A pair of loan solicitations arrived in the
mail today—not unusual, as they come regularly—but the pitches are worth
sharing, if only to serve warning to the trusting among you. From one, the heading is in bold and colorful
font: “A better way to cut your debt – You’re pre-approved – Low fixed monthly
payments.” A bit lower on the page comes
the offer: “Best of all, rates start at 5.99% APR*, and your rate will never
increase.”
I hope you noticed the asterisk, for that’s
where the gimmickry begins. The
explanatory verbiage is found buried unobtrusively on another page and couched
in legalese. APRs range from 5.99% (if
your credit is A1) to 32.99%. They
acknowledge the average APR on recent 36-month loans to be 15.18%. I could relate the rest of the boilerplate,
but I think you’ve already gotten the message.
It’s designed to fleece the unwary.
The other generous offer is from a firm which
will make your expenses “. . . feel a little less expensive.” It’s a credit card on which you’ll earn
unlimited 2% cash back on every purchase, with a special bonus of $500 if you
spend $4,500 in the first three months . . . and “Once approved, you’ll enjoy
16.9% variable APR on purchases.” That
last line is an exact quotation. I must
ask, as funds in your savings account earn annual interest at five-one-hundredths
of one percent at Bank of America, and one-tenth of one percent at US Bank, could
anyone not certifiably insane enjoy
paying 16.9% to borrow money? I can’t
help wondering who writes this stuff and whether they have any connection to
reality.
Let me pass on to you a comment made to me
over forty years ago by a wealthy old gentleman, which I’ve never forgotten. During our discussion on family financial
planning and taxation, I raised an issue relating to the deductibility of
interest paid. Without hesitation, he
cut me short as he literally blurted out: “Interest is not something you pay .
. . it’s something you collect!” I took
that to heart and the concept has served me well. You’d be wise to incorporate it into your affairs
as well.
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If you enjoy this
weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly
Financial Newsletter, as well as my new book, The Road to Prosperity
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