The following short stories represent true situations that El Pasoans have faced with high-cost loans. Don’t become one of these horror stories when it comes to borrowing money or taking out credit. Borrow smart! The names of individuals in these stories have been changed.

Car Loans

Melissa bought a brand new 2003 car on a five year loan. After two years, Melissa decided she could not afford the car payments anymore. She turned her car into the dealership. She thought it was all over. Three years later, Melissa was served with a lawsuit by the car lender for the amount that was owed on the car. If you are having trouble making car payments, talk to your lender and/or get advice from a credit counselor. Melissa still owed money on a debt because she had a balance, even if she was willing to return the car to the dealer. The dealer and the lender are usually not the same company, so the dealer will sell the car for what ever it can get and may or may not pay off your loan.

The Turner’s co-signed a car loan for their grandchild. After one year, their grandchild stopped making the car payments and the car was repossessed. A year later, the Turner’s, who live solely on Social Security benefits, were sued for the balance due on the car loan. If you decide to co-sign for a loan, you are responsible for the payments if the person that you co-signed for stops making the payments. If the creditor reports to the credit bureaus, your credit history will also be affected.

Credit Cards

Tom received a credit card offer through the mail. After reviewing the paperwork, he submitted his application via mail. Two weeks later, he received a credit card from that same company. Having second thoughts, Tom decided not to activate the card. He just put it away in his desk drawer. Two months later, Tom received a call from the collection department of the credit card company. Tom was puzzled and thought, “I haven’t used the card. How can I be behind on payments?” Tom later found out that the $59 annual fee for the card was charged to his account, even though he never activated the card. In addition, he had now incurred two late fees of $29 each for missing his first payment and received a bad credit rating, which will cost him more. Many people skip reading the fine print of agreements, and unfortunately for Tom, the money he spent in fees could have been avoided. On top of that, there are many credit cards which do not charge an annual fee.

Erin got a new credit card. The interest rate on the card was 16.9%. After missing a payment on this card, the interest rate on that card was increased to 32.99%. Reading the fine print of your credit card agreement is important in knowing, among other things, what charges you will be assessed if you miss a payment, or pay late.

David got sued by a collection agency for a credit card debt that he hadn’t paid on in over five years. When he went to a court date, he was (incorrectly) told that since he was not a U.S. citizen, he could get deported because of his default on the debt. You cannot get deported if you are not a U.S. citizen and stop paying on your debts.

Mortgage Loans

The Garcia’s were buying their first home from their cousin Sandra. Sandra referred them to a friend of hers who is a mortgage broker. The mortgage broker qualified them for a sub-prime mortgage loan at 18% interest even though the Garcia’s had steady income, a consistent work history with the same company, and were receiving additional disability income. After closing on the home, a nonprofit housing counselor reviewed their mortgage terms and told the Garcias that in her professional opinion, they could have qualified for a better interest rate given their work history and income. Another family member agreed with the housing counselor and questioned if the terms of the mortgage loan were good for the Garcias. The broker did offer to refinance the loan. The housing counselor advised the buyer not to go back to the broker again. The Garcias have been in their home for only five months. They told the nonprofit housing counselor that they had no idea they could ever qualify for a mortgage in the first place. The Garcias were not in the mindset to question the loan terms because they felt grateful to have even qualified for a mortgage. Had they questioned the loan terms, they would have been able to obtain a loan with a better interest rate.

Rent-to-own offers

Alex picked up a new television at a store which had a rent-to-own payment plan. He paid a deposit of $50. After that, he paid $10 a week for 48 weeks. On week 49, due to a family emergency, Alex missed a payment. Three days later, his television was repossessed by the store. After 48 weeks, he lost both the $530 and his television. Alex could have purchased a television outright at another store for the money that he spent in the rent-to-own arrangement and on top of that, he would have had owned the television outright, without the possibility of having it repossessed.

Payday Loans

Belinda, a professional woman, mismanaged her finances and is now in deep trouble with payday lenders. She has been obtaining payday loans to pay other payday loans and to pay utility bills. In other words she has been “robbing Peter to pay Paul.” She has 14 pay day loans totaling almost $12,000, 2 finance company loans for more than $12,000, 4 credit cards totaling almost $40,000, 1 installment loan for $7,000 and 1 car loan for about $10,000. Total debt she has accumulated is more than $80,000. She is paying $3,000 in monthly fees to the payday lenders and her net check is only a little more than this amount, leaving her with only about $300 to pay the rest of her debts; therefore, she cannot meet the rest of her obligations. Obtaining one loan to pay off another loan is not good financial management. When thinking about spending money, ask yourself, “Is this something I need, or is this something I want?”

Here are some Annual Percentage Rates quoted on Truth-in-Lending disclosures statements from payday loan companies:

792.102% 290.75% 263.59% 263.72% 263.72% 246.48% 247.48% 245.49%

for a $500.00 loan for a $1000.00 loan for a $1000.00 loan for a $900.00 loan for a $900.00 loan for a $800.00 loan for a $800.00 loan for a $800.00 loan

You can get far better interest rates for personal loans at credit unions and banks!

Tax Refund Anticipation Loan (RAL)

Mark was in a rush to get his income tax refund. He went to an income tax preparation site which offered immediate refunds. His refund amount was deducted $75 for the tax preparation and an additional 10% in interest. Two months later, Mark received a letter from the Internal Revenue Service (IRS) stating that he applied for a credit on his taxes for which he does not qualify, and now owes the IRS $3,995. Waiting a few days longer to receive your tax return money will mean that you will get more of the money that you are eligible for, not a company. Make sure you deal with reputable tax preparation places, if you do not file taxes on your own. If you are at a lower income level, you will probably qualify for free tax preparation service. Visit our “Partners” page to find out which organizations offer this free service.

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