Tuesday, 24 November 2009

• Confessions: The Secrets of a Bank Teller, Part Three — Lets Talk Loans

  At this point in my life, the odds of me having $10,000 lying around with which to buy a new car are about as slim as me having $100,000 lying around to buy a new house. So, loans are pretty much inevitable if I want to pay for college, have my own car or even buy furniture that I don't have to put together with the little hexagon wrenches.

  On the surface, loans are basic. A bank or car dealer gives you money, and you pay it back over time, with a percentage of the total thrown on as a thank-you for the courtesy of having more money available than you would otherwise.
  
  However, the devil is in the details. Namely, that percentage of the total loan—and how long you will make payments. Banks and other lenders love to quote you a small monthly payment that they've stretched out over the next 5 or 6 years, so the total amount you pay back winds up being far more than the original loan amount. That extra money comes to the lender in the form of double-digit interest rates that they hope you don't notice. The provisions of the Truth in Lending Act require that lenders let you know exactly what the total cost of your loan will be, but most bury it somewhere in the rest of the legal jargon that no one actually reads.
  

  The best advice I can offer on loans, beyond shopping around for the lowest loan term/interest rate combo, is to make it visual. I'm a numbers dork, so I find this calculator (http://www.figurewiz.com/) ridiculously fun. But seriously, go check that calculator out. See exactly how much money you will save by putting a down payment on a vehicle, or financing for a lower term. And then—start saving. Save up even $1000 for a down payment on a car, and you'll save that much or more in payment and interest costs.

  Also, shop around! The bank where you have your checking account may be the most convenient place to get a loan, but they may not be the lowest rate. Check out competing banks and credit unions. Where you get your auto insurance may also have a lending arm with decent rates.
  

  If you're car shopping, bring those rates to the dealer and add some negotiating power.  If you're financing a retail purchase (mattresses, jewelry, furniture, etc), know that those No Payments/No Interest for Twelve Months!! advertisements have definite stipulations—most notably, that if you don't pay off the account before the promotion period ends, the company has a right to add all that back interest to the amount you owe. So, you may go 12 months without paying a dime... but after the couch has been spilled on and the mattress not as comfy anymore, you'll now owe more on it than you did when you started!

  And please... whatever you do, don't go to a payday lender!

  What are your experiences with loans? Is there anything else you wish you knew about the inner workings of checking accounts, savings accounts, loans or banking?

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