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Borrowing Basics

Taking on debt never sounds like a good idea, but it's actually smart when it helps to establish credit history. Here are some things to consider before accepting every credit card offer that arrives in the mail or leasing that brand new car.

Credit cards
Research credit card features before you make a decision. There are several factors to consider:

  • Teaser rate. Used to encourage customers to transfer other credit card balances to a new card with a special introductory rate. Be sure that once the teaser rate expires, the regular rate is not higher than what you paid before.
  • Annual fee. Not all cards have them, and those that do usually offer other perks, such as a high credit limit or generous frequent flyer miles. If you're paying an annual fee, make sure it is worth it.
  • Grace period. Some credit cards give you a grace period before charging interest on a new purchase. Others start charging interest on the day you make your purchase-so it can save you money to find out the card's terms first.
  • Penalty interest. Fees as high as 30% can be charged whenever you make late payments or exceed your credit limit. Be sure to ask questions up front so you aren't hit with a large fee.

Loans and leases
When deciding between a loan versus a lease-typically for a car-you are deciding between owning or renting. There are advantages to both and you should take time to consider the following:

    Down payment. How much money will you have to deposit up front and how will that affect your monthly payment?
  • Monthly payments. How much can you afford to pay on a monthly basis?
  • Research. Do your homework and compare loan rates, down payments and lease agreements between banks and car dealers so that you know you are getting a fair deal.
  • Own vs. rent. If you plan on driving your new car for ten years, then financing it may be the best option. But if you typically get a new car every few years, a lease might be the most appropriate choice.



 

 

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