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Cutting Your Costs:
Strategies for Saving Money
On Loans and Credit Cards

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Shopping Tips

1. Compare the products offered by your bank and a few competitors and then negotiate the best deal. "Don't hesitate to let lenders know that you are shopping around for the best possible terms and that you are not afraid to negotiate," Kincaid stressed. "Competition can be a good thing."

One of your most important shopping aids for a loan or credit card is the APR — the Annual Percentage Rate. This required disclosure shows the total cost, including interest charges and other fees, expressed as a yearly rate. When you're comparing loans from different lenders, make sure you use the same dollar amount and time frame so you can compare the APRs. That way there's no confusion about which loan will cost less.

2. Focus on the long-term cost of the loan, not the monthly payment. "Many car dealers or even mortgage lenders will entice borrowers by asking how much they can afford to pay each month," added Kincaid. "It may be better to pay slightly more money each month, but for a shorter time period, if it means you will be paying less in total interest."

She also said that some people look so much at the monthly payment that they don't notice certain fees or service charges that are imposed. "You've got to look at the full picture before signing a loan agreement, including the APR and provisions of the loan that can increase fees," Kincaid said.

You can also avoid unnecessary interest charges if you pay for certain costs out of your own pocket instead of borrowing that money, too. Let's say you're getting a new mortgage and you're offered the chance to add the closing costs to the loan instead of paying them upfront. Sounds good on the surface, but remember that you're not getting out of paying the closing costs — they're added to the loan balance, so your monthly payments will increase and you'll be paying interest on the closing costs.

3. Take advantage of the Internet. Not only can you research credit products and comparison shop among hundreds of lenders over the Internet, but you can also apply for a loan or credit card online from those same lenders.

"The Internet is, without question, the fastest and easiest way for consumers to find out about and compare the various types of loans and credit cards offered by banks around the country," observed Michael Jackson, Associate Director of the FDIC's Division of Supervision and Consumer Protection. He added that if you find an interesting offer from a far-away bank or an Internet-only lender, "in most cases you can apply for and finalize the loan online; you don't have to pass up a good deal just because the institution doesn't have an office in your area."

However, Jackson also warned that because con artists use the Internet to trick consumers into divulging personal financial information, you should never respond to unsolicited e-mails or to Web sites offering products or services that appear "too good to be true.

4. Read the fine print before signing up for any loan or credit card. For example, realize that if you get a new credit card promoting zero-percent interest on new purchases and you don't pay off the entire balance by the due date (typically after six to 18 months), you may be charged interest on all your original purchase amounts — not just on the remaining balance — retroactive to the original purchase date. The costs could be more than if you had used a card without a zero-percent offer. With a mortgage loan, find out when your payments will or could change and how much higher the payments would be under different scenarios. What you don't read and don't know can cost you a lot of money.

5. Don't pay for expensive insurance coverage you probably don't need. Many lenders sell disability, life insurance or other similar protection plans which, as an example, might cover minimum loan payments due if the borrower becomes ill or dies. Credit protection programs may be the best or only coverage for certain people who want this kind of protection, such as some consumers who are ill or who are concerned about making loan payments if they lose their job. But these plans may be far more costly or more limited in purpose than other options, such as traditional insurance not tied to loans.

Before purchasing a credit protection product, consider if you already have, or would be better off with, traditional insurance. Look at your savings and other assets, because you may have sufficient emergency funds to do what these programs promise if you become sick or unemployed. Also remember that most credit protection is optional.

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