Shopping for Credit

Some credit is more interesting than others…

Look for a plan that lets you pay off the loan as soon as you can, but doesn't penalize you for paying off early.

When you shop for credit, look for the least expensive plan you can get. Select one you can pay off in a reasonable length of time without straining the family budget too much.

To compare costs for credit, first look at the APR.

This is the annual percentage rate, or the cost—in dollars— of one hundred dollars if you borrow it for one year. Federal law requires that all credit contracts include the term "Annual Percentage Rate" in large print. This number—a percentage—must be filled in on the contract before you sign it. The term A-P-R must be used in any public advertising of credit terms. It can be as low as 12 or 14 percent of what you borrow or as high as 36 percent.

Read the large print too.

Another term required by law to be in large print on installment loan contracts is the "Total Finance Charge." This is the total amount, in dollars, you can expect to pay over the length of the credit contract. It might include the cost of checking your credit record and credit insurance.

Know what other items you are expected to pay for besides the amount borrowed and the interest. Credit life insurance is not required by law, but it can be required by a lender.

Because the amount of interest you pay for a loan depends on the length of time you use that credit, you'll save money by paying off the loan as soon as you can.

Be realistic about the payments you can pay…

When you set up an installment plan, be realistic about the amount you can pay each period. Don't make payments so large that you create financial pressure on the family budget.

If you use a credit card, the annual percentage rate will be applied to your monthly balance at 1 1/2 percent a month for your purchases. A similar amount can also be charged for cash borrowed with the card.

Check out interest rates before you buy.

Interest will be less if the monthly interest rate is charged on the balance after current payments are deducted. Some creditors charge interest on your balance before current payments are made, and others charge on the average daily balance owed. If your plan charges on the average daily balance, you will pay less interest if you make payments as soon as you can and keep the daily balance as low as possible.

For more information on shopping for credit, contact your local county Extension office.