44 Questions
What is the recommended maximum duration for financing large household purchases?
1-4 months
Where is it recommended to seek financing for large household purchases?
Banks and credit unions
What is the advantage of financing through banks and credit unions for large purchases?
Lower fixed interest rates
Why is it advisable to avoid putting large purchases on credit cards for an extended period?
Exposure to higher interest rates and late fees
What is the average monthly finance fee for title loans?
25%
What do title lenders often add to the loan amount?
Processing fees
When do you get your vehicle title back after getting a title loan?
After repaying the loan amount, finance charge, and fees
What is the approximate APR for title loans with a 25% monthly finance fee?
300%
What can help in obtaining cheaper financing and other benefits?
Proper care and maintenance of purchases
What can result in financial challenges and ruined credit?
Impulsive purchases and lack of budgeting
What should consumers carefully read and understand?
The fine print of financing contracts
What may necessitate financing or require sacrifices in other expenses?
Emergency appliance failures
What can be a strategy to build and raise credit score?
Financing purchases
What can result in high-interest penalties and defaults?
Failure to meet deferred financing terms
What is crucial in making financing decisions?
Differentiating between needs and wants
What is often backed by sub-prime lenders?
0% interest promotions for furniture and appliances
What can lead to lower credit scores and loan defaults?
Lack of planning and budgeting
What may necessitate sacrifices in other expenses if not financed?
Emergency appliance failures
What can help build or increase credit score?
Proper care and maintenance of purchases
What can lead to financial challenges and ruined credit?
Impulsive purchases and lack of budgeting
What are the potential consequences of missing payments on 0% APR financing?
Significant additional interest payments
What is the potential APR interest if defaulting on a deferred payment purchase program?
34.9%
How much would be the total repayment cost for a $4,000 purchase if defaulted on a 35% APR loan under a deferred payment program?
$8,613
What can impulse purchases potentially lead to?
Credit score damage and collections
What are the potential consequences of large-ticket item purchases without planning and budgeting?
Late fees and penalty charges
What may individuals consider using if they default on promotional financing programs?
Credit card balances
What is the potential outcome of using credit card balances to make promotional payments?
Lower interest payments compared to defaulting on promotional programs
How can individuals avoid defaulting on promotional financing programs?
Cutting back on expenses
What are the potential consequences of defaulting on promotional financing programs?
High-interest rates and credit score damage
What can tempt individuals into emotional buying decisions?
0% Interest APR Periods and Deferred Payment Option promotional offers
What can result from wrong financial decisions?
Late fees, penalties, and high-interest payments
Why is financial planning crucial?
To avoid significant financial consequences
What is the average interest rate on a payday loan?
391%
What fees do payday loans typically have for every $100 borrowed?
$10 to $30
What is the range of APRs for payday loans due to finance charges?
390% to 780%
What type of loans use the vehicle's title as collateral?
Vehicle title loans
What is the range of real interest rates for same-day quick loans in terms of APRs?
85.0% to 805.28%
What is the average interest charge for subprime lenders per month?
25%
What type of loans typically last 15 or 30 days and use the vehicle as collateral?
Car title loans
What is the main reason borrowers may default on 0% APR and Deferred Interest Period loans?
Unexpected events like lay-offs, emergencies, and major expenses
What is a potential consequence of defaulting on vehicle title loans?
Losing the vehicle
What can help avoid defaulting on loans according to the text?
Planning, budgeting, and having savings
Why are high-interest subprime lending options considered financially ruinous?
They have extremely high-interest rates and fees
What may not be clearly explained in TV ads for quick and easy loans according to the text?
Interest rates and penalties
Study Notes
The Dangers of 0% APR and Subprime Lending
- Borrowers can default on 0% APR and Deferred Interest Period loans due to unexpected events like lay-offs, emergencies, and major expenses.
- Longer 0% APR periods don't necessarily result in lower monthly payments, and borrowers may default on loans for "want" purchases.
- Defaulted loans could be avoided by planning, budgeting, and having savings, and exercising discipline.
- High-interest subprime lending options like payday loans, vehicle title loans, and same-day quick loans are extremely risky and financially ruinous.
- Payday loans have fees ranging from $10 to $30 for every $100 borrowed, resulting in APRs of almost 400% and finance charges leading to interest rates from 390% to 780% APR.
- The average interest rate on a payday loan is 391%, and if not repaid, the interest rate soars, making it nearly impossible to pay off.
- Vehicle title loans use the vehicle's title as collateral and have very high-interest rates, leading many to lose their vehicles when unable to repay the loan.
- Same-day quick loans have high-interest rates and fees, resulting in real interest rates from 85.0% to 805.28% APRs.
- Borrowers facing financial emergencies may feel they have no other options, but subprime lenders can charge around 300% APR or an average interest charge of 25% per month.
- TV ads for quick and easy loans may not explain the interest rates and penalties clearly, and borrowers may not take the time to read all the terms and penalties.
- Car title loans typically last 15 or 30 days and use the vehicle as collateral, with loans ranging from 25% to 50% of the vehicle's value.
- Subprime lending options are extremely risky and can lead to financial ruin, while careful planning, budgeting, and saving can help avoid defaulting on loans.
Test your knowledge about the potential dangers of 0% APR and subprime lending with this informative quiz. Learn about the risks associated with these lending options and understand the importance of financial planning and discipline to avoid defaulting on loans.
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