Stay clear of businesses that prey on the poor. The following five are some of the worst offenders.
1. Payday Lenders. There are over 19,000 payday loan outlets across the United States. Interest rates are typically in the neighborhood of 400%.
2. ‘Buy here, pay here’ Car Lots. You will pay a steep markup on the car itself and will be hit again on the interest rate. Large volume dealerships that offer sub-prime car loans may offer better deals to consumers with low credit scores.
3. Used Car Leasing. Beware of used car dealerships which offer to lease you a car. They usually require large down payments. Dealers retain the cars’ titles, so they don’t have to go through formal repossession procedures. If you stop paying, they simply come take the car or disable it with a remote ignition lock. I see clients paying $400-$500 per month for old high mileage cars. They could do much better.
4. Rent To Own. Rent to Own outfits specialize in getting people to pay two to four times the retail cost for furniture, computers, appliances, electronics and even tire rims. Consumers pay dearly for their impatience.
5. Banks. A 2008 Federal Deposit Insurance Corp. study found that people earning less than $30,000 were far more likely to incur overdraft fees than those with higher incomes. Their fault? Sure. But $35 fees add up fast. Banks have also been known to reorder purchases maximize overdraft fees. A $1.50 debit transaction to buy a bottled water instantly becomes a $36.50 bottle of water. Credit Unions typically charge lower fees than banks and may be a better choice. Also, you can choose to opt out of overdraft protection or link your checking account to a savings account which will serve as you overdraft protection.
The depression era adage of “Use it up, wear it out, make it do, or do without!” is always good advice.
Content adapted from Liz Weston.