51 Ways to Save Hundreds on Loans and Credit Cards
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SPECIAL EDITION
51 Ways to Save Hundreds
on Loans and Credit Cards
Simple strategies for cutting costs
any time, plus special tips just for …
• Credit Cards
• Home Loans
• Auto Loans
• Small “Emergency” Loans
• Student Loans
• Small Business Loans
F E D E R A L D E P O S I T I N S U R A N C E C O R P O R A T I O N51 Ways to Save Hundreds on Loans and Credit Cards
Cutting Your Costs: Simple Strategies for
A Message to Readers
Saving Money on Loans and Credit Cards You probably think of loans and
Loans and credit cards provide great 2. Don’t have “too many credit credit cards as services — as ways
consumer benefits, but as with any cards.” There are good reasons to to borrow money and buy things.
form of borrowed money, you’ve got have at least two credit cards, but And of course, you’re right about
to be careful about how you manage some people collect a stack of cards, that. But given the astounding array
credit. Here are tips for saving money including those from stores and oil of credit-related services available
on credit products — in your basic companies, several of which they rarely today, with their varying degrees of
financial affairs, when shopping for use. One problem with having a lot complexity and costs, it’s smart to
new credit, and when using loans and of credit cards is that lenders look at think of mortgages, credit cards and
credit cards. the ones with no existing balance or a auto loans as products — tangible
very low balance and conclude that you items that you should research and
Getting a Grip on Credit compare before you buy, and then
have the potential to use them and get
1. Pay your bills on time to maintain into debt. Even if you’ve proven in the use with care.
a good credit record and qualify past to be a responsible user of credit, The Federal Deposit Insurance
for low rates. Don’t wait until the these “extra” cards could come back to Corporation wants to help you
last minute to pay your monthly bills. haunt you the next time you apply for reap the benefits of loans and credit
Not only will you incur late-payment a mortgage or other loan. cards at the lowest possible costs.
fees (see Page 4), but perhaps more That’s why this special edition of
importantly you risk triggering higher “There is a cost to having too much
our quarterly FDIC Consumer
interest costs. That’s because your credit,” said Suzy Gardner, an FDIC
News is a collection of 51 simple,
payment history on your debts and bank examination specialist and an
practical tips and other guidance
bills is one of the biggest factors in expert in consumer credit issues.
that can help you save hundreds, if
your credit report and credit score. “Although individual circumstances
not thousands, of dollars.
vary, having more credit available than
A credit report is a compilation of how what you can reasonably use, need or In this special edition you’ll find
you pay your credit card bill, loans, afford can hurt you in the long run.” ideas and information on topics
rent, and selected other debts and bills. such as how to: get the best
A credit score is a number that is based Example: You have several credit cards
possible interest rates on loans
on your credit report and reflects your and the combined outstanding balance
and credit cards avoid paying
financial responsibility. Both are part on them is $15,000 below your credit
unnecessary fees; find “emergency”
of your overall credit history, which limit. Then you apply for a home loan.
loans at affordable prices; and steer
can determine your chances for a low- The mortgage lender may question
clear of credit-related rip-offs and
cost loan or a lower interest rate on a your ability to repay both a mortgage
scams.
credit card. and $15,000 worth of new purchases
on your credit cards. And, your overall At the FDIC, we not only help
While one or two late payments credit score can suffer, resulting in the keep your money safe in insured
over a long period of time may not lender charging you a higher interest bank accounts, we also want to help
significantly damage your credit rate or denying the loan altogether. you keep more of your money.
history, if at all, making a habit of
missing payments can result in a One solution is to cancel the credit interest rate on a loan or credit card
higher interest rate, higher fees or cards you rarely or never use, and save you hundreds of dollars each
both when you apply for any type of preferably well before you apply for year in interest payments. For example,
loan or credit card. Lenders put more another loan. Start by closing your if you always pay your loans on time,
emphasis on your recent payment newer credit card accounts — that’s but your credit report shows late
history, so be particularly careful with because your credit score can be payments, you’ll want to correct that.
payments in the months before you lowered if your credit history appears
shorter than it really is. Another option By federal law, you are entitled to
apply for a loan.
is to ask your card issuers to reduce one free copy of your credit report
Consumers who pay their credit card your credit limit. every year from each of the three
bill late may face a major hike in their nationwide credit bureaus — Equifax,
interest rate — often to between 29 3. Check your credit report for Experian and TransUnion. Each
and 35 percent. Late payments on that accuracy. Something as simple as company issues its own report, so
card also can trigger rate increases on correcting incomplete or erroneous it’s smart to check each one. Go
other cards or loans, especially if your information in your credit record may to www.AnnualCreditReport.com
credit record shows other signs of risk. be enough to qualify you for a better or call toll-free 1-877-322-8228 to
FDIC Consumer News Summer 2007
51 Ways to Save Hundreds on Loans and Credit Cards
order free credit reports or for more 6. Focus on the long-term cost you don’t have to pass up a good deal
information. Although you can ask of the loan, not the monthly just because the institution doesn’t
to receive copies from all three credit payment. “Many car dealers or have an office in your area.”
bureaus at the same time, you also can even mortgage lenders will entice However, Jackson also warned that
spread out your requests throughout borrowers by asking how much they because con artists use the Internet
the year to check for major changes or can afford to pay each month,” added to trick consumers into divulging
inconsistencies. Kincaid. “It may be better to pay personal financial information, you
Identity theft is another reason to slightly more money each month, should never respond to unsolicited
regularly review your credit reports. but for a shorter time period, if it e-mails or to Web sites offering
Make sure an ID thief hasn’t opened means you will be paying less in total products or services that appear
credit cards or other accounts in your interest.” “too good to be true.” For guidance
name to commit fraud (see Page 5). She also said that some people look on whether a bank is legitimate, call
so much at the monthly payment the FDIC at 1-877-275-3342 or use
4. Periodically review your existing
that they don’t notice certain fees Bank Find, our online directory of
loans and credit cards with an eye
or service charges that are imposed. insured institutions, at www2.fdic.gov/
toward saving money. “Talk to a
“You’ve got to look at the full picture idasp/main_bankfind.asp. (See more
customer service representative at your
before signing a loan agreement, about frauds on Page 5.)
bank to make sure you’re signed up for
the accounts and features that best fit including the APR and provisions 8. Read the fine print before signing
your needs, especially if your financial of the loan that can increase fees,” up for any loan or credit card.
situation has changed recently,” said Kincaid said. For example, realize that if you get
Janet Kincaid, FDIC Senior Consumer You can also avoid unnecessary a new credit card promoting zero-
Affairs Officer. “For example, if you interest charges if you pay for certain percent interest on new purchases and
tend to carry a balance on your credit costs out of your own pocket instead you don’t pay off the entire balance by
card, find out if you qualify for a credit of borrowing that money, too. Let’s the due date (typically after six to
card with a lower interest rate or other say you’re getting a new mortgage 18 months), you may be charged
features that can cut your costs.” and you’re offered the chance to add interest on all your original purchase
the closing costs to the loan instead of amounts — not just on the remaining
For tips on refinancing an existing loan
paying them upfront. Sounds good on balance — retroactive to the original
or credit card, see Page 5.
the surface, but remember that you’re purchase date. The costs could be
Shopping Tips not getting out of paying the closing more than if you had used a card
costs — they’re added to the loan without a zero-percent offer. With a
5. Compare the products offered by mortgage loan, find out when your
balance, so your monthly payments
your bank and a few competitors payments will or could change and
will increase and you’ll be paying
and then negotiate the best deal. how much higher the payments would
interest on the closing costs.
“Don’t hesitate to let lenders know be under different scenarios. What you
that you are shopping around for 7. Take advantage of the Internet. don’t read and don’t know can cost you
the best possible terms and that you Not only can you research credit a lot of money.
are not afraid to negotiate,” Kincaid products and comparison shop among
stressed. “Competition can be a good hundreds of lenders over the Internet, 9. Don’t pay for expensive insurance
thing.” but you can also apply for a loan or coverage you probably don’t need.
credit card online from those same Many lenders sell disability, life
One of your most important shopping insurance or other similar protection
lenders.
aids for a loan or credit card is the plans which, as an example, might
APR — the Annual Percentage Rate. “The Internet is, without question, cover minimum loan payments due
This required disclosure shows the the fastest and easiest way for if the borrower becomes ill or dies.
total cost, including interest charges consumers to find out about and Credit protection programs may
and other fees, expressed as a yearly compare the various types of loans be the best or only coverage for
rate. When you’re comparing loans and credit cards offered by banks certain people who want this kind of
from different lenders, make sure you around the country,” observed protection, such as some consumers
use the same dollar amount and time Michael Jackson, Associate Director who are ill or who are concerned about
frame so you can compare the APRs. of the FDIC’s Division of Supervision making loan payments if they lose
That way there’s no confusion about and Consumer Protection. He added their job. But these plans may be far
which loan will cost less. For a good that if you find an interesting offer more costly or more limited in purpose
example of how the APR can help you from a far-away bank or an Internet- than other options, such as traditional
shop for credit, see the discussion of only lender, “in most cases you can insurance not tied to loans.
payday loans on Page 9. apply for and finalize the loan online;
continued on next page
FDIC Consumer News Summer 2007
51 Ways to Save Hundreds on Loans and Credit Cards
Before purchasing a credit protection It is also possible to pay your loan interest rate on your credit card may
product, consider if you already have, or credit card bill online, but it’s be subject to negotiation.
or would be better off with, traditional recommended that you pay about two
Also talk to your banker if you’re
insurance. Look at your savings and days before the due date to be sure it
having problems repaying a loan.
other assets, because you may have is processed on time. Also know your
Explain the situation and any unusual
sufficient emergency funds to do what financial institution’s cut-off time for
circumstances. Many lenders will agree
these programs promise if you become recording payments each day. If you’re
to temporary or permanent reductions
sick or unemployed. Also remember bumping up against the deadline and
in your loan interest rate, monthly
that most credit protection is optional. you can’t pay online, consider calling
payment or other charges. Open
Using a Loan or Credit Card your card company and asking for
communication is key. Again, it helps if
other options, such as providing bank
10. Avoid or limit interest charges. you’ve had a clean record in the past.
account information to authorize an
While it may sound like a bargain to electronic fund transfer from your 14. If you have a serious debt
pay the minimum due on your credit checking account. “Even though there problem, a reputable counseling
card so you have more money to spend may be a small service charge for these service might help you avoid losses.
on other things, the long-term costs of options, it will likely be less than a A variety of organizations specialize
this strategy can be staggering. That’s late-payment fee,” said Kirk Daniels, in helping borrowers deal with debt
because credit card interest rates can a supervisor in the FDIC’s consumer overload, minimize the damage to
be quite high — with the best of rates affairs section. credit histories and, in the worst cases,
often being in the low double-digits. avoid foreclosures that could result in
Instead, try to pay all or as much as Should you pay the old-fashioned
the loss of a home or other property.
possible of your outstanding credit way — by regular mail — allow
Their services range from helping
card balance to avoid interest charges. enough time for delivery and
people establish a budget to talking
“The amount you pay toward your processing by sending your payment
with lenders to discuss modifying the
credit card bill each month can have about a week before the deadline.
terms of a loan. But be careful before
greater long-term consequences for 12. Closely review your account signing an agreement with a credit
your finances than how much money statements and other mailings from counselor because some may offer
you save or invest each month,” added your lenders. Check your statements questionable or expensive services, and
FDIC Consumer Affairs Specialist as soon as they arrive to look for others may be scams.
Howard Herman. errors, unauthorized withdrawals
Start your search by asking people
Similarly, many people send in and other matters you might want to
you trust for referrals. Then check
more than the amount due on their question or challenge. The sooner a
with your state Attorney General,
mortgage (see Page 7) and other loans problem is detected, the easier it is
local consumer protection agency and
so they can pay off the debt faster and to correct. And if you don’t report an
the Better Business Bureau about any
reduce their total interest cost. error within prescribed time limits,
complaints against the organization.
you may not be covered by some
11. Avoid late-payment fees. These “You’ll also want to know as much as
federal consumer protection rules.
are penalties, typically $30 or more, possible about the services, the fees,
charged by your lender when you don’t Also, don’t assume that literature inside the qualifications of the counselors,
make a loan or credit card payment a loan statement or credit card bill is and how much input you will have
on time. One way to prevent late junk mail. It could be your only notice in working out the details of any
fees is to arrange, at no charge, for of new fees, an increase in the interest commitments with your lender,” added
an automatic withdrawal from your rate, or other significant changes. If Sam Frumkin, a Senior Policy Analyst
checking account to cover these and you don’t monitor these mailings, you in the FDIC’s Division of Supervision
certain other recurring expenses (such could pay more for banking services and Consumer Protection.
as a utility or insurance bill). The and not even realize it.
In addition, the FDIC and other
automatic debiting of your account
13. Don’t be afraid to ask for a banking regulators have been urging
also takes the hassle out of making
break. Do you think the fees for your borrowers who are delinquent on a
scheduled payments and saves on
mortgage application are a bit steep? mortgage loan and at risk of losing
postage. However, be sure to record
What about the fee you were charged their home to get help from a specialist
these automatic payments in your
for being late with your loan or credit called a “housing counselor.” To find
checkbook, said FDIC attorney
card payment? Depending on the a reputable one in your area, contact
Susan van den Toorn. “If you don’t,”
circumstances, your lender might be the U.S. Department of Housing and
she cautioned, “you might end up
willing to reduce an interest rate or Urban Development (1-800-569-4287
accidentally overdrawing your checking
waive a fee or penalty, especially if or www.hud.gov/offices/hsg/sfh/
account and subjecting yourself to fines
you’ve been a good customer. Even the hcc/hcs.cfm) or the Homeownership
and damage to your credit score.”
FDIC Consumer News Summer 2007
51 Ways to Save Hundreds on Loans and Credit Cards
Preservation Foundation (1-888-995-
4673 or www.995hope.org). Refinancing: Tips for Mortgages and Other Credit
15. Don’t be afraid to complain. Your Here are ways to save money by 18. Consider refinancing an
bank’s managers probably would prefer refinancing — by paying a loan off auto loan if you expect to make
you bring a problem to their attention “early” with a new, better loan. payments for several more years. It
and be given the chance to fix it
16. Know when refinancing a may be harder to find a better interest
rather than see you take your business
mortgage makes sense. According rate because your car has probably
elsewhere or tell all your friends about
to the Consumer Action Handbook depreciated in value. But if the savings
your bad experience. If you don’t get
published by the Federal Citizen from a lower interest rate more than
satisfaction from a customer service
Information Center, “Consider offsets any closing costs, refinancing
representative or another employee,
refinancing your mortgage if you can make sense.
consider talking to a supervisor.
can get a rate that is at least one 19. If you have multiple student
If you’re still having problems,
percentage point lower than your loans, look into the potential
consider contacting the institution’s
existing mortgage rate and if you plan benefits of consolidating them
federal regulator. The FDIC and other
to keep the new mortgage for several into one new loan at a lower
banking regulators cannot intervene
years.” Also consider the extra fees for interest rate. Compare the rates,
in many disputes but can help you
the new mortgage. terms and costs. “It may not be worth
understand your consumer rights.
The appropriate agency also can seek 17. Be smart about dropping one consolidating if it means losing a good
corrective action if the institution is credit card for another. Transferring fixed-interest rate, giving up a long
in violation of a law or regulation. To an outstanding balance to another grace period before loan payments are
find out which government agency credit card can give you a lower due, or running up other costs that
regulates a particular lender, you can interest rate, but find out how long would exceed those on your existing
contact the FDIC (see back page). Q the new interest rate will last and how loans,” said Sam Frumkin, a Senior
it will change. Also see if there’s a Policy Analyst in the FDIC’s
balance transfer fee. Division of Supervision and
Consumer Protection. Q
Borrower Beware: How to Avoid Fraudulent or Deceptive Deals
20. Steer clear of fraudulent consistent on-time payments by a and it can take months to repair the
or deceptive offers targeting consumer can legally repair a credit damage. Notify your card issuer about
borrowers. Unscrupulous record. any problems as soon as possible to
individuals try to lure consumers Mortgage foreclosure frauds: Thieves help limit your losses.
into questionable, high-cost deals may contact homeowners at risk of How can you avoid credit-related
or fraudulent transactions, usually losing their home to foreclosure and fraud or deception in general? “Deal
involving new loans or credit cards or propose to help by “paying your with financial institutions or other
offers to help deal with debt problems. mortgage” while you temporarily companies you know or that you
Here are examples: “rent” your home from them. They have independently verified as being
“Predatory” loans: People from non- then trick you into signing documents legitimate,” explained Randall Howe,
bank or home improvement industries that transfer the ownership of the a fraud specialist at the FDIC. When
may use false or misleading sales property to the crooks. In other scams, in doubt, he said, you may contact the
tactics to make high-cost loans to phony companies claiming to be FDIC for guidance (see the back page)
consumers in need of cash. Victims housing counselors offer to negotiate a or call your state or county’s consumer
who can’t afford the loan may be new loan or perform other services for protection office.
pressured to refinance. Borrowers who very high upfront fees and do little or As for preventing credit card fraud,
pledge their house as collateral could nothing in return. safeguard your personal and financial
lose it in a foreclosure. Credit card fraud: Identity thieves steal information and monitor your credit
Credit repair scams: Con artists may personal information and apply for card statements and credit reports
promise to erase a bad credit history new credit cards or make counterfeit for signs that a thief has stolen your
or make easy loans to people with cards. Under federal law, if a thief uses identity.
spotty credit histories. Most charge your credit card or card number the For more specific recommendations,
exorbitant fees or never provide the most you are liable for is $50. Even so, go to www.fdic.gov/quicklinks/
promised money. Only steady and ID theft in general can be costly to fix, consumers.html. Q
FDIC Consumer News Summer 2007
51 Ways to Save Hundreds on Loans and Credit Cards
Taking Charge of Your Credit Cards
Read and save the
Many of our general tips starting on no grace period before interest begins
Page 2 can help save you money on accumulating. Also, stay on top of fee “disclosures” describing
credit cards. For example, we said it’s increases by reading and saving the
important to pay your credit card bill disclosures sent in monthly statements a card’s features and fees
and other debts on time to avoid late- or other mailings. so you know how to save
payment fees and additional interest
Avoiding additional charges isn’t
costs. Here are more suggestions.
the only reason to become an avid
money. When it comes
21. When choosing a credit card, reader of your credit card company’s to information about the
ask yourself if you plan to pay the literature. Potential cost savings
balance in full each month. Many built into your card also are worth terms of your credit card,
people don’t pay their bill each exploring. For example, your credit
month — they always carry a balance card may automatically include, at
be a pack rat.
and pay interest on it. Yet many of no extra charge, extended warranties
card, a higher rate on new purchases,
these same people sign up for a card on purchases and insurance for car
and an even higher rate on a cash
because it has no annual fee, without rentals. Your card also may offer cash
advance. If you pay only part of your
considering the benefits of a card back on purchases, rewards good for
monthly bill, card companies typically
with a lower interest rate or a more airline travel or products and services,
will apply your payment to the balance
generous grace period (before interest and various other extras. Also be aware
with the lowest interest rate first, while
begins accumulating). In the long run, of the rules governing these perks
the highest-rate balance continues to
a card that doesn’t charge an annual because limitations, fees and deadlines
run up interest costs until you pay the
fee could end up costing you far more may greatly reduce their value.
entire balance.
in interest than a card that charges an
23. Be especially aware of your card
annual fee. Universal default: This happens when
issuer’s billing practices, which can
a card issuer increases a customer’s
In general, if you expect to pay your significantly affect your costs. How
interest rate because he or she made
balance in full most months, look for your card company treats the balances
late payments to other lenders or had
a card with a full grace period and no on which you are charged interest
an overall decline in a credit score —
annual fee. However, if you plan on can be critical. Here are examples of
even if that customer paid the card bill
carrying a balance, then a card with potentially high-cost practices that
in full and on time. While this once-
an annual fee and low APR (Annual many people don’t know about even
common practice is rare, be aware that
Percentage Rate) may be a better though card issuers must disclose
it could be used.
choice. them:
24. Know your credit limit and stay
22. Read and save the “disclosures” Two-cycle billing: This billing practice is
below it. There are two problems
describing a card’s features and fees rare but is used by some card issuers.
with going over your card’s credit
so you know how to save money. Practices may vary but, in general,
limit. One is that your card issuer will
“When it comes to information about if you pay your credit card bill in
charge you a penalty, which can be
the terms of your credit card, be a full one month but then only pay a
expensive, typically about $30 for each
pack rat,” said Janet Kincaid, FDIC portion of the bill the next month,
instance. Also, exceeding your credit
Senior Consumer Affairs Officer. your interest charges ultimately will be
limit may damage your credit score,
based on two months of card charges
Key information to look for and which may mean higher interest rates,
and not one. This may result in you
keep: What is the interest rate and now and in the future.
paying more in interest charges than
how can it change? Is there an annual
you would under the more common To be confident you are within your
fee? What about charges for late
one-cycle billing method. To find credit limit, Kincaid recommends the
payments, returned checks, balance
out if your card is subject to two- following. “Periodically check your
transfers or exceeding your credit
cycle billing, review the cardholder balance by phone or online to make
limit? What’s the cost of a “cash
agreement and disclosures from your sure you stay within your limit,” she
advance” — typically meaning you
lender or call their customer service said. “Also give yourself an extra
use your credit card to get cash from
number. cushion — either try not to get too
an ATM or to make a purchase using
close to your credit limit or call the
one of the blank “convenience checks” Payment allocation: This involves cards
card company to get a higher limit if
sent with monthly statements? Cash with multi-tiered interest rates. For
you anticipate a special need, such as a
vacation or major purchase.” Q
advances are likely to carry sizable example, there may be a low rate on
upfront fees, a high interest rate and a balance transferred from another
FDIC Consumer News Summer 2007
51 Ways to Save Hundreds on Loans and Credit Cards
Home Loans: How to Keep Costs from Going Through the Roof
Buying and maintaining a house is because you may be able to obtain a loan faster by sending in extra
expensive enough, so why pay more fixed-rate mortgage with payments payments — say, an additional $50 or
than you have to for a home loan? comparable to an ARM and not have $100 each month or one large payment
Suggestions throughout this special to worry about future rate increases. once a year. If you can afford the extra
edition can help keep down the costs payments and don’t have other uses
“If you are thinking about an ARM,
of a mortgage or a home equity loan, for the money, “this is an easy way to
make sure you know how much
but here are additional tips. pay off the loan and save thousands
and how often the interest rate and
of dollars in interest charges without
25. You can negotiate the rates and payment could go up before you sign
incurring the cost of refinancing,” said
terms of a home loan. You should on, and be comfortable that you can
Marshall. There are pros and cons to
look for a mortgage the way you’d meet those higher monthly payments,”
the different strategies, so you may
look for a car — get all the important cautioned Janet Kincaid, FDIC Senior
wish to consult with a financial or tax
cost information, shop around and, Consumer Affairs Officer. “Don’t let a
advisor about what is best for you.
yes, negotiate for the best deal. That’s low teaser rate lure you in; you may be
one of the key messages of Looking surprised later.” 29. Save money on insurance.
for the Best Mortgage, a free consumer Because the value of your house is
27. Mortgages that involve little or
brochure published by the FDIC and backing your mortgage, you will
no documentation of your income
other federal government agencies be required by your lender to have
or assets may mean higher costs.
(online at www.fdic.gov/consumers/ homeowners insurance to cover a
While these mortgages can save you
looking/index.html). variety of damages that could reduce
time and are attractive if your source
the property’s value. Prices can vary
Many consumers aren’t aware that of income is unpredictable, the lender
significantly, so shop around.
they can negotiate the rates, closing generally charges a higher interest
costs and other terms of a mortgage rate. “If you have income that’s easy to Also make sure you get the right
or home equity loan and possibly save document, such as regular statements coverage for your situation. For
thousands of dollars. People often from your employer or a monthly example, if you live in an area that is
think that when they get a quote on Social Security payment, it’s probably at high risk for floods or earthquakes,
a loan from a lender or a mortgage not worth paying extra over the long you should consider purchasing
broker (someone who finds a lender term of the loan just to save a few days additional insurance coverage if it is
for you) that the same price is being during the application period,” said not otherwise required by your lender.
offered to everyone. But a lender or Mira Marshall, an FDIC Senior Policy
Private Mortgage Insurance (PMI)
broker may offer the same loan at Analyst on consumer issues. “Be sure
protects the lender when a borrower
different prices for different consumers, to ask about full documentation loans
fails to pay. It is usually required for
even if those consumers are equally and compare the costs.”
loans in which the down payment is
qualified for the loan. Why? Often
28. Look into paying off your less than 20 percent of the sales price.
that’s because the loan officer or
mortgage sooner rather than later. For the typical mortgage loan, PMI
broker is able to keep as income some
A mortgage with a long repayment costs about $40 to $70 per month or
or all of the difference between the
term (30 or even 40 years) is very around $500 to $800 a year. “PMI
lowest-price loan available and any
appealing because the monthly is costly and you should try to avoid
higher rate the consumer agrees to pay.
payments are relatively small, which it,” said Luke Reynolds, an FDIC
26. Consider a fixed-rate loan even can put a more expensive home within Community Affairs Specialist. “If you
if adjustable-rate mortgages (ARMs) reach. However, the downside of this can’t afford the large down payment
carry a lower initial interest rate. strategy is that you’ll have a much that would save you from PMI, ask
A fixed-rate loan adds certainty and smaller amount going to pay off the bank if there are other options
stability to a big part of your loan your loan each month, and that can for a smaller down payment without
payment, which can provide peace dramatically increase the total interest PMI.” Under federal law, with certain
of mind, especially given that other costs. exceptions, PMI automatically will be
housing costs — such as real estate terminated if the borrower accumulates
You can save tens of thousands of
taxes, insurance and home upkeep — 22 percent equity in the home and is
dollars in interest — depending on the
are likely to rise in the future. ARMs current on mortgage payments.
amount of your loan and the interest
generally start with a lower interest
rate — by choosing to reduce the Some homebuyers inadvertently pay
rate, but remember that an ARM rate
length of your mortgage. Many people for PMI if they add the closing costs
can go up, sometimes significantly.
pay off their 15- or 30-year mortgage
It may be worth shopping around
continued on next Page
FDIC Consumer News Summer 2007
51 Ways to Save Hundreds on Loans and Credit Cards
to the loan balance, thereby reducing
their down payment to less than 20
Auto Loans: Take Control of the Financing
percent of the home’s value. By paying Before You Take Control of the Wheel
the closing costs instead of adding
them to your loan, you can avoid Stereos and tinted windows aren’t the loan because you will pay interest on
paying interest on the closing costs and only options you’ll need to consider the amount financed.
avoid paying PMI. when you’re ready for your next
34. Consider getting “pre-qualified”
vehicle. Also look closely at your
30. Look for government incentives by a lender for a specific loan
different choices for financing a new
for first-time homebuyers, low- or amount. “This doesn’t mean you
car. For many people, an auto loan is
moderate-income families and other have been approved for a loan,” said
their second biggest monthly expense
borrowers. Eligible applicants can Creamean, “but it will help you know
after their mortgage or rent. Here are
save on the interest rate, closing costs, approximately how much you can
some strategies to consider.
down payment, and other loan terms. afford to spend on a car and how much
32. Shop for a loan before you visit it will cost you in finance charges
For example, mortgages insured by the a dealership or bid for a car over the before you get to the dealership.”
Federal Housing Administration may Internet. After reviewing your credit
feature low down payments and low Consumer advocates also suggest that
report to correct errors (see Page 2),
closing costs (go to www.hud.gov/ you not tell the dealer if you’ve been
ask your bank and several other
buying/loans.cfm or call 1-800-569- pre-approved elsewhere for a loan until
lenders about their loans and costs
4287). For details about programs after you’ve negotiated the best price
so you are in a better position to get
offered by your city, county or state on a car. They say that some dealers
the best possible terms. If you’re a
government, call its housing agency or may be less flexible on the price of the
homeowner, you could also consider
check the government Web site. vehicle if it’s clear that the dealership
using a home equity loan or line of
won’t be earning money on a loan.
31. Borrowing money from your credit instead of a traditional auto loan,
home’s value can be low-cost but but remember, you could lose your home 35. Understand the costs and risks of
also risky. Many people take out if you can’t repay the loan. choosing a long repayment period.
low-cost loans based on their equity “A longer loan term will be tempting
Know what car dealers are offering
in the house. The equity refers to because it means a lower monthly
in terms of financing by reading their
the difference between what is owed payment, but that also means a higher
advertisements, making phone calls or
the mortgage lender and the current total cost overall because you will
checking the Internet. Many dealers
market value of the property. If you be paying interest longer,” warned
offer discounted loans (such as zero-
owe $100,000 on your mortgage but Creamean.
percent financing) or cash rebates, but
your home is worth $250,000, your not both. “In some situations, it may For example, a $25,000 loan at a seven
equity is $150,000. be better to accept the dealer’s rebate percent interest rate for three years
Home equity products can be used and pass up the zero-percent financing will cost $772 a month. Stretching
for many purposes, including home in favor of a loan from a bank that does the term to five years will drop the
improvements, college tuition and charge interest,” said Joni Creamean, monthly payment to $495 but will
car purchases. They also can be low- an FDIC Senior Consumer Affairs increase the total cost of the loan by
cost loans because the interest rate is Specialist. about $2,000.
usually lower than for credit cards, and 33. Think carefully about how much Creamean offered another reason to
the interest paid is often tax deductible car you can afford and how much of be cautious with a repayment term of
(check with your tax advisor). a loan you need. The dollar amount five years or more: The aging vehicle’s
But — and this is important — the of your loan largely will be determined resale value may fall below what you
big risk with home equity products, by the sales price of the vehicle minus owe on the loan if the terms are spread
as with a mortgage loan, is that you your down payment, any rebates and out too long. “In the later years of the
can lose your home if you can’t make your the value of any trade-in. Don’t forget, loan, you’ll still be making payments
payments. “Home equity products can however, the costs of auto insurance, on what is an older vehicle that may
be fine for many people but, because sales taxes, annual property taxes on have a lot of repair and maintenance
you would be putting your home on the car (if any), and options you may costs,” she said. “And if you decide to
the line, these loans are not to be taken be inclined to buy, such as an extended sell your car, you may have to come up
lightly,” Kincaid stressed. warranty. with extra cash out of your own pocket
For guidance on where to turn for help just to pay off the old loan.”
Also remember that every item you
if you are at risk of defaulting on a add to your loan instead of paying For an extra tip about refinancing an
home loan, see Page 4. Q upfront will add to the total cost of the auto loan, see Page 5. Q
FDIC Consumer News Summer 2007
51 Ways to Save Hundreds on Loans and Credit Cards
When You Need Money Fast: Sources of Affordable Cash
It’s two weeks until payday, your credit loan after taking into account one-time
cards are maxed out … and then your fees and interest.) FDIC Encourages Affordable
car breaks down. You only need a few
hundred dollars for the repair but you
And if you renew or “roll over” the Small-Dollar Lending
$500 loan for another two weeks,
need it now. Many people in these you’d pay an additional $75 in fees. At FDIC Chairman Sheila C. Bair
situations have turned to “alternative” that rate, in just 14 weeks, you will owe has challenged the banking
financial services providers such as more in fees ($525) than the original industry to be more active in
pawnshops, car-title lenders (for a loan loan! “Consumers often roll over the providing reasonably priced
secured by the borrower’s car) and same payday loan several times because small-dollar loans and reducing
payday lenders (for unsecured loans they cannot pay the full amount on consumer reliance on high-cost,
that borrowers promise to repay out of the due date,” said Rae-Ann Miller, nonbank service providers, some
their next paycheck or regular income special advisor on consumer issues of which charge triple-digit
payment). But while many nonbank in the FDIC’s research division. Annual Percentage Rates (APRs).
lenders advertise quick and easy cash, “These consumers can end up paying “Many borrowers who use payday
their services tend to come at a steep significant sums to borrow what started loans have a checking account and
price. Here are some tips for finding out as a small amount of money.” a steady paycheck,” she said. “So,
emergency cash at affordable prices.
38. Ask your bank about linking why aren’t they borrowing from
36. Build your own rainy-day fund their bankers?”
your checking account to your
and borrow from yourself. The best emergency savings account. With The FDIC has issued guidelines
way to avoid a cash crunch is to put this arrangement, an overdrawn for small loans that encourage
money into an emergency savings checking account can be covered by banks to set reasonable interest
account that you can use to pay for having the shortage automatically rates below 36 percent, low
unforeseen expenses. Experts say this transferred from your savings account. origination fees, and repayment
fund should equal about three to six “Expect to pay a small transaction fee periods longer than a single
months of living expenses to get you for using this service, but it will be pay period. The guidelines also
through a difficult period without less than what you’d be charged in support the idea of including an
having to take out a loan or borrow interest and fees for a bounced check “automatic” savings component
from retirement savings. or a short-term loan,” said Miller. to help small-loan borrowers start
“Saving money can seem impossible “Remember that it’s always cheaper to a savings account at the bank.
when you are staring down at a stack borrow from yourself than to borrow The FDIC also has launched a
of bills and other expenses, but many from someone else.” two-year pilot project that will
people are able to make small, simple highlight “best practices” among
39. Check out other options for
changes in their habits or banking banks to meet the needs for low-
emergency cash from banks. Many
practices that can make the difference,” cost, small-dollar loans.
banks offer reasonably priced, small
said Sandra Thompson, Director of loans that enable you to write a check “It is my hope that, over the
the FDIC’s Division of Supervision for more than what you have in your next few years, responsibly priced
and Consumer Protection. Possibilities account and repay the money later. small dollar loans will become a
include having your paycheck directly One example is an overdraft line of staple offering among our nation’s
deposited into your checking account credit, which means the bank will banks,” Chairman Bair said.
with a portion automatically placed automatically cover checks you write,
into your emergency account. individual overdrafts by check or
up to a specified amount, even if
37. Comparison shop for loans by you don’t have enough funds in the ATM/debit card withdrawal, usually
looking at both total dollar costs account. “The best way to ensure that for a fee. This protection typically
and the Annual Percentage Rate reasonably priced emergency credit involves an informal agreement and
(APR). Payday lenders, for example, will be there if you need it,” said no APR disclosure. While it can be
typically charge about $15 for every Thompson, “is to work with a bank to helpful for rare and limited overdrafts,
$100 borrowed. So, on a $500 loan for set up an account in advance instead the costs can quickly add up depending
two weeks, you’d pay $75 in interest. of waiting until you’re in a rush to get on the number of transactions covered.
That might not sound like a lot of cash.” As with any other line of credit, To learn more, read the interagency
money to pay for a small loan, but it you will be told the APR in advance of brochure Protecting Yourself from
translates to a whopping 391 percent signing a formal agreement. Overdraft and Bounced-Check Fees
Annual Percentage Rate! (The APR is available online at www.federalreserve.
the effective annual interest rate on a
Alternatively, some banks offer gov/pubs/bounce/default.htm. Q
“bounce protection” that will cover
FDIC Consumer News Summer 2007
51 Ways to Save Hundreds on Loans and Credit Cards
Paying for College … the Smart Way
Loans for higher education can be costly so take the time to research your options
The cost of college has risen faster features to consider. In particular, 43. Shop for a good price on a
than the general inflation rate for ask about any options for delaying college, not just on the college
many years. So, it’s no surprise that payment until after graduation and any financing. “For most families, the
many parents borrow to pay for higher policies on “forbearance” (temporarily price of tuition and room and board
education and that many college reducing or postponing payments from should be an important part of the
graduates owe tens of thousands of a borrower in financial distress). Also decision process, just like buying
dollars on student loans and related find out about any rebates for on-time a home, a car or any other major
debt. Here are strategies for keeping payments and other incentives for purchase,” said Daniels. “The cost
college financing costs down. good performance. should be considered along with the
40. Make saving, not borrowing, “There are often substantial differences academic programs of a school.”
your first choice for paying for between private loans and student For many families, the comparison
college. “Planning and saving for loans guaranteed or insured by the shopping should include options such
college should be something parents government,” noted Luke Reynolds, an as two-year community colleges and
begin when their son or daughter is FDIC Community Affairs Specialist. schools close to home, which can help
still in diapers,” said Kirk Daniels, a “A private lender likely will offer save on room and board, Daniels said.
supervisor in the FDIC’s consumer both types of loans, so be sure to ask
affairs section. “College loans can be questions to fully understand the pros 44. Youth is no excuse for defaulting
costly, and the easiest way to avoid and cons of any loan product.” on a loan. At some point, perhaps
those costs is to have your own college after graduation, the loan payments
Your state’s department of education will begin. How a young person
savings fund.”
and the college’s financial aid manages student debt can be crucial.
Starting a college savings account, department may be good resources. “Other loans, such as credit cards,
such as a state-sponsored “529 Plan,” Don’t depend on your school to pick and high living expenses can make it
allows families to maximize growth the right loan or lender, though. Some tough for a student or graduate to pay
in a tax-advantaged account and reap colleges and private lenders have been off college loans,” Daniels cautioned.
the benefits of compounding small scrutinized for conflicts of interest in “The non-payment of a student loan is
amounts of money into a large sum steering students toward “preferred a bad way to start your career because
when the child graduates from high lenders.” your credit report will be damaged
school. Investment advisers also and the ability to obtain new credit or
42. Think twice before borrowing
recommend setting up an automatic even qualify for certain jobs may be
against your home or retirement
investment plan through your bank jeopardized.”
accounts. Parents who do not
account or paycheck to encourage
qualify for a tax deduction on loans To help stay out of trouble, he
systematic savings.
for higher education may want to recommends getting a job, setting
41. Take the time to research your consider using a home equity loan and sticking to a budget that includes
options for a loan. If you think you if they qualify for a tax break on the money for loan payments, and
need a loan, do your homework and interest. But remember, a home loan building an emergency savings fund
ask lots of questions before settling puts your house at risk. Another option (see Page 9). But what if your good
on one. Among the many options are is to borrow from your retirement intentions fail and you have no way
federal government loan programs, savings, but most investment advisers of making a payment? Contact the
including “PLUS” loans for parents recommend against that approach lender immediately. “Many lenders
and Perkins and Stafford loans for because it may reduce your future would rather work out some modified
students (usually with fixed interest earnings and make it tougher for you payment plan than have the borrower
rates and some form of deferment to retire when you want. stop making payments completely,”
on repayment until after graduation). Daniels said.
“Given the many ways to borrow for
Also available are loans from private
college at competitive interest rates, For more information, start at
financial institutions and state
ask yourself if you really want to put www.students.gov, a comprehensive
government agencies.
your house at risk with a home equity Web site with information from the
Of course, you’ll want to know loan or reduce your hard-earned U.S. government and other sources on
whether a loan is fixed- or variable-rate retirement savings just to pay tuition,” topics such as paying for college. Q
and what could trigger a rate increase. Daniels said.
But student loans may have unusual
FDIC Consumer News Summer 2007
1051 Ways to Save Hundreds on Loans and Credit Cards
Financing a Small Business: Saving Money to FDIC
Help Your Company Grow Consumer News
Here are tips on borrowing to start or businesses. Some banks may specialize Published by the Federal Deposit
operate a small enterprise. in serving companies like yours. Insurance Corporation
45. Plan to borrow money with a 49. Develop a good working Sheila C. Bair, Chairman
business loan instead of using your relationship with a banker who Andrew Gray, Director,
personal credit card. “For some can help you save money. Look Office of Public Affairs (OPA)
small business owners, particularly for someone who seems genuinely
those at startup companies, a personal interested in your business and the Elizabeth Ford, Assistant Director, OPA
credit card may be their only or best market you serve. “The more the Jay Rosenstein, Senior Writer-Editor, OPA
option for financing expenses,” said banker understands your company
Mitchell Crawley, Graphic Design
Luke Reynolds, an FDIC Community and its needs, the more likely he or
Affairs Specialist. “But for many she can help you with everything from FDIC Consumer News is produced
owners, a business loan will be a much financing and getting the best interest quarterly by the FDIC Office of
less expensive option,” he said, because rate to referrals,” Reynolds said. Public Affairs in cooperation with
the bank loan will be secured by the other Divisions and Offices. It is
50. Keep your own credit record intended to present information in a
business’ property or equipment. in good shape. If you apply for nontechnical way and is not intended
46. Consider an SBA-guaranteed a business loan, the lender will to be a legal interpretation of FDIC
loan. Under this program, the U.S. likely review the personal financial or other government regulations and
Small Business Administration (SBA) statements of the main owners of the policies. Mention of a product, service
guarantees a portion of a loan, often business. Concerns about the financial or company does not constitute an
up to 85 percent, and enables a small skills of the owners can raise the endorsement.
business owner to qualify for attractive interest rate on a business loan.
This newsletter may be reprinted in
interest rates and financing options. 51. Learn tips on saving money whole or in part. Please credit FDIC
For more information, call the SBA from experts. Sign up for free or Consumer News.
toll-free at 1-800-827-5722 or go to low-cost workshops and confidential
www.sba.gov. Send your story ideas, comments,
counseling for small business owners.
and other suggestions or
47. Research local small business Start with the local SBA office (for
questions to: Jay Rosenstein, Editor,
loan programs. These programs referrals to local resources), SCORE FDIC Consumer News, 550 17th
may include loans with below-market (formerly called the Service Corps Street, NW, Washington, DC 20429
interest rates or no origination fees. of Retired Executives, a nonprofit jrosenstein@fdic.gov
Start by contacting your state or local SBA partner that provides free
department of economic development. counseling to small businesses), and Find current and past issues of
various small business development FDIC Consumer News at:
48. Shop around for good deals and www.fdic.gov/consumernews. Refer to
centers (generally operated by
good service for small businesses. that same index to locate issues that are
schools, nonprofit organizations and
Ask about loans as well as deposit
corporations). Q specially formatted for being reprinted
accounts and other services for small in any quantity.
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This publication may be reprinted in whole or in part without advance
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FDIC Consumer News Summer 2007
1151 Ways to Save Hundreds on Loans and Credit Cards
For More Help or Information on Loans and Credit Cards
The Federal Deposit Insurance Other federal agencies also publish State and local government agencies
Corporation publishes consumer consumer information and respond also publish consumer information
information and has other resources to inquiries. A good place to start and help answer questions on money
that can help answer questions on is www.mymoney.gov, the federal matters. Go to your state or local
loans, credit cards and other financial government’s central Web site about government’s Web site or call a
matters. Start at www.fdic.gov or call managing your money. It is a service of consumer protection office listed in
toll-free 1-877-275-3342. Back issues the interagency Financial Literacy and your phone book or other directories.
of our quarterly FDIC Consumer Education Commission, of which the
News and articles referenced in this FDIC is a partner. FDIC-insured banks, other
special edition are available at that financial institutions and
The Federal Citizen Information professional associations, consumer
same Web site or upon request from
Center (FCIC), perhaps best known organizations and the news media
our Public Information Center at the
for its information clearinghouse based publish personal finance tips on loans,
same phone number as above. To send
in Pueblo, Colorado, helps answer credit cards and other topics. You can
a question to the FDIC, e-mail us
questions on everyday issues. For find a number of excellent sites by
using the Customer Assistance Form at
www2.fdic.gov/starsmail/index.asp or
example, the FCIC can direct you to searching the Internet. Q
the appropriate federal government
send a letter to the FDIC, Division of
agency that can respond to a question
Supervision and Consumer Protection,
or complaint. Go to www.usa.gov or
550 17th Street, NW, Washington,
toll-free 1-800-333-4636.
DC 20429-9990.You can also read
