Credit ~ Next Steps. Homework (Passport Page 38)
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Transcript of Credit ~ Next Steps. Homework (Passport Page 38)
Welcome!
• Paying Down Debt• Debt Snowball• Predatory Lending Trap• Types of Predatory Loans• Payday Loans• Refund Anticipation Loans• Car Title Loans• Rent-to-Own Contracts• Alternatives to Predatory Loans
Pay Off Debt
1. Stop acquiring new debt
2. Establish savings
3. Implement a debt snowball
― List all debts from the smallest balance to largest
― Pay the minimum on everything but the smallest debt
― Pay as much as you can on the smallest debt
― When the smallest debt is paid, take the monthly
payment you were making on that debt and add it to
the monthly payment you were making on the second
smallest debt
― Continue this process until you are DEBT FREE!!!
What is Predatory Lending?
Unfair
Deceptive
Fraudulent
Preys on the vulnerableTargets lower-income
& minorities
wreaks havoc
Unreasonable
Non-Mortgage Predatory Loans
Car Title Loans
Rent-to-OwnContracts
Payday Loans
Refund Anticipation
Loans
Payday Loans
• Small cash advances ~ $500 or less at a time
• Must repay loan back within two weeks
• Payment Options:
– Postdated personal check
– Authorization for automatic withdrawal
• 195% APR or higher!
• The usual cost is $15 for every $100 borrowed for
a two week period.
Virginia Payday Loan Regulations
• Limited to $500
• Only one loan at a time
• Term of the loan must be at least twice as long
as your pay cycle
• Cannot be “rolled over”
• Interest charge capped at 15%
– Don’t let this fool you!
– A 15% charge for a 7 day loan is equal to
an APR of 780%!
Refund Anticipation Loans
• Short-term cash advance against an
anticipated income tax refund
• Annual Percentage Rates from 60% to over
700%
– Average is 115%
• Usually beat IRS refund processing by only 5 to
10 days if you e-file
RAL: Real World Example
For a tax refund of $2000, you might pay:
RAL loan fee: $75
Electronic filing fee: $40
Tax preparer fee: $100
Total: $215
This is over 10% of your refund!This RAL has an APR of 142%
and it beats the IRS by only 7-10 days.
Car Title Loans
$500 loan =$650 in Interest
Renewed 8X on
Average
Puts Vehicle at
Risk
Payment within 30 days
Triple Digit APRs
Car Title Loans
Car Title Loan Procedures
• Need free & clear title
• Vehicle’s value determined― Loan-to-value ratio generally less than 33%
• Typical loan is around 25% for 30 days― $500 loan becomes a $625 debt (300%
APR)
Rent-to-Own
• Merchandise is
“rented” (e.g. TV)
• Weekly or monthly
rent until owned
• No interest rate
disclosure required
• No limit to late fees
charged if payment
missed
Item $217 TV
Payment $10/ week for 78 weeks
Total Cost $780
Interest $560
Annual Interest Rate
230%
Alternatives to Predatory Loans
• Savings accounts
• Salary advances
• Loans from friends, relatives, religious institutions
• Social service agencies
• Working out extended repayment plan with creditors
• Small loans from your bank or credit union
Saving Secured Loans/Credit Cards
• Uses your savings as collateral
– You still earn dividends
• Available credit equals amount in savings
• Help you build your credit score
• Available to almost anyone, regardless of your
credit history