Blogging for Change

Scary loan mistakes to avoid

by Kim McGrigg on
10/28/2008
in Personal Finance

The Conference Board’s Consumer Index fell to an all-time low in October.* Cautious consumers know that the ghost, ghouls and goblins of Halloween aren’t nearly as scary as the financial damage a major credit mistake can cause. Knowing common loan mistakes can help you to avoid making a risky financial move.

Mistake 1: Agreeing to cosign. Cosigning a loan carries many risks and very little reward. Basically, you are being asked to assume a risk that even a professional lender is unwilling to take. Studies of certain types of lenders have found that for cosigned loans that go into default, as many as three out of four cosigners are asked to repay the loan. The bottom line is that if you are not willing to assume totally responsibility, you should not agree to sign for the loan.

Mistake 2: Not reading the fine print. When you obtain a line of credit or loan, you are entering into a legally binding agreement. Be sure what you are getting into by reading and understanding the fine print. For example, one major lender’s policy reads: “Factors considered in determining the Default Annual Percentage Rate include the frequency and severity of account defaults…and risk on other credit accounts.” This means that they could raise your rate if your overall credit situation changes. This is true even if your payments to the individual creditor are made on-time and as-agreed.

Mistake 3: Obtaining a “cash advance” loan. Often called Payday Loans, these short-term, high-fee loans can turn a temporary setback into major financial crisis. Let’s say you wrote a personal check for $330 to borrow $300 for up to 14 days. The lender would agree to hold the check until your next payday. At that time, the lender deposits the check, you redeem the check by paying the $330 in cash, or you roll-over the check by paying a fee to extend the loan. In this example, the annual percentage rate (APR) is 260.71 percent!

Know of another scary loan mistake? Share it through the comments section.

*This info does not bode well for retailers who are already bracing for a tough holiday season. More on this tomorrow...

Tagged in Halloween

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

Recommended Articles

Man sitting in front of pile of bills, trying to understand his options.
Professional Budget Advice
Make the most of every dollar and start building toward your dreams! Budget counseling is FREE and available 24/7.
Learn More
Learn more
  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Financial Counseling Association of America Financial Counseling Association of America
    MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development - Equal Housing Opportunity Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.