You Have Just Got To Bear Down
On your next payday when you repay the loan, you get the check back. If you can’t repay the loan on the next payday, the lender rolls over the loan until the following payday in exchange for your paying the lender another fee, which will probably be higher than the first fee. Over time, if you keep rolling over the loan and paying higher fees, the cost of the loan skyrockets and you have a harder time paying it off.
Some states have payday loan laws. Contact a consumer law attorney or your
state attorney general’s office to find out if your state has such a law and what your rights are.
- Pawnshop loan: This is a short-term loan (no more than three months, in most states) with a very high interest rate. With this kind of loan, you give the pawnshop an item that you own, such as a TV, DVD player, piece of jewelry, or computer. The pawnshop lends you a percentage of the item’s value. At the end of the loan period, if you cannot afford to pay the loan plus interest, the pawnshop keeps your item and sells it.
- Tax refund loan: Also known as a tax anticipation loan or an instant refund loan, this kind of loan involves borrowing against your future IRS tax refund. Some tax preparers, as well as finance companies, car lenders, retailers, and check-cashing companies, make this kind of loan. Usually the loan will be for no more than $5,000, and it will last for no more than ten days. In addition to having to pay a very high rate of interest on the loan, you must pay the lender an upfront fee, and you must file your tax return electronically to the tune of about $40. So when you consider the loan’s interest rate plus the fees involved, the effective rate of interest you pay to borrow against your own money may be in the triple digits. When the IRS issues your tax refund, it deposits the money directly into an account set up by the lender, who takes its money and gives you the rest.
- Car title loan: If you own your car free and clear, some lenders will make you a loan for a small fraction of what your car is worth. Usually the loan will be for no more than 30 days and will have a very high rate of interest. To get the loan, you must give the lender the title to your vehicle and a set of car keys. The major danger with this kind of loan is that if you miss a loan payment, you risk losing your car. Depending on the loan agreement, one missed payment may be all it takes.
Categories: Credit, Finance, Loan, Money Tags: You Have Just Got To Bear Down
The Credit Card Economy
Let us now imagine that credit cards are introduced into our monetary economy. Households can buy commodities directly with the credit cards, without having to borrow any money in advance. Of course the seller then gets a promise, and not cash, for his good. The simplest timing is to suppose that credit card purchases are made simultaneously with cash purchases, but that credit card debts must be repaid just before bank loans come due.
The budget set of household consists of all that satisfy constraints are as in the monetary economy. household
sells good separately against cash and credit cards, but cannot sell in total more than it has. household buys good separately with cash and credit cards. requires that credit card debts be paid in full with money, before cash receipts from credit card sales become available, and before bank loans come due. says that after receiving all the money from sales against credit cards, there is enough money to pay off all bank loans. household to consume no more of commodity than it has after trade.
The critical thing to notice is that the same dollar can be used to repay two different debts: one household uses the dollar to pay his credit card debt, and the recipient uses the same dollar to pay his bank loan.
Thus credit cards enable money to do extra work. This inevitably causes inflation, as we shall see shortly. In a multiperiod model, inflation is even higher because households drastically reduce their holdings of idle cash, making money work still harder.
Categories: Credit Tags: The Credit Card Economy
The Line Of Credit
The homeowner should also consider some of the other approaches to the offering of a home equity line of credit. For example, some banks will offer a draw period at the start of the period of the credit line. During this draw period, the homeowner can withdraw funds for making advances, for repaying advances or for advancing the line of credit. The draw period is followed by a period of repayment.
Each type of home equity line of credit offers the homeowner a way to reap added benefits from the existing credit line. For example, the homeowner could choose to increase the insurance deductibles, knowing that a line of credit had been made available. The higher deductibles would guarantee a decrease in the premium payments on the insurance policy.
A home equity line of credit could also be used to buy discount credit cards at a store of the homeowner’s choosing. In addition, the possession of a home equity line of credit gives the homeowner the ability to make purchases with a Rewards credit card and to then pay the card payment with the check obtained through the credit line.
Once the homeowner has negotiated all of the intricacies of a home equity line of credit then that homeowner is ready to use multiple economic tactics in order to make more money from what he has available. He will be ready to prove the old saying: You have to have money to make money.
Categories: Credit Tags: The Line Of Credit
