MCU: StartPoint (sm) - The Cost of Credit

The Cost of Credit

It's a bummer, but credit is not free money.

You pay a lender -- in the form of interest and fees -- for the convenience of borrowing money. Credit card companies, banks, auto dealers, and credit unions can vary greatly in what they charge for credit. So before you sign, brush up on the lingo and understand how much this credit will cost!

What is the interest rate? Lenders call this the Annual Percentage Rate or APR. This is the standardized interest rate you must pay the lender each year for the use of borrowed money. Compare rates -- the lower the interest, the less you pay.	What is the monthly payment? How much will you need to write out a check for each month? Limit your debt to your ability to pay, and don't go into debt for items you don't really need. Your bills for credit should not exceed 10% to 20% of your monthly income.	What is the finance charge? This is the total dollar amount the loan will cost you. It includes fees, interest, plus any other charges.
What is the term? How long will it take to repay the loan? 3 years? 4 years? 5 years? On the surface, longer terms look like the best bet, because the monthly payment is lower. But the longer it takes, the more you'll dish out of your pocket in interest.	What is the grace period? The grace period applies to credit cards. This is the length of time you have before interest gets charges. It is typically 20-30 days. If the card doesn't have a grace period, or if you carry over a balance or take a cash advance, you're usually charged interest right away.	Are there any fees? If your payment is late, how much will the lender tack on?