extended warranties card, a higher rate on new purchases, these same people sign up for a card on purchases and insurance for car and an even higher rate on a cash because it has no annual fee, without rentals. Your card also may offer . If you pay only part of your considering the benefits of a card back on purchases, rewards good for monthly bill, card companies typically with a lower interest rate or a more airline travel or products and services, will apply your payment to the balance generous grace period (before interest and various other extras. Also be aware with the lowest interest rate first, while begins accumulating). In the long run, of the rules governing these perks the highest-rate balance continues to a card that doesn’t charge an annual because limitations, fees and deadlines run up interest costs until you pay the fee could end up costing you far more may greatly reduce their value. entire balance. in interest than a card that charges an 23. Be especially aware of your card annual fee. Universal : This happens when issuer’s billing practices, which can a card issuer increases a customer’s In general, if you expect to pay your significantly affect your costs. How interest rate because he or she made balance in full most months, look for your card company treats the balances late payments to other lenders or had a card with a full grace period and no on which you are charged interest an overall decline in a credit score — annual fee. However, if you plan on can be critical. Here are examples of even if that customer paid the card bill carrying a balance, then a card with potentially high-cost practices that in full and on time. While this once- an annual fee and low APR (Annual many people don’t know about even common practice is rare, be aware that Percentage Rate) may be a better though card issuers must disclose it could be used. . them: 24. Know your credit limit and stay 22. Read and save the “disclosures” Two-cycle billing: This billing practice is below it. There are two problems describing a card’s features and fees rare but is used by some card issuers. with going over your card’s credit so you know how to save money. Practices may vary but, in general, limit. One is that your card issuer will “When it comes to information about if you pay your credit card bill in charge you a penalty, which can be the terms of your credit card, be a full one month but then only pay a expensive, typically about $30 for each pack rat,” said Janet Kincaid, FDIC portion of the bill the next month, instance. Also, exceeding your credit Senior Consumer Affairs Officer. your interest charges ultimately will be limit may damage your credit score, based on two months of card charges Key information to look for and which may mean higher interest rates, and not one. This may result in you keep: What is the interest rate and now and in the future. paying more in interest charges than how can it change? Is there an annual you would under the more common To be confident you are within your fee? What about charges for late one-cycle billing method. To find credit limit, Kincaid recommends the payments, returned checks, balance out if your card is subject to two- following. “Periodically check your transfers or exceeding your billing, review the cardholder balance by phone or online to make limit? What’s the cost of a “cash agreement and disclosures from your sure you stay within your limit,” she advance” — typically meaning you lender or call their customer service said. “Also give yourself an extra use your credit card to get cash from number. cushion — either try not to get too an ATM or to make a purchase using close to your credit limit or call the one of the blank “convenience checks” Payment allocation: This involves cards card company to get a higher limit if sent with monthly statements? Cash with multi-tiered interest rates. For you anticipate a special need, such as a advances are likely to carry sizable example, there may be a low rate on vacation or major purchase.” upfront fees, a high interest rate and a balance transferred from another Q

FDIC Consumer News Summer 2007  51 Ways to Save Hundreds on Loans and Credit Cards

Home Loans: How to Keep Costs from Going Through the Roof

Buying and maintaining a house is because you may be able to obtain a loan faster by sending in extra expensive enough, so why pay more fixed-rate mortgage with payments payments — say, an additional $50 or than you have to for a home loan? comparable to an ARM and not have $100 each month or one large payment Suggestions throughout this special to worry about future rate increases. once a year. If you can afford the extra edition can help keep down the costs payments and don’t have other uses “If you are thinking about an ARM, of a mortgage or a , for the money, “this is an easy way to make sure you know how much but here are additional tips. pay off the loan and save thousands and how often the interest rate and of dollars in interest charges without 25. You can negotiate the rates and payment could go up before you sign incurring the cost of refinancing,” said terms of a home loan. You should on, and be comfortable that you can Marshall. There are pros and cons to look for a mortgage the way you’d meet those higher monthly payments,” the different strategies, so you may look for a car — get all the important cautioned Janet Kincaid, FDIC Senior wish to consult with a financial or cost information, shop around and, Consumer Affairs Officer. “Don’t let a advisor about what is best for you. yes, negotiate for the best deal. That’s low teaser rate lure you in; you may be one of the key messages of Looking surprised later.” 29. Save money on insurance. for the Best Mortgage, a free consumer Because the value of your house is 27. Mortgages that involve little or brochure published by the FDIC and backing your mortgage, you will no documentation of your income other federal government agencies be required by your lender to have or assets may mean higher costs. (online at www.fdic.gov/consumers/ homeowners insurance to cover a While these mortgages can save you looking/index.html). variety of damages that could reduce time and are attractive if your source the property’s value. Prices can vary Many consumers aren’t aware that of income is unpredictable, the lender significantly, so shop around. they can negotiate the rates, closing generally charges a higher interest costs and other terms of a mortgage rate. “If you have income that’s easy to Also make sure you get the right or home equity loan and possibly save document, such as regular statements coverage for your situation. For thousands of dollars. People often from your employer or a monthly example, if you live in an area that is think that when they get a quote on Social payment, it’s probably at high risk for floods or earthquakes, a loan from a lender or a mortgage not worth paying extra over the long you should consider purchasing broker (someone who finds a lender term of the loan just to save a few days additional insurance coverage if it is for you) that the same price is being during the application period,” said not otherwise required by your lender. offered to everyone. But a lender or Mira Marshall, an FDIC Senior Policy Private Mortgage Insurance (PMI) broker may offer the same loan at Analyst on consumer issues. “Be sure protects the lender when a borrower different prices for different consumers, to ask about full documentation loans fails to pay. It is usually required for even if those consumers are equally and compare the costs.” loans in which the is qualified for the loan. Why? Often 28. Look into paying off your less than 20 percent of the sales price. that’s because the loan officer or mortgage sooner rather than later. For the typical mortgage loan, PMI broker is able to keep as income some A mortgage with a long repayment costs about $40 to $70 per month or or all of the difference between the term (30 or even 40 years) is very around $500 to $800 a year. “PMI lowest-price loan available and any appealing because the monthly is costly and you should try to avoid higher rate the consumer agrees to pay. payments are relatively small, which it,” said Luke Reynolds, an FDIC 26. Consider a fixed-rate loan even can put a more expensive home within Community Affairs Specialist. “If you if adjustable-rate mortgages (ARMs) reach. However, the downside of this can’t afford the large down payment carry a lower initial interest rate. strategy is that you’ll have a much that would save you from PMI, ask A fixed-rate loan adds certainty and smaller amount going to pay off the bank if there are other options stability to a big part of your loan your loan each month, and that can for a smaller down payment without payment, which can provide peace dramatically increase the total interest PMI.” Under federal law, with certain of mind, especially given that other costs. exceptions, PMI automatically will be housing costs — such as terminated if the borrower accumulates You can save tens of thousands of , insurance and home upkeep — 22 percent equity in the home and is dollars in interest — depending on the are likely to rise in the future. ARMs current on mortgage payments. amount of your loan and the interest generally start with a lower interest rate — by choosing to reduce the Some homebuyers inadvertently pay rate, but remember that an ARM rate length of your mortgage. Many people for PMI if they add the closing costs can go up, sometimes significantly. pay off their 15- or 30-year mortgage It may be worth shopping around continued on next Page

FDIC Consumer News Summer 2007  51 Ways to Save Hundreds on Loans and Credit Cards to the loan balance, thereby reducing their down payment to less than 20 Auto Loans: Take Control of the Financing percent of the home’s value. By paying Before You Take Control of the Wheel the closing costs instead of adding them to your loan, you can avoid Stereos and tinted windows aren’t the loan because you will pay interest on paying interest on the closing costs and only options you’ll need to consider the amount financed. when you’re ready for your next avoid paying PMI. 34. Consider getting “pre-qualified” vehicle. Also look closely at your by a lender for a specific loan 30. Look for government incentives different choices for financing a new amount. “This doesn’t mean you for first-time homebuyers, low- or car. For many people, an auto loan is have been approved for a loan,” said moderate-income families and other their second biggest monthly Creamean, “but it will help you know borrowers. Eligible applicants can after their mortgage or rent. Here are approximately how much you can save on the interest rate, closing costs, some strategies to consider. down payment, and other loan terms. afford to spend on a car and how much 32. Shop for a loan before you visit it will cost you in finance charges For example, mortgages insured by the a dealership or bid for a car over the before you get to the dealership.” Federal Housing Administration may Internet. After reviewing your credit Consumer advocates also suggest that feature low down payments and low report to correct errors (see Page 2), you not tell the dealer if you’ve been closing costs (go to www.hud.gov/ ask your bank and several other pre-approved elsewhere for a loan until buying/loans.cfm or call 1-800-569- lenders about their loans and costs after you’ve negotiated the best price 4287). For details about programs so you are in a better to get on a car. They say that some dealers offered by your city, county or state the best possible terms. If you’re a may be less flexible on the price of the government, call its housing agency or homeowner, you could also consider vehicle if it’s clear that the dealership check the government Web site. using a home equity loan or line of won’t be earning money on a loan. 31. Borrowing money from your credit instead of a traditional auto loan, home’s value can be low-cost but but remember, you could lose your home 35. Understand the costs and of also risky. Many people take out if you can’t repay the loan. choosing a long repayment period. “A longer loan term will be tempting low-cost loans based on their equity Know what car dealers are offering because it means a lower monthly in the house. The equity refers to in terms of financing by reading their payment, but that also means a higher the difference between what is owed advertisements, making phone calls or total cost overall because you will the mortgage lender and the current checking the Internet. Many dealers be paying interest longer,” warned market value of the property. If you offer discounted loans (such as zero- Creamean. owe $100,000 on your mortgage but percent financing) or cash rebates, but your home is worth $250,000, your not both. “In some situations, it may For example, a $25,000 loan at a seven equity is $150,000. be better to accept the dealer’s rebate percent interest rate for three years Home equity products can be used and pass up the zero-percent financing will cost $772 a month. Stretching for many purposes, including home in favor of a loan from a bank that does the term to five years will drop the improvements, college tuition and charge interest,” said Joni Creamean, monthly payment to $495 but will car purchases. They also can be low- an FDIC Senior Consumer Affairs increase the total cost of the loan by cost loans because the interest rate is Specialist. about $2,000. usually lower than for credit cards, and 33. Think carefully about how much Creamean offered another reason to the interest paid is often tax deductible car you can afford and how much of be cautious with a repayment term of (check with your tax advisor). a loan you need. The dollar amount five years or more: The aging vehicle’s But — and this is important — the of your loan largely will be determined resale value may fall below what you big risk with home equity products, by the sales price of the vehicle minus owe on the loan if the terms are spread as with a mortgage loan, is that you your down payment, any rebates and out too long. “In the later years of the can lose your home if you can’t make your the value of any -in. Don’t forget, loan, you’ll still be making payments payments. “Home equity products can however, the costs of auto insurance, on what is an older vehicle that may be fine for many people but, because sales taxes, annual property taxes on have a lot of repair and maintenance you would be putting your home on the car (if any), and options you may costs,” she said. “And if you decide to the line, these loans are not to be taken be inclined to buy, such as an extended sell your car, you may have to come up lightly,” Kincaid stressed. warranty. with extra cash out of your own pocket just to pay off the old loan.” For guidance on where to turn for help Also remember that every item you if you are at risk of defaulting on a add to your loan instead of paying For an extra tip about refinancing an home loan, see Page 4. Q upfront will add to the total cost of the auto loan, see Page 5. Q

FDIC Consumer News Summer 2007  51 Ways to Save Hundreds on Loans and Credit Cards

When You Need Money Fast: Sources of Affordable Cash It’s two weeks until payday, your credit loan after taking into account one-time cards are maxed out … and then your fees and interest.) FDIC Encourages Affordable car breaks down. You only need a few And if you renew or “roll over” the Small-Dollar Lending hundred dollars for the repair but you $500 loan for another two weeks, need it Many people in these now. you’d pay an additional $75 in fees. At FDIC Chairman Sheila C. Bair situations have turned to “alternative” that rate, in just 14 weeks, you will owe has challenged the banking providers such as more in fees ($525) than the original to be more active in pawnshops, car-title lenders (for a loan loan! “Consumers often roll over the providing reasonably priced secured by the borrower’s car) and same several times because small-dollar loans and reducing payday lenders (for unsecured loans they cannot pay the full amount on consumer reliance on high-cost, that borrowers promise to repay out of the due date,” said Rae-Ann Miller, nonbank service providers, some their next paycheck or regular income special advisor on consumer issues of which charge triple-digit payment). But while many nonbank in the FDIC’s research division. Annual Percentage Rates (APRs). lenders advertise quick and easy cash, “These consumers can end up paying “Many borrowers who use payday their services tend to come at a steep significant sums to borrow what started loans have a checking account and price. Here are some tips for finding out as a small amount of money.” a steady paycheck,” she said. “So, emergency cash at affordable prices. 38. Ask your bank about linking why aren’t they borrowing from 36. Build your own rainy-day fund your checking account to your their bankers?” and borrow from yourself. The best emergency . With The FDIC has issued guidelines way to avoid a cash crunch is to put this arrangement, an overdrawn for small loans that encourage money into an emergency savings checking account can be covered by banks to set reasonable interest account that you can use to pay for having the shortage automatically rates below 36 percent, low unforeseen expenses. Experts say this transferred from your savings account. origination fees, and repayment fund should equal about three to six “Expect to pay a small transaction fee periods longer than a single months of living expenses to get you for using this service, but it will be pay period. The guidelines also through a difficult period without less than what you’d be charged in support the idea of including an having to take out a loan or borrow interest and fees for a bounced check “automatic” savings component from savings. or a -term loan,” said Miller. to help small-loan borrowers start “Saving money can seem impossible “Remember that it’s always cheaper to a savings account at the bank. when you are staring down at a stack borrow from yourself than to borrow The FDIC also has launched a of bills and other expenses, but many from someone else.” two-year pilot project that will people are able to make small, simple 39. Check out other options for highlight “best practices” among changes in their habits or banking emergency cash from banks. Many banks to meet the needs for low- practices that can make the difference,” banks offer reasonably priced, small cost, small-dollar loans. said Sandra Thompson, Director of loans that enable you to write a check “It is my hope that, over the the FDIC’s Division of Supervision for more than what you have in your next few years, responsibly priced and Consumer Protection. Possibilities account and repay the money later. small dollar loans will become a include having your paycheck directly One example is an line of staple offering among our nation’s deposited into your checking account credit, which means the bank will banks,” Chairman Bair said. with a portion automatically placed automatically cover checks you write, into your emergency account. up to a specified amount, even if individual by check or 37. Comparison shop for loans by you don’t have enough funds in the ATM/ withdrawal, usually looking at both total dollar costs account. “The best way to ensure that for a fee. This protection typically and the Annual Percentage Rate reasonably priced emergency credit involves an informal agreement and (APR). Payday lenders, for example, will be there if you need it,” said no APR disclosure. While it can be typically charge about $15 for every Thompson, “is to work with a bank to helpful for rare and limited overdrafts, $100 borrowed. So, on a $500 loan for set up an account in advance instead the costs can quickly add up depending two weeks, you’d pay $75 in interest. of waiting until you’re in a rush to get on the number of transactions covered. That might not sound like a lot of cash.” As with any other , To learn more, read the interagency money to pay for a small loan, but it you will be told the APR in advance of brochure Protecting Yourself from translates to a whopping 391 percent signing a formal agreement. Overdraft and Bounced-Check Fees available online at www.federalreserve. Annual Percentage Rate! (The APR is Alternatively, some banks offer gov/pubs/bounce/default.htm. Q the effective annual interest rate on a “bounce protection” that will cover

FDIC Consumer News Summer 2007  51 Ways to Save Hundreds on Loans and Credit Cards

Paying for College … the Smart Way Loans for higher can be costly so take the time to research your options

The cost of college has risen faster features to consider. In particular, 43. Shop for a good price on a than the general inflation rate for ask about any options for delaying college, not just on the college many years. So, it’s no surprise that payment until after graduation and any financing. “For most families, the many parents borrow to pay for higher policies on “forbearance” (temporarily price of tuition and room and board education and that many college reducing or postponing payments from should be an important part of the graduates owe tens of thousands of a borrower in financial distress). Also decision process, just like buying dollars on student loans and related find out about any rebates for on-time a home, a car or any other major debt. Here are strategies for keeping payments and other incentives for purchase,” said Daniels. “The cost college financing costs down. good performance. should be considered along with the 40. Make saving, not borrowing, “There are often substantial differences academic programs of a school.” your first choice for paying for between private loans and student For many families, the comparison college. “Planning and saving for loans guaranteed or insured by the shopping should include options such college should be something parents government,” noted Luke Reynolds, an as two-year community colleges and begin when their son or daughter is FDIC Community Affairs Specialist. schools close to home, which can help still in diapers,” said Kirk Daniels, a “A private lender likely will offer save on room and board, Daniels said. supervisor in the FDIC’s consumer both types of loans, so be sure to ask affairs section. “College loans can be questions to fully understand the pros 44. Youth is no excuse for defaulting costly, and the easiest way to avoid and cons of any loan product.” on a loan. At some point, perhaps those costs is to have your own college after graduation, the loan payments Your state’s department of education savings fund.” will begin. How a young person and the college’s financial aid manages student debt can be crucial. Starting a college savings account, department may be good resources. “Other loans, such as credit cards, such as a state-sponsored “529 Plan,” Don’t depend on your school to pick and high living expenses can make it allows families to maximize growth the right loan or lender, though. Some tough for a student or graduate to pay in a tax-advantaged account and reap colleges and private lenders have been off college loans,” Daniels cautioned. the benefits of compounding small scrutinized for conflicts of interest in “The non-payment of a is amounts of money into a large sum steering students toward “preferred a bad way to start your career because when the child graduates from high lenders.” your credit report will be damaged school. Investment advisers also 42. Think twice before borrowing and the ability to obtain new credit or recommend setting up an automatic against your home or retirement even qualify for certain jobs may be investment plan through your bank accounts. Parents who do not jeopardized.” account or paycheck to encourage qualify for a tax deduction on loans systematic savings. To help stay out of trouble, he for higher education may want to recommends getting a job, setting 41. Take the time to research your consider using a home equity loan and sticking to a budget that includes options for a loan. If you think you if they qualify for a tax break on the money for loan payments, and need a loan, do your homework and interest. But remember, a home loan building an emergency savings fund ask lots of questions before settling puts your house at risk. Another option (see Page 9). But what if your good on one. Among the many options are is to borrow from your retirement intentions fail and you have no way federal government loan programs, savings, but most investment advisers of making a payment? Contact the including “PLUS” loans for parents recommend against that approach lender immediately. “Many lenders and Perkins and Stafford loans for because it may reduce your future would rather work out some modified students (usually with fixed interest earnings and make it tougher for you payment plan than have the borrower rates and some form of deferment to retire when you want. stop making payments completely,” on repayment until after graduation). “Given the many ways to borrow for Daniels said. Also available are loans from private college at competitive interest rates, financial institutions and state For more information, start at ask yourself if you really want to put government agencies. www.students.gov, a comprehensive your house at risk with a home equity Web site with information from the Of course, you’ll want to know loan or reduce your hard-earned U.S. government and other sources on whether a loan is fixed- or variable-rate retirement savings just to pay tuition,” topics such as paying for college. Q and what could trigger a rate increase. Daniels said. But student loans may have unusual

FDIC Consumer News Summer 2007 10 51 Ways to Save Hundreds on Loans and Credit Cards

Financing a Small Business: Saving Money to FDIC Help Your Company Grow Consumer News Here are tips on borrowing to start or businesses. Some banks may specialize Published by the Federal Deposit operate a small enterprise. in serving companies like yours. Insurance Corporation 45. Plan to borrow money with a 49. Develop a good working Sheila C. Bair, Chairman instead of using your relationship with a banker who Andrew Gray, Director, personal credit card. “For some can help you save money. Look Office of Public Affairs (OPA) small business owners, particularly for someone who seems genuinely those at startup companies, a personal interested in your business and the Elizabeth Ford, Assistant Director, OPA credit card may be their only or best market you serve. “The more the Jay Rosenstein, Senior Writer-Editor, OPA option for financing expenses,” said banker understands your company Mitchell Crawley, Graphic Design Luke Reynolds, an FDIC Community and its needs, the more likely he or Affairs Specialist. “But for many she can help you with everything from FDIC Consumer News is produced owners, a business loan will be a much financing and getting the best interest quarterly by the FDIC Office of less expensive option,” he said, because rate to referrals,” Reynolds said. Public Affairs in cooperation with other Divisions and Offices. It is the bank loan will be secured by the 50. Keep your own credit record business’ property or equipment. intended to present information in a in good shape. If you apply for nontechnical way and is not intended 46. Consider an SBA-guaranteed a business loan, the lender will to be a legal interpretation of FDIC loan. Under this program, the U.S. likely review the personal financial or other government regulations and Small Business Administration (SBA) statements of the main owners of the policies. Mention of a product, service guarantees a portion of a loan, often business. Concerns about the financial or company does not constitute an up to 85 percent, and enables a small skills of the owners can raise the endorsement. business owner to qualify for attractive interest rate on a business loan. This newsletter may be reprinted in interest rates and financing options. 51. Learn tips on saving money whole or in part. Please credit FDIC For more information, call the SBA from experts. Sign up for free or Consumer News. toll-free at 1-800-827-5722 or go to low-cost workshops and confidential Send your story ideas, comments, www.sba.gov. counseling for small business owners. and other suggestions or 47. Research local small business Start with the local SBA office (for questions to: Jay Rosenstein, Editor, loan programs. These programs referrals to local resources), SCORE FDIC Consumer News, 550 17th may include loans with below-market (formerly called the Service Corps Street, NW, Washington, DC 20429 interest rates or no origination fees. of Retired Executives, a nonprofit [email protected] Start by contacting your state or local SBA partner that provides free department of economic development. counseling to small businesses), and Find current and past issues of various small business development FDIC Consumer News at: 48. Shop around for good deals and centers (generally operated by www.fdic.gov/consumernews. Refer to good service for small businesses. schools, nonprofit organizations and that same index to locate issues that are Ask about loans as well as deposit corporations). specially formatted for being reprinted accounts and other services for small Q in any quantity. To receive an e-mail notice about This FDIC Special Edition May Be Reprinted each new issue with links to stories, follow instructions posted at: The FDIC encourages financial institutions, government agencies, consumer www.fdic.gov/about/subscriptions/ groups, educators, the media and anyone else to help make the tips and index.html. information in this special edition of FDIC Consumer News widely available to the public. For More Information from the FDIC This publication may be reprinted in whole or in part without advance permission. In addition, the FDIC offers this special edition online in a Go to www.fdic.gov or call PDF version at www.fdic.gov/consumernews that looks just like the printed toll-free 1-877-ASK-FDIC—that’s publication and can easily be reproduced in any quantity. 1-877-275-3342 — Space on the back page of the PDF version also was intentionally left blank so Monday through Friday that an organization could add its name, logo, a special message and/or mailing 8:00 a.m. to 8:00 p.m., information. Eastern Time.

FDIC Consumer News Summer 2007 11 51 Ways to Save Hundreds on Loans and Credit Cards

For More Help or Information on Loans and Credit Cards

The Federal Deposit Insurance Other federal agencies also publish State and local government agencies Corporation publishes consumer consumer information and respond also publish consumer information information and has other resources to inquiries. A good place to start and help answer questions on money that can help answer questions on is www.mymoney.gov, the federal matters. Go to your state or local loans, credit cards and other financial government’s central Web site about government’s Web site or call a matters. Start at www.fdic.gov or call managing your money. It is a service of consumer protection office listed in toll-free 1-877-275-3342. Back issues the interagency and your phone book or other directories. of our quarterly FDIC Consumer Education Commission, of which the News and articles referenced in this FDIC is a partner. FDIC-insured banks, other special edition are available at that financial institutions and The Federal Citizen Information same Web site or upon request from professional associations, consumer Center (FCIC), perhaps best known our Public Information Center at the organizations and the news media for its information clearinghouse based same phone number as above. To send publish tips on loans, in Pueblo, Colorado, helps answer a question to the FDIC, e-mail us credit cards and other topics. You can questions on everyday issues. For using the Customer Assistance Form at find a number of excellent sites by example, the FCIC can direct you to www2.fdic.gov/starsmail/index.asp or searching the Internet. Q the appropriate federal government send a letter to the FDIC, Division of agency that can respond to a question Supervision and Consumer Protection, or complaint. Go to www.usa.gov or 550 17th Street, NW, Washington, toll-free 1-800-333-4636. DC 20429-9990.