Have you ever signed a document without reading or understanding everything you were signing?
Most people would answer yes.
This can cost you more money than you thought you agreed to.
Reading the fine print can be especially important when signing for credit.
The keywords you should look for and be sure to understand before signing any financial contract are:
- Due date. This is the day of the month payment is due. Will this date work with your monthly flow of funds? If the due date puts a burden on your checking account balance because of other obligations requiring payments near the same date, ask your lender for a different monthly due date.
- Payment Amount is the amount that is to be paid on the due date. Make sure you understand what the payment amount includes and if other items such as insurance or taxes need to be paid separately.
- Finance charge includes any fee representing the cost of credit, or the cost of borrowing. The finance charge can include the interest as well as any other financial transaction fee. Lenders are required to express the finance charge as an “Annual Percentage Rate” or APR. The APR shows the amount of all interest and fees as a percent of your account balance.
- Late fee: This is the fee charged to you for not making your full payment on time. Read when any late charge will be charged in relation to your due date so that you know if you have any leeway on meeting your payment date.
If you are getting an auto loan, other terms that might apply to your agreement could be:
- GAP insurance: Guaranteed Asset Protection (GAP) insurance covers the difference between the actual cash value of a vehicle and the balance still owed on the loan in the event the vehicle is totaled before the loan is paid in full. GAP can be excellent protection for you to obtain when financing a car, but make sure that GAP is not being added to your loan payment without your knowledge.
- Credit/Life and Disability insurance pays the lender of your loans at a time when you can't pay due to disability, getting laid off from work or in the event of your death. Like GAP, getting this insurance coverage can be a smart move. However, it shouldn’t be added to your loan without your decision to include it.
- Collateral Protection Insurance (CPI): CPI is an insurance policy that protects auto loan lenders from financial losses resulting from having to pay claims when someone does not have auto insurance. Your loan contract will note that your lender will “force place” a policy if you do not provide proof of insurance. Since people who do not obtain auto insurance are generally high risk, CPI policies are costly and can significantly impact your payment and amount due.
Understanding how these terms apply to your specific credit disclosure will help you make the right decisions when thinking about borrowing.
Do not be afraid to ask questions.
If you see any of these terms in your contract and are not clear on what they mean, ask the lender! If you guess, you may be surprised when you end up paying more than you originally intended.
Educating yourself is empowering yourself.
Resources like Accel Money Management are available to help you budget and make the best financial decision to suit your needs. Educating yourself financially will help you to make the best decision to help ensure you are making good choices when borrowing.
Don't be fooled by thinking that financially successful people fell into success but rather understand the knowledge needed to get there.
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