Let’s look at Question #2 – Have I found the best credit use or “buy” that I could?

In case you missed Part 1 we looked at the question of – Using credit for this purchase?

Now let’s look at question 2:

The main sources of consumer credit are:

(a) Lending Institutions

• Credit Card Companies – VISA, MasterCard, American Express, Discover
• Credit unions
• Personal loan departments of banks
• Small loan companies
• Sales finance companies that take over credit “paper” from dealers.
• Pawnshops

(b) Retail sales establishments

Department stores, specialty shops, appliance stores, auto sales, for example. Such companies as Sears, JC Penney’s, The Gap, Victoria Secret and many more offer credit as a service.

The charges from these different sources vary a great deal. Take time to investigate. Find out what kind of service you can expect, what the cost and repayment terms will be. Do this before you make a bargain, for once you sign a contract, you’re committed to carry out your part.

Find Out the Dollar Cost. You probably compare prices on shoes, dresses, coats, housewares. Why not on the cost of credit?

Credit costs vary widely among different lenders and among stores that sell on the installment plan. In fact, costs may differ considerably among the various “plans” available from a single store.

It will pay you to take time to get the facts. You need to know more than the down payment and monthly (or weekly) payments — so take time to check your contract. The contract should give you

• (a) how much is to be financed ;
• (b) the amount of each installment payment ; and
• (c) the number of installments.

This is the way you figure cost: Multiply the amount of the monthly payment by the number of payments to be made. From this figure subtract the amount that is to be financed. The difference will be the dollar cost of credit.

EXAMPLE :1

A refrigerator costs $300 and can be paid for by making a $12 down payment and 12 monthly payments of $25.92 each.

Multiply payment amount X number of months to be made ($25.92 x 12) = $311.04

Subtract the amount financed (Cash price minus down payment) $300 – $12 = $288.00

Dollar Cost of Credit $ 23.04*

Total cost when bought on credit ($300 cash price plus $23.04
credit cost) $323.04

Note: The cost of credit equals $8 per $100 per year on unpaid balance of $288. This is equivalent to a simple annual rate of 14.8%.

Now on to Question #3 – How Is My “Credit Score or Rating”?

Question: I wanted to know about annual interest rates. Who’s job is it to know the rates. The numbers seem different than what is advertised. My boyfriend recently bought a TV and he just signed the papers and did not really understand the cost or rates. Renee Falls Church, Virgina

Answer: The “True Annual Interest Rate” sometimes called APR is something as a consumer you need to find out before making any purchase on credit. As the use of installment credit (using credit cards and paying minimums) has increased, a great deal of confusion has developed over interest rates. As a result, it has become extremely difficult and sometimes impossible for consumers to compare the cost to him on credit cards, credit from the bank, the credit union, the department store and other sources.

“Truth-in-lending” legislation has been updated many times since it was proposed in 1961 and there have been extensive hearings on the bill. Proponents say that the consumer “has the right to know.” Opponents (some lenders and retail establishments) argue, among other things, that it is impossible to figure accurately what the true annual interest rate would be on installment payments as they are commonly set up. There is some truth in this claim, but the consumer could be given much more exact information about interest rates than he usually is given.

As a consumer it is very important that you get yourself educated on the “True Cost” of borrowing before buying an item.

When applying for a credit card, you must understand the importance of the APR. The Annual Percentage Rate affects how much you pay in interest on your credit card. With millions of Americans are currently in debt, you should understand how credit cards work to avoid falling into the same trap.

Using credit cards can become very expensive, especially if you have a high APR. Be sure you understand the interest rate and all of the fees associated with using your credit card. If you don’t, these fees can really add up, making it hard for you to pay the bill each month.

If you have bad credit, you will probably only qualify for a card with a high APR, as well as additional annual fees. If you do sign up for such an offer, pay the bill on time every month, and then in six months contact the lender and ask for a lower interest rate.

One way to do this successfully is to research other credit card companies willing to offer you lower interest rates, and threaten to leave if your current credit card company does not lower their rate. However, if do not often pay on time or have only recently gotten the card, this strategy will not work.

Before applying for a credit card, make sure you do your research so that you know how interest rates work and what would be a reasonable APR for you to accept. Also look at the Terms & Conditions to learn about fees for balance transfers, overdrafts, cash advances, and other activity on your account. Consider how often you would be charged these fees to find a card that works well for your situation.

Again, if you already have a credit card, then make all of your payments on time to increase the likelihood of getting a better interest rate in the future. If your credit card company will not lower your interest rate, consider switching to a different credit card company willing to offer you a better rate. Make sure to take care of the remaining balance on your current card before leaving, or you could be charged a penalty fee.

Keep in mind that credit card interest can add up quickly from month to month. If you don’t pay your balance in full each month, having a credit card can get expensive. Ask yourself if it is worth it, and try your hardest to lower the interest rates. Make sure you understand exactly how much your credit card is costing you each month, and weigh the benefits against the risks.

If you feel that you can do without a credit card, that is a viable option to consider. In fact, many people do not use a credit card. Make sure you read all of the details if you do decide to sign up for a card. If you don’t understand the card’s fees, you could find yourself in debt because of the credit card.