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Banking on Your Future:

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Costs are two to five times more than a department or appliance store. ... The same TV costs $649.00 at a local electronics store. ... – PowerPoint PPT presentation

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Title: Banking on Your Future:


1
Banking on Your Future
  • Avoiding Predatory Financial Services

Funded by
2
Objectives
  • Identify pitfalls and financial traps in the
    fringe banking industry
  • Recognize the come-ons and hype
  • Understand how to compare the cost of borrowing
    money (APR)
  • Describe alternatives to high interest loans or
    other scams

3
Fringe Financial Services
  • Financial services offered outside of mainstream
    financial institutions
  • Payday Loans
  • Check cashing outlets
  • Pawn shops
  • Advance tax refund
  • Rent-to-own, etc

4
Meet Maria
5
Spotting Fringe Banking
  • Payday loans
  • Cash or check advance
  • Post-dated check loans
  • Deferred deposit check loans
  • Car title loans
  • Also, rent-to-own shops, pawnshops and tax refund
    advances

6
Annual Percentage Rate (APR)
  • Helps consumers compare how much it costs to
    borrow money
  • By law, APR must be listed on loan documents
  • Always check the APR on loans
  • Compare APRs from different loans

7
Comparing APRs
525
420
22
8.6
17
316
8
How to Calculate APR
9
Cost of Borrowing Money
10
Cost of Borrowing Money
11
Alternatives to Expensive Loans What other
choices did Maria have?
12
Alternatives to Expensive Loans
  • Get a second opinion on the car repair
  • Local bank branch personal loans, lines of
    credit
  • Share ride with friends or relatives to save
    money
  • Use public transportation
  • Borrow money from a relative
  • Sell something of value
  • Ask friends for ideas / help

13
Check Cashing Services
  • Service provided by fringe lenders
  • Much more expensive than using a bank
  • Charge percentage of check as the fee (up to 5
    or more)
  • Ask for amount fee in dollar amounts

14
Check Cashing Pros and Cons
-
  • Must carry a lot of cash
  • Does not establish credit or banking history
  • High fees
  • May be near home
  • Many open 24 hours
  • Other?

15
Check Cashing Alternatives
  • Cash check at the payers bank
  • Direct deposit
  • Open a bank account
  • No fees or fees less than check cashing services
  • Money - safe in an account
  • May be able to earn interest
  • Develop a history with the bank
  • ETA (electronic transfer accounts)

16
  • If it sounds too good to be true,
  • it probably is.

17
Payday Loans
18
Too Good to be True?
19
What about Pawn Shops?
20
How Pawn Shops Work
  • Customer brings in an item
  • Pawn shops tells customer how much it is worth
  • Gives customer a loan for that amount
  • Loan is due usually in two weeks
  • Fee is also added on to the loan.
  • If the loan is not paid back, the item can be
    sold. Or the individual can go and pay the fee
    again.
  • Interest rate on these items is usually 200-500
    annually.

21
Rent to Own Want it now?
22
How Rent-to-Own Works
  • Customers purchase items
  • Furniture
  • Electronics
  • Appliances
  • Jewelry, etc.
  • Weekly payments
  • Costs are two to five times more than a
    department or appliance store.
  • Additional costs include fees

23
Rent-to-Own Fees
Processing fees
Delivery fees
Home pick-up fees
Set-up/ installation fees
Damage waiver fees
  • Reinstatement fees (charged for a late or missed
    payment and the person wants to continue renting)

In-home collection fees
24
Which T.V. do You Want?
25
Rent-to-own alternatives
  • Make a plan and put aside some money each pay
    period to make a large purchase
  • Find reputable stores with lay away plans
  • Shop at thrift and consignment stores. Many times
    you can get what you want for very little!

26
32" Flat Stereo Television
The difference is 851.68!
27
Tax Refund Anticipation Loans
28
Refund Anticipation Loans (RALs)
  • Advance on your tax refund high-cost loan
  • Extremely expensive APRs of 60 to 700
  • Often, RALs are not needed. Refunds from IRS can
    be fast and free!

29
RALs are Risky
  • Loan must be paid even if IRS denies or delays
    your refund
  • May hurt your credit rating if you do not pay
  • Lender may take your refund money to pay old debt
    they claim you owe

30
Refund Alternatives
  • E-file with direct deposit
  • Open a bank account
  • Wait a few more days for an IRS deposit
  • Volunteer Income Tax Assistance Sites (VITA)
  • 1-800-TAX-1040 for referral

31
Credit Card Introductory Offers
32
Credit Cards Pros and Cons

-
  • Easy to overspend
  • Introductory offers
  • Variable rates
  • Fees (35 or more)
  • Over limit
  • Late payments
  • Do not have to carry cash
  • Short term loan
  • Accepted almost everywhere

33
Beware of Introductory Offers
  • Offers of low introductory rate for a short time
  • Available for balance transfers
  • Interest rate may begin at 0 or 6
  • Pre-approved not always at same rate
  • Raised to 18 to 22 percent or more after a few
    months

34
The 42 Pizza
35
(No Transcript)
36
(No Transcript)
37
Credit Card Tips
  • Dont spend more than you can pay each month
  • Save credit cards for emergencies
  • Read Schumer Box Disclosure Statement carefully
    for fine print

38
I need money now….
…what should I do?
39
Summary
  • We can now….
  • Identify pitfalls and financial traps in the
    fringe banking industry
  • Describe how to compare costs of borrowing money
    (APR)
  • Describe alternatives to high interest loans or
    other scams
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