This is the third part of a 3-part article on secrets banks don’t want you to know.
Part 1, discussed bank fees as good for the lenders and bad for the consumers (lendees).
Part 2 discussed loan rates for mortgages, cars, credit cards, and education. Continuing…
- Banks lie about their loan rates.
How much interest a lender charges depends on several things, principally the lendee’s credit score and income-to-debt ratio. Ironically, people who need to take out loans because they are cash-deficient are charged higher interest rates and pay far more money for the same commodity as those who have plenty of funds available.
One tip a wise friend shared with me can help people with low credit scores improve their rating. This only works if you have some savings built up. If you have $1,000 to spare, take out a loan for that amount and pay it back ahead of schedule – as soon as possible. This should boost your credit score, although you may need to do this several times or for a larger loan. The idea is sound: borrow money when you don’t need to for future situations where you really do need some financial assistance.
At the end of 2017, 4.1% of all active auto loan accounts were delinquent 90 days or more. Although lenders may not charge punitive fees and interest for late payment, the repo (repossession) driver may show up at your house with a tow truck to haul your conveyance away.
It will take a significant amount of money to get a repossessed car out of hock. The impound lot charges fees and will probably remove all contents from the car – because they can, legally. Failure to pay the ransom charged for your car results in your wheels being put up for auction to pay the company who made your car loan.
Forbes looked at retail consumer loans (cars and college) and concluded that “the banking industry has benefited from steady growth in loans over the last two years.”
But, as pointed out earlier, bankers lie to and cheat their customers at every turn in order to turn tidy profits.
Wells Fargo faced $1 billion in fines in April 2018 “to settle claims that it had taken advantage of mortgage and auto loan customers. Federal regulators also said the bank did not have adequate compliance or risk management programs.”
Student loan debt in the United States is so astronomically high that observers are calling it a “crisis.” Forbes said:
“Student loan debt is now the second highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans.”
Check out these facts from Forbes:
- The average student loan debt for the Class of 2016 averaged $37,172.
- Total Student Loan Debt: $1.52 trillion
- Total U.S. Borrowers With Student Loan Debt: 44.2 million
- Student Loan Delinquency Or Default Rate: 10.7% (90+ days delinquent)
- Total Increase In Student Loan Debt In Most Recent Quarter: $29 billion
- New Delinquent Balances (30+ days): $32.6 billion
It turns out that women borrow more money to pay for college educations and are slower to pay them back. “The average woman owes $2,740 more than a man upon finishing a bachelor’s degree,” reported the American Association of University Women (AAUW).
Student loan debt sticks with women longer than their male counterparts because they borrow more, but also because women earn 79 cents of the dollar compared to men doing the same work. The AAUW explained:
“And because of the gender pay gap, they [women] have less disposable income with which to repay their loans after graduation, requiring more time to pay back their student debt than do men.”
Always try to get a fixed-rate loan. Lenders hate these because they can’t raise the interest rate later, as they can with a variable-rate loan. Variable-rate mortgage hikes caused the 2008 stock market crash when lendees on fixed incomes could no longer pay the higher premiums.
Another big secret to reducing total interest payments over the life of a loan is to make a double payment on the first due date. Make sure your lender applies all of the second-payment amount to the principle rather than treat the payment as an early second payment. Reducing the principle by one monthly payment at the beginning of the loan will save thousands of dollars for a 30-year mortgage note.
If you notice extraordinary fees on your bank or credit card statement, call customer service and politely request that the fee be reversed. This doesn’t always work, but often does. Eat some humble pie, explain you made a mistake / didn’t understand the rules / it won’t happen again, and most bank employees will try to help out the little gal or guy.
The bottom line is this: banks are in the business of making profits for their stakeholders. Legal or not, the vast majority of bank employees have been instructed to do or say anything to secure more consumer debt.
Happily, we financial customers can vote with our wallets – literally. Walk your savings and loans away from the Big Banker and head over to a local credit union where you’ll receive caring member service, enjoy loan rates, and earn dividends that keep pace with inflation.
You’ll be glad you did.