Friday May 24, 2013
It shouldn't be surprising, but it is: auto loans are now available for terms of up to 97 months. Because it's hard to divide into numbers that large, I'll just tell you -- it's a little over 8 years. That means that you can really stretch out your auto loan (possibly for longer than you'll keep a vehicle) and minimize your payments.
Unfortunately, these loans will probably get used to buy autos that a borrower could not otherwise afford. They'll be able to keep monthly payments down, and that means that buyers can move upstream and add more expensive options. It sounds a little bit like interest-only mortgages before the financial crisis.
Kevin Mercadante, writing for CashMoneyLife.com explains why 97 month loans can lead to trouble. I suppose that they could make sense for a cash-strapped borrower who desperately needs a car to get to work and earn an income, but even then these loans are risky and expensive unless you pay them off early. And of course the majority of people who use long term auto loans aren't going to fall into that category.
If you're buying an auto this summer, keep your loan to 5 years or less. You won't be able to spend as much, but you'll steer clear of trouble down the road.
Tuesday May 21, 2013
It's not a bad idea to leave (and maybe forget about) a little bit of cash sitting in the bank. That money can grow, and it will be available if something comes up.
Unfortunately, banks often "freeze" inactive accounts, and you might not have access to your emergency cash. Some accounts are frozen after as little as 6 to 12 months of inactivity, and un-freezing them is not always easy. In some cases you'll have to mail documentation to the bank (which proves that you exist and confirms your address), and that process may take a few days.
Why do banks freeze these accounts? If they don't see any transactions in an account, they eventually consider it "abandoned." For all they know, you've forgotten about the account, or you may have passed away. Six months is a pretty short time period, but at some point they need to call your account dormant (and eventually turn your assets over to the state).
Preventing accounts from getting frozen is much easier than un-freezing them when you want the money. Ken Tumin at DepositAccounts.com offers a few tips for avoiding frozen accounts: find out when accounts will be frozen, figure out what activities will keep them from getting frozen, and do what it takes to keep your account active.
Wednesday May 15, 2013
When you pay with plastic, retailers have to pay swipe fees. Whether or not they can pass that cost on to you depends on several factors, and some merchants are illegally adding swipe fees to customers' bills.
If you use a debit card (as opposed to a credit card), you should not pay swipe fees. Recent laws that allow merchants to pass on those costs apply only to credit card transactions. However, in some places, the rule is: if you pay with plastic, you'll have to pay extra. Smaller merchants may be doing this by mistake (changes in law can be confusing), but larger organizations that should know better are also doing it. At GoBankingRates.com, Casey Bond reports being charged at mom-and-pop establishments and well-established gas stations.
When you're out shopping, remember that debit card rules are different from credit card rules. In some states, retailers can charge extra if you use a credit card. They can also require that you meet minimum purchase amounts. However, they're not supposed to do this if you use a debit card. You're probably paying these fees anyway -- retailers build them into the prices you pay -- so don't pay twice if you don't have to.
Tuesday May 14, 2013
Consumers continue to learn more about credit scores, but a few common myths continue to cause confusion.
A new study released by the Consumer Federation of America and VantageScore Solutions shows that 40% of people think that their age and marital status affect credit scores. In fact, neither of those characteristics should directly affect your credit score. If you're young, there's a possibility that you have had less time in life to develop a credit history, but even older consumers may have "thin" credit files. Likewise, marital status isn't part of the equation. Sometimes one spouse does all the borrowing, and (depending on whether or not the loans get paid off) that person might have good credit while their spouse has a thin file, but credit scoring models really don't care whether or not you're married.
In addition, 40% of consumers didn't realize that lenders use credit scores to decide whether or not to approve loans (and to decide whether or not to offer the best interest rate). It's important to know that your credit score is one of the major deciding factors; your income -- or your ability to repay the loan -- is probably the next most important factor.
If you're suffering from bad credit, be sure to study up on how credit scores work. It's not rocket science, but high scores don't come quickly or easily.