Credit card debt could be more expensive if you don’t read the fine print

We live complicated lives these days, and they’re more cluttered with paperwork than ever before. With newspapers, junk mail, bills, magazines, flyers from people offering “foreclosure help” and who-knows-what else to deal with every day, few people have time to read everything that comes their way. Unfortunately, it is becoming more vital than ever that people carefully examine bills and contracts, as various penalties and extra payment clauses have found their way into the fine print of credit card bills, mortgage contracts and home equity loan documents. It is essential that anyone with such documents read them carefully, or it may cost some extra money..

As many as one third of the major credit card companies now include something known as a “universal default clause” in their billing terms. The UDC permits the credit card company to raise the interest rate on the user’s account for paying his or her bills late. The amazing thing about this clause is that it can apply on bills other than the credit card bill! It is important for the cardholder to find out if their terms include a UDC, as their interest rate could be affected by simply making a late payment on a phone bill or auto loan. This is one of many ways that the credit card companies are finding to increase their profits, but they’re not exactly proud of this one. You won’t see it mentioned in their television advertising. Should you receive a letter in the mail that says that there is a “change in terms” on the envelope, you should be sure to read it. Failure to do so could result in a substantially higher interest rate on your card.

Another issue involving “fine print” that has been in the news lately is the fact that up to half of all mortgages and home equity loans now include a prepayment penalty. The up and down nature of interest rates in the real estate lending market over the past few years has encouraged many homeowners to refinance their homes, sometimes more than once in a year. Lenders frequently find themselves holding a loan for only a few months before the homeowner refinances again and pays off the original loan. This quick turnover denies the lender their long-term profit, so now up to 50% of all lenders are requiring a significant penalty should the homeowner pay off the loan prior to a specified date. These penalties are typically several hundred dollars on a home equity loan and up to several thousand dollars on a primary mortgage. Few borrowers would be pleased to go through the trouble and expense of arranging a home refinancing only to find out that they owed several thousand dollars extra at closing time. This can be avoided by taking the time to read the documentation before you sign it.

As the credit card and real estate lending markets become more competitive, lenders are doing more and more to shore up their profits. Those profits can come at the expense of buyers who aren’t paying close attention to their loan documents. Take your time and read your documentation carefully. The money you save is your own.

Copyright © 2005-2007 by Retro Marketing. All rights reserved.