Bargain hard and don’t pay too much
Casual assumptions can cost money. We’re all guilty of them. Many we get away with, some we pay through the nose for.
Plenty of people, for example, assumed back in 2006 that we lived in a country and world governed by professionalism, common sense and the rule of law.
Then our finance companies started falling over and the Global Financial Crisis followed. Our collective eyes were opened and the wealth of many was dramatically decreased.
But don’t let’s lose perspective.
The bulk of the money transfer from our pockets into those of the money men generally doesn’t come in the big collapses and mis-selling scandals that seem to frequently erupt in the finance industry.
No, most of it happens because we, the little people, pay too much interest on debt, whether it be to buy a house, a car, a stereo, or most depressingly to pay for essentials like food and power.
And I reckon there are a bunch of assumptions that lead too many of us to pay over the odds.
The first is around sourcing loans.
A week ago the top man at personal loan finance company Instant Finance told me it had lost customers to big Australian-owned banks and that the banks were happy to lend more than his business would. I was gobsmacked.
I’d also thought there was a huge difference between the type of customer Instant would attract and those the banks would lend to.
After all, the average weighted interest rate on Instant Finance loans at the end of March last year was 29.79 per cent.
Those borrowers Instant Finance lost to the banks were going to get their debt for a lot cheaper than that. They had not assumed the bank wouldn’t be interested in their business and they’d got their deals.
Another lazy debt assumption is around car finance. One man I spoke to a couple of weeks back had gone to a second tier lender instead of the bank at which he had his mortgage because he felt the bank would not approve of him buying a new car.
The assumption bank staff would be making moral judgments of him had cost him a lot of money because there was a big difference in the lending rate.
There are five other debt assumptions no-one should accept:
1. The minimum repayment levels on credit cards are sensible.
2. Rises in your credit card limits offered by the bank are a reward to a good customer.
3. Paying back a mortgage over 35 years is OK.
4. Interest rates posted in the bank windows are the rates everybody pays.
5. You deserve a holiday and paying for it with a loan is OK. The truth: 1. The longer you pay, the more you pay. Pay off that $2000 at $40 a month (minimum repayment 2 per cent), and you’ll be going grey by the time the debt’s gone.
2. The only person who should be seeking to lift your limit, is you.
3. The longer you carry debt, the more you pay for the privilege.
4. The clever never pay the advertised mortgage rate. If the bank wants your business, make them show it.
5. You can’t help buying a house on credit. It can be hard to buy a car without debt. It’s daft to holiday on debt.