Tag Archives: credit

Beware of Predatory Lending Practice

By Barbara O’Neill, Ph.D., CFP®

July 15 is Military Consumer Protection Day so July is a good time to explore frauds that affect service members and their families. The Personal Finance team will present a webinar on Predatory Lending Practices & How to Avoid Them on Tuesday, July 28 at 11 a.m. ET.

Most lenders are reputable and community-minded and charge a fair price for the use of borrowed money. Unfortunately, there is also a relatively small subset of lenders, called predatory lenders, who take advantage of others. Predatory lenders do just what the name implies. They market to vulnerable populations, such as the elderly, minorities, and people with poor credit histories, and charge excessively high interest and up-front fees.

Photo by Jason Comely (Creative Commons CC BY 2.0.)
Photo by Jason Comely (Creative Commons CC BY 2.0.)

There is no precise definition of predatory lending. Rather, it consists of a number of practices that exploit consumers and can result in the loss of homes and life savings. A common element of all predatory loans is exploiting a consumer’s ability to repay. Borrowers are often lent amounts far in excess of what their incomes can support. In the case of mortgages, lenders are assured of a profit- either through loan payments or foreclosure (seizing a borrower’s home). Interest rates and fees are also well above average market costs.

How can military families avoid predatory loans? By being cautious and skeptical. Consider the following tips:

  • Always check out a lender before signing any loan documents, particularly if they contacted you first and they are not located in the city or county where you live. Start with the Better Business Bureau (BBB). To get the name of the BBB closest to you, visit bbb.org. Local or state consumer protection (consumer affairs) agencies can also provide information about whether a lender has had complaints from consumers.
  • Be especially wary of calls and visits about “bargain” loans that are “available only for a very short time.” Read loan documents carefully before signing and always get a copy for your records.
  • Walk away from any lender that encourages you to borrow more than you need (and can afford), requires credit life insurance, provides a blank contract with spaces “to be filled in later,” charges excessively high costs (e.g., closing costs as much as $5,000 on a $25,000 loan) and doesn’t answer all your questions.
  • Never sign a loan contract you don’t understand and always check that terms that were told to you orally (e.g., interest rate and fees) are the same in the loan contract. Also be wary of lenders who swamp borrowers with a lot of papers to discourage reading everything closely.
  • Never sign loan documents because you feel pressured to do so. Also, be very suspicious of lenders that you did not contact first. Most reputable mortgage or credit lenders do not solicit business over the phone, via e-mail, or door-to-door.

Visit military.ncpw.gov for free resources, tip sheets, and blog posts from national consumer protection experts. Below is a 5-minute video that demonstrates a predatory loan application in progress with a slick lender.

To join the July 28 webinar, Predatory Lending Practices & How to Avoid Them visit: https://learn.extension.org/events/2113

This post was published on the Military Families Learning Network blog on July 7, 2015.

Car Buying: Military Edition

By Selena Garrison and Michael S. Gutter 

While there are many factors to be considered by anyone who is considering purchasing a vehicle, there are some special considerations that need to be made for service members. The bottom line is that a vehicle is a major investment, and military members and their families need to be armed with the right information before jumping into purchasing a vehicle.


First, you need to know how much car you can afford. Remember that when you purchase a vehicle, you need to calculate not only the cost of the vehicle, but also the cost of gas, registration, insurance, and maintenance. In addition, be sure not to negotiate based on the monthly payment. You want to get the best price possible on your new car, and if you negotiate based on how much you can afford to pay monthly, the dealer may just extend the terms of your learn, effectively lowering the monthly payment, but costing you a lot more in the long run.

Avoid Gimmicks

When shopping for a vehicle, military personal should be keenly aware of any gimmicks that may be geared toward them. Examples may include “special financing” with no or low credit (which will end up costing a lot more than necessary), praising military service to lower resistance to a sales pitch, and attempting to sell the individual more car than they can afford because they have “earned it.”


Generally speaking, most people take out a loan to purchase a vehicle. A huge factor affecting financing will be your credit score, so it is important to pull your credit report and see if there are any areas that may be negatively affecting your score. If you have little or poor credit, it is better to buy a less expensive, used car as a temporary solution instead of getting locked in to a high interest loan. This will give you time to improve your credit, save some money, and be able to purchase the car that you really want without paying way too much for it.


There are several factors involved in negotiating a good deal on a vehicle. First, shop for financing in advance and know what you can afford. Check with a local credit union or lender that specializes in military car buying and then compare the offers you receive with the offers the dealership puts forward. Next, do your research and compare prices in advance. Know what kind of car you want, how much it has been selling for in your area, and how much you are willing to pay for it. You can use websites such as www.kbb.com and www.edmunds.com to do your price shopping. Lastly, for the reasons that were mentioned earlier, do NOT negotiate based on monthly payment. In fact, do not even tell the salesperson how much you want to pay monthly.

Walk Away

Once you have driven the vehicle, negotiated a good deal, and secured financing, you are good to go, right? Wrong. Take a few hours or a night to make sure that this is what you really want to do. Too often, people get swept up in the excitement of purchasing a new car and end up in a situation that is damaging to them financially. Taking a step back and reviewing the decision you are making can only help you.

 Special Considerations

Military members have several additional issues that need to be considered when purchasing a vehicle. First, many military car-buyers are young, first time buyers with little experience managing finances or making big financial decisions. Remember that just because you have money doesn’t mean it needs to be spent on a car. Second, deployment can cause added financial stress and unique issues that can be difficult to resolve. Remember that being deployed does not mean that you do not have to make a car payment. It is important to designate someone to take care of these financial issues for you while you are away. Lastly, The Consumer Financial Protection Bureau recently opened the Office of Servicemembers Affairs (OSA). The OSA is an important tool to help you stay informed about your financial rights and to protect you from abusive practices.

This post was published on the Military Families Learning Network blog on April 17 2014.

Two Personal Finance Webinars Next Week!

Join the Personal FinanceEducation2 team for a busy week starting Monday with Paying for Education Expenses and the GI Bill with speaker Drew Hill, Director of Veterans Affairs – Worldwide with Embry-Riddle Aeronautical University. Mr. Hill’s 90-minute presentation will cover the post 9/11 GI Bill and the Montgomery GI Bill. Topics to be covered include: eligibility, the application process, and transferability. This presentation in Part 2 in our Paying for College series. Review Part 1 here.

Then on Monday, Dr. Barbara O’Neill and Dr. Michael Gutter will present Credit Basics and Debt Repayment Strategies. This 90-minute session will focus on credit and debt management strategies and provide numerous resources to support consumers to succesfully manage their finances. Credit Basics & Debt Management

Both of the web conferences will offer 1.5 continuing education credits to AFC-credentialed participants. Both web conferences begin at 11 a.m. ET. To connect to the hosting platform, security certificates are required. Please review these instructions. Alternatively, both presentations will be streaming on Ustream.

Steps to Financial Freedom

Contribution by Molly Herndon and Carolyn Bird

Digging out of a mountain of debt can seem like an impossible task, and many resist asking for help. Service members may feel anxious about their options or be unaware of the wide range of services provided to them on base and, increasingly, online. As a PFM you may ask yourself– how do I help a service member find the motivation to stick with a financial management plan? Over the next few weeks, we will be going back to the basics by outlining steps and strategies you can use to help your clients who are looking for financial guidance to get on track.

Step 1: Assess the Situation
The first step is to assist the service member in getting the finances under control by assessing the current financial situation. The service member, and you, must know what you’re up against before you can create a plan to get out of the cycle of debt. Using a net worth calculator

Depending on the specific circumstance, you may recommend your client consider consumer credit counseling, debt consolidation, refinancing or transferring balances to get a handle on existing debt. Each of these strategies comes with advantages and disadvantages. It is important that the client be aware of and ask the lender for an explanation of any increase in the number of payments and interest rates or fees. A clear explanation of costs or extended periods of indebtedness will help the client to evaluate whether the plan is in their best financial interest. Credit repair agencies often promise to remove negative credit information for a fee. Be sure your clients know that the only legal method of improving a credit score is through a history of on-time payments or the removal of false negative information. Steering clients away from credit repair agencies is good practice, saving your clients valuable time and hard earned money.

These initial meetings may be a good time to suggest creating a monthly budget tracker. Tracking every penny that comes in and goes out is the only effective measure toward changing spending habits. Providing clients with an easy-to-use worksheet, like this one, may help clients get started with this new habit.

Step 2: Find the Motivation
What’s really important is what happens after the service member leaves your office. One way to motivate might be to show just how much the debt truly costs. Using the credit card calculator on myfico.com, I experimented with a balance of $3,000 at an interest rate of 18 percent and payments of $75 a month. Guess what? This debt costs $509 a year! Before you run the calculator, ask the service member about favorite hobbies or something he or she would like to buy. Run numbers on the calculator and show the service member just how much the debt at minimum payments is costing them each year. Ask if they wouldn’t rather use that $509 toward that hobby or purchase.

Step 3: Recruit Your Team!
While PFMs are part of the service member’s team for financial fitness, the most important team member is the service member’s spouse. Discuss with the service member how he will discuss this with his spouse to get her motivated too. Ask about the spouse’s favorite things and help the service member devise an approach that rewards both of them for working together toward a financial goal.

These are just the initial steps in working toward financial freedom. Later we will discuss saving, investing, and raising financially fit kids. There are many approaches to debt solution. What strategies have you found works well in helping service members turn their financial situations around?