Tuesday, November 13, 2007

Finding Cheaper Loans

Find Cheaper Loans

A popular topic of mine is how to get out of debt and paying off your credit cards, so it seems a little funny to me to be talking about finding cheaper loans. However, use of debt is required by most people and if used properly most people will have a better life with some debt vs. without debt. Personally, I feel that debt should only be used for bigger purchases like homes and cars. Also when you can afford them some toys like a boat or and RV. However, on the toys I encourage you to buy a nice used one and pay cash for it or take out as small a loan as you can or as short a time period as you can. The key thing to remember is the loan for the toy last a lot longer then the initial euphoria of getting the new toy.

Updated with news story on Payday loans and their dangers.

Anyway, I am rambling, let get to the point you are reading this article to find out how to find cheaper loans. The WSJ had an interesting article on the fact that credit unions generally have cheaper rates on car loans, personal loans, credit cards, and home equity loans. For instance the average 48 month car loan at a credit union is at a credit union is almost 2% lower per year than most banks.

Credit unions can provide you with cheaper loan rates because they don't pay income taxes. On the other hand banks have to pay these income taxes. Credit unions were orginally designed to cater to the savings and lending needs of lower to middle class consumers that were ignored by traditional banks. Generally, you had to work for a particular company or live in a particular area to be able to join the credit union. Not anymore, most credit unions are open to virtually anyone. If you are looking to find a credit union in your area you can search by zip code at CUNA's Website.

Paying for that flat screen TV: A lot of people will be getting new flat screen TVs this year as prices fall. Most will be tempted to put it on the plastic. Remember if you put it on a credit card you will start incurring finance charges after the first month that you do not pay the balance. Usually this will be at a very high rate, 18 to 22%. As an alternative why not finance it through the store you are buying it from. Don't sign up for the no payments until next year trick. This will just postpone the problem. I would rather see you buy that big screen TV with a 12 months no interest. Then divide the total cost by 11 and make that payment each month. I say 11 because a lot of times this type of financing is also a trick. Sometimes you have to pay the thing off before 12 months or you incur finance charges on the whole balance even though you made payments. So here is the simple math for example:

  • Say you bought a Sharp LCD 42 inch 1080p HD TV total price out the door was $2200.
  • 2200 divided by 11 is $200 per month.
  • When the bill comes each month right the check for $200. If you can do more that would be even better. $225, $250, $300 whatever, just pay the thing off. Remember if you do it this way it really does allow you to buy someting on time and it doesn't cost you a penny more.

If the store you are shopping at doesn't have this type of financing then shop around. You will find a store that does. As soon as you walk out the door they will improve their offer. You watch.

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