Many sources make money available to loan—most legitimate, and a few that are out to prolong your debt just to take more of your money. A bank may offer you an "unsecured" loan if the borrowed amount is small and your credit is good. A "secured" loan, on the other hand, is one that is guaranteed by personal property such as your home or car. If you join a credit union, a lower interest rate may be available.
Finance companies, on the other hand, usually charge much higher rates for loans (especially auto and home equity) to people with a risky credit rating. Watch out for high-interest loans and those requiring an up-front payment from you, a sure sign of a scam. Be sure you have read and understand the terms before you sign a loan contract of any kind.
Caution is especially advised if you are thinking of doing business with a "payday lender," "money shop" or storefront lender, pawnshop or title pawn company, illegal "loan shark" charging a very high interest rate, or unscrupulous home equity lender offering a loan you can't possibly repay. Besides the high fees, in some cases you could end up losing your home, your car or your personal property.
Retail Financing and Rent-To-Own Stores
Financing furniture, electronics or other merchandise through a retailer can sound like a dream come true. The promotion may go something like this: Walk away with a beautiful living room set today with no payments due for a whole year! But remember that rarely is a salesperson willing to give you something for nothing. So what's the catch here? In some cases, the merchandise itself may be marked up to offset the attractive financing terms. What's more, interest rates offered through retailers are usually very high, so by the time you do pay off the debt, you will have paid a substantial amount just in interest. The real trap in many of these financing deals is that the interest is actually accruing from day one, and if you are late with a payment – even if it's your very last one – you could be liable for all the interest on the entire purchase amount. Being late with a payment may also subject you to a higher interest rate. Worse yet, the item may be repossessed for non-payment, meaning you could lose all the money you've put into it. If it's an installment purchase, the company can also come after you for the balance owed, minus any amount they were able to recover by reselling the merchandise.
Rent-to-own stores are another option that can appeal to consumers who have neither the credit nor the cash to purchase the merchandise they want. In this set-up consumers make monthly "rental" payments on the furniture or household items for an extended time, with the option to buy at what turns out to be a very inflated price. Thus, the consumer ends up paying much more for the merchandise than they would have had they bought it from a regular store.
If you are considering financing furniture or other merchandise through a retailer, make sure you read the details of the financing terms thoroughly and evaluate whether getting a loan through your credit union or bank would be cheaper in the long run.