Always Shop Around!
Sometimes you may need to borrow a few dollars because of an unexpected medical bill, broken appliance, or to buy a used car to obtain keep a job. While the amount of cash you may need is small, the amount of interest you will repay may be large.The higher the interest rate, the more you must repay. You should know that the lower the monthly payment, the longer it will take you to repay the loan and the more you will pay to borrow the same amount at the same interest rate.
What You Can Do To Avoid Problems
Save now for unexpected expenses. Even putting aside a small amount each week will help: Try to save your money before there is an unexpected expense so that you can avoid borrowing. You can talk with budget counselors who can help you understand how you spend your money each month and how you might save. Shop around. Do not look just at the monthy payment. Compare the interest rate (also called the "annual percentage rate"), the total amount you will repay, the number of payments, and the amount of fees added on to the loan. Read before you sign, Make sure you or someone you trust reads the loan papers before you sign them. If the lender will not let you take them home to study them and tries to rush you, walk away. That is a sign of trouble.
Consider altern ative credit. If you open an account at a credit union (which is like a bank and is backed by the federal government), you can get a small loan at interest rates of 10-20% instead of the 254-830% (for pawnbrokers and rent-to-own stores) or 730% (for the payday loan). If you need a loan to start up a small business, there may be a non-profit organization in your area that can help.
Abuses by Some Small Loan Lenders
* Some lenders charge very high interest rates.
* Most lenders will also add fees to the cost of the loan and try to sell you insurance. These extras make the loan even more
* Some lenders make it hard for you to figure out how much the loan is really going to cost.
* Some will encourage you to borrow from them over and over again sosthat they can make more money at your expense.
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Compare:
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* You borrow $500 at 18% interest for
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12 months:
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* You pay $45.84/month x 12 months
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$500.00 principal (you get)
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+ $50.08 interest you pay
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= $550.08 total to repay
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* You borrow $500at 18% interest for
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24 months:
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* You pay $24.96/month x 24 months
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$500.00 principal (you get)
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+ $99.04 interest (you pay)
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= $599.04 total to repay
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