C.A.R.E. Credit Abuse Resistance Education Part II Presentation Overview Your Credit Rating Matters Predatory Lending Traps: 3 yr Car Loans Car Title Loans Pay Day Loans Rent to Own Pawn Shops Rental Agreement and Co-tenants Identity Theft Student Loans Practical Budgeting Tips Questions??/Evaluations Your Credit Rating Matters Consequences of Credit Abuse Make it Higher insurance impossible to rates complete degree Denial of a lease Denial of Denial of student employment loans Denial of credit Emotional stress Higher interest rates Predatory Lending Traps - Loans to Avoid More Than 3 Year Car Loans Car Title Loans Pay Day Loans Rent to Own Contracts Pawn Shops CAR LOANS – Avoid more than 3 yr car loans More than 3 year car loans are marketed to reduce monthly payments. However, the longer the term, the more you pay for interest. Example: $25,000 loan @ 6.5% for 6 years instead of 3 years more than doubles the interest paid $5,240 as opposed to $2,576. Example: Consider the cost of a home mortgage for 30 years vs. 50 years? Concept still applies. What are “Upside Down” Car Loans? Unless a substantial down payment is made, the loan may be “upside down” from day one (the average car loses 20% of its value in the first year and much of that occurs when it is driven off the lot). An “upside down” loan is not fully covered by insurance, which generally covers only the car’s value. “Gap insurance” can be obtained for the difference, but that adds to the monthly payment. Downside to “Upside down” Car Loans It’s harder to sell or trade a car with an “upside down” loan. Some dealers will roll the shortfall into a new car loan, but that compounds the problem – the new loan is even more “upside down”! If there is a default, the lender will repossess the car but the borrower will be liable for the difference between the sales price and the debt amount. Smart Tips on Car Loans Think in terms of price, not monthly payments. Make a down payment of at least 20%. Take out the shortest loan you can afford. Cars lose value and more likely need repairs as they age. Don’t take out a loan for longer than you intend to keep the car. Shop around and do your homework before buying. Used car shopping? Have a mechanic look at it. Investigate the history or prior ownership. Does it have a “salvage” title? More Tips on Car Loans Spend no more than 20% of your disposable income on car payments. Make extra payments on your loan whenever you can – you build equity and reduce the total interest paid over the life of the loan. Sell your used car yourself. You will get more than its trade- in value. If you get into an upside down loan, keep the car until its value equals the loan amount. Car Title Loans = Betting Your Car’s Title. Car Title loans are secured by your car’s title. If you fail to make the loan payment – just one – the lender can repossess the vehicle. Marketed as small emergency loans. In Oregon, the loan is made for a period of 60 days with a single payment payback. The Lender determines how much you can borrow based on the value of the property. Other Title Loans in Oregon include: Titles to recreational vehicles, boats or a mobile home. Title Loans in Oregon – At What Cost? In Oregon, the rate of interest on a new or renewed title loan can be as high as 36% per annum, excluding the origination fee for a new loan. ORS 725.615(1)(a). Title Lenders can also charge 1 origination fee of $10 per $100 of the loan amount or $30, whichever is less, during the term of a new title loan, including all renewals of the loan. ORS 725.615(1)(b). – Example: You borrow $5000 @ 36% interest per annum. At the end of 60 days, what will it cost to get your car title back? – Calculation: $5000 (loan amount) + $300 (interest @ 36% per annum = $150/month x 2) + $30 (origination fee) = $5,330 What are Pay Day Loans? Marketed as short term loans. Typically for initial 2 weeks – until next pay check – and range from $100 to $500 but could be more. In Oregon, they are defined as made for a period of 60 days or less or for which the lender may demand repayment within 60 days. Example: Borrower gives post-dated check for the desired amount or electronic repayment agreement provided by or on behalf of the borrower to the lender to be held until next pay check. On payday, borrower takes the cash to the lender and get his/her check back. If borrower doesn’t show up with cash, the lender can cash the check. Costly Consequences of Pay Day Loans in Oregon In Oregon, the interest rate can be as high as 36% per annum, excluding the origination fee for a new loan. ORS 725.622(1)(a). In Oregon, lenders can charge one origination fee of $10 per $100 of the loan amount or $30, whichever is less, during the term of a new title loan, including all renewals of the loan. ORS 725.622(1)(b). New Legislation in Oregon: Lenders are prohibited from renewing an existing pay day loan more than 2 times, and cannot make a new pay day loan to a consumer within 7 days of the day that a previous pay day loan expires. Beware: In some States, the lender can hold the loan for another pay period but the borrower pays a second fee and the loan rolls over. The typical rollover fee is $50. NOTE: $50 every two weeks equates to annual interest rate of 433%! Rent to Own Contracts Marketed as a risk-free way to acquire furniture and appliances. Because RTOs are not styled as loans, APRs may not be disclosed. Average imputed APR is 100% based upon the sales prices offered by the RTO stores. If retail prices are used, the imputed APR can increase to 200% or more! Advice re “Rent to Own” Contracts – Don’t! Total cash to purchase an item from an RTO store may be 2 to 5 times more than from a retail store! Many items are not clearly marked as “new” or “used.” Save your money until you can afford to pay cash. At the end of 18 months, you will have the furniture and appliances and much more money. Question: What about long term car leases? Pawn Shops Pawn shops usually carry terms of 1 to 4 months and are secured by the piece of property. In Oregon, all loans are for a period of 60 days unless otherwise agreed by the pawnbroker and the customer. However, a pledge may be redeemed and the loan repaid at any time before the loan period expires. ORS 726.400(1). Interest rates vary State to State from 2% to 25% per month! Can’t Pay -What Happens? The collateral is sold if the interest or loan amount isn’t paid by a specified period. What if you lose the pawn ticket? In Oregon, the holder of the pawn ticket may be presumed to be the person entitled to redeem the pledge. The pawnbroker must deliver the property to the person presenting the pawn ticket upon payment of principal and interest due on the pledge loan. ORS 726.310. Rental Agreements, Co-Tenants and Your Credit History Landlords typically run a credit report on all prospective tenants before entering into a rental agreement or contract. Read and understand the entire contract before signing it. Renter’s insurance provides protection against accidental loss or theft and is inexpensive to buy. Problems That Could Effect Your Credit History Question #1: Your roommate does not pay his/her share of the rent on time. What should you do to protect your credit history? Question #2: You and a roommate signed a 1 year lease on June 1, 2008. Your rent is due on the 1st of every month. However, your roommate moves out on November 1, 2008, before your rental agreement expires. What should you do to protect your credit history? Question #3: Suppose your grandmother is also a co-signer on your lease with you and your roommate, but she doesn’t live with you. Will either of the above situations effect her credit history? IDENTITY THEFT IS A SERIOUS CRIME The Identity Theft and Assumption Deterrence Act makes identity theft a federal crime. Violations are investigated by federal law enforcement agencies, including the U.S. Secret Service, the FBI, the U.S. Postal Inspection Service, and the Social Security Administration’s office of the Inspector General. Federal identity theft cases are prosecuted by the U.S. Department of Justice. It occurs when your personal information (“PI”) is stolen and used without your knowledge to commit fraud or other crimes. Your name, SSN, credit card number, cellular telephone electronic serial number, or any other piece of information that may be used alone or in conjunction with other information to identify a specific individual is considered a “means of identification”. Identity theft can cost you time and money, and it can destroy your credit and ruin your good name. The 3 “Ds”of Identity Theft Protection DETER: Deter identity thieves by safeguarding your information. – Don’t give out your PI on the phone, through the mail, or internet unless you initiated the contact and know who you’re dealing with. Never click on links sent in unsolicited e-mails. – Don’t use an obvious password. Protect your computer with up-to-date firewalls, anti-spyware, and anti-virus software. – Only carry ID, credit and debit cards that you need. Don’t carry your SSN card. Secure your SSN card and PI in your home, especially if you have roommates, employ outside help, or are having work done in your home. – Mail and trash: Deposit your outgoing mail in post office collection boxes or at the local post office rather than an unsecured mailbox. Shred financial and personal documents before you discard them. Protect Yourself Against Identity Theft – the 3 “Ds”of Identity theft Protection DETECT: Detect suspicious activity by routinely monitoring your financial accounts and billing statements. – Be alert to signs that require immediate attention. – Examples: Mail or bills that do not arrive as expected. Unexpected credit cards or account statements. Denial of credit for no apparent reason. Calls or letters about purchases that you did not make. – Inspect your credit card statements and credit reports carefully. Look for suspicious activity, accounts you didn’t open, debts you can’t explain, and inquiries from companies you haven’t contacted. Protect Yourself Against Identity Theft – the 3 “Ds”of Identity theft Protection DEFEND: Defend against identity theft as soon as you suspect a problem. – Place a “Fraud Alert” with the 3 nationwide consumer reporting companies - Equifax, Experian, TransUnion. The alert can help stop someone from opening accounts in your name. – Close credit cards and bank accounts immediately. When you open new accounts, place passwords on them. Avoid using your mother’s maiden name, your birth date, the last 4 digits of your SSN, your phone number or a series of consecutive numbers. More re Lost or Stolen Personal Information – What To Do? Driver’s license/other government issued ID: Contact the agency that issued the license or other ID document. Follow their procedures to cancel and get a replacement. Ask the agency to flag your file so no one else can get a license or ID from them in your name. File a police report with law enforcement to help you with creditors who may want proof of the crime. Report your complaint to the Federal Trade Commission. Your report helps law enforcement officials across the country in their investigation. Online: ftc.gov/idtheft; Phone: 1-877-ID-THEFT (438-4338). Student Loans Start researching what is available early. Scholarships? Grants? Loans? If I need a student loan, how much should I borrow? Public vs. Private lending? Is there a difference? Living On Your Own Where to Start? CREATE A BUDGET LIVE WITHIN YOUR MEANS Step 1: When you prepare your budget, consider what you don’t have to spend money on because your family is paying for it. Examples living at home: – Your favorite food/snacks/beverages are always in the kitchen. – Aspirin is in the medicine cabinet. – Laundry soap is always in the laundry room and you don’t need quarters to use the washer and dryer. – Dish soap and paper towels are near the kitchen sink. – Soap, toothpaste and toilet paper is stocked up in the bathroom. What “needs” will you need to pay for if you live on your own? – Rent, utilities, phone, food, insurance, clothing, gas, parking, clothing, tuition, school books and supplies, insurance for your car, rental, and health. Step 2: Are your actual or projected expenses “needs” or “wants”? If not, where can you make adjustments? If you have to, you might be able to reduce some of the expenses that are not truly “needs”. Examples: – Buy generic brands vs. name brands. – Buy school text books at a used book store vs. new at the campus bookstore. – Shop around for the best buy or discount. – Look for and save with coupons. – Buying in bulk with a friend may save money. Step 3: Budgeting means setting a limit on how much per week you will spend on certain items Tips to stretch your budget: Compare: Eating in the dorm cafeteria or learning to cook and eating at home with a little left-over for tomorrow’s lunch or snack vs. eating out and buying lattes 2 or 3 times a day ($15-$30 a day). Compare: Bus pass, public transportation, bicycle, walking, or car pool vs. paying daily expenses for a car (i.e., gas, parking, car insurance). Compare: Go to a discount afternoon matinee or rent a movie vs. going to a movie theatre for a new movie on Friday night. Additional Tips on Budgeting Avoid using your credit card except for an emergency, and then only if you can pay the balance off at the end of the month. Avoid ATM fees by using machines that are tied to your bank or are otherwise free. Avoid impulse buying on the internet. Have savings for emergencies. QUESTIONS???