Understanding Credit Contracts – Must Read Before Signing
Know who you’re dealing with
Reading contracts can feel a little dull and difficult, but it’s necessary that you don’t put it off. It’s essential to be aware of what you’re committing to with your credit card, personal loans, leases, and consumer loans. It’s also important to be aware of who exactly is lending you the line of credit and how they plan to charge you.
- How to review a credit contract
- Check if the company/lender is licensed
- Explore the option of consumer credit insurance
How to Review a Credit Contract
Before signing anything, check the following highlights of your purchase:
- Know the name of the company lending you the line of credit.
- Be aware of the details of the loan or lease, and notice if it’s a secured loan- one that requires you to offer an asset to reduce the lender’s risk of not recouping the loan amount in full if you were to ever default.
- Determine how they calculate and charge the interest on the extended credit.
- What are the penalties and fees associated with failing to meet repayment requirements?
- Learn when you’ll receive account statements and how they’ll inform you of any changes to the terms and conditions of the account.
Don't Bite Off More Than You Can Chew
Lenders make money by lending...the more they lend, the more they make. Always make sure the amount you borrow is adequate for your budget. Don't take on more than you can service just because it is offered to you. Always know your budget and stick to it. Don't fall for high pressure sales tactics.
Check the Licensing of Your Lender
It’s imperative that you verify the license of any financial institution with the help of your state’s government website. You can also become privy to lending laws here.
Do You Need Credit Insurance?
If you find you can’t meet the repayments on your line of credit because you have fallen ill, sustained an injury, or are out of work, credit insurance may work for you. There are ways to evaluate the benefits against the costs- and you don’t always have to get it through the institution lending you money.
The first thing you can do is check to see if it’s included in your credit contract before signing it. Some will provide it, while others won’t. In many cases, you may not even need this extra cost.
Smart tip: You can ask to remove the consumer credit insurance from your contract before signing anything.
Credit contracts provide you with the information you need when determining if your comprehensive purchase is worth the commitment. If ever you have questions about what you’re pledging to, ask your lender and clear up anything you don’t understand before signing your contract. It’s always better to be safe than sorry.
