Chap 5: Furniture, Fridges and Other Loans

Lenders do want to work with you to make an application into a loan. Be truthful and practice full disclosure with your loan officer. They will find out anyway whatever you’d rather hide. So you may as well avoid the embarrassment and get them on your wavelength and wanting to work with you. Like people everywhere, lenders become very leery of helping after you’ve spent the first part of the meeting bluffing, evading or wasting their time. That doesn’t mean you have to settle for partial answers, not having your questions explained thoroughly or being talked down to. After all, you are the consumer and you’re the one who will ultimately be making them a large amount of income with the interest you will pay. You do have to do some negotiating, as well. Lenders want to make a certain overall yield (profit) for their company. That does not mean they have to make it all from you, but they will start at their retail rates. In a perfect banking world, everyone pays this rate. But like the automotive business, how many people pay sticker price?

Can You Afford It?

If your income before taxes is $1,000 and you already have $500 in bills – sorry – you’re not getting a loan of any kind, any rate – from anyone, no matter how great the reason. The math says you can’t pay it back and why would someone lend you money, when they know that you can’t afford to make the payments in the future? So all lending goes back to something called your debt ratio…

When you’re declined for a loan the first thing to do is always ask why? Not to storm out, get mad or defensive. Are you applying for a loan that exceeds what you have for collateral – perhaps a lower amount will work? Would a cosigner be available to sign with you – could that be an acceptable alternative? It is always best to explore all your options instead of going from place to place expecting something different – their decision will likely be the same.

No Payments – For a While

Obviously, payments will eventually need to be made and over a longer term because of the loan size. Is it an invaluable way to purchase something now and pay later or just the illusion of getting it today and for free – for a while?

…taking advantage of their financing also attracts an undisclosed administration charge ($99 for six months and $198 for 12 months when you call them) and some ads have shown a “Don’t pay for 12 months” promotion. There is no mention of zero percent interest, which means you don’t need to pay for a year, but the interest meter is running.

…the actual finance contract discloses that it will at a rate of 28.9 percent. Their payment is only $38 (on an example of $1366 financed divided by 36) and takes over 80 months, or almost seven years, before the computer is paid off. Do you know many people happy with a seven-year old computer? Isn’t that something to consider before paying minimum payments?