Finances FYI Presented by JPMorgan Chase
With the tiny print and challenging terminology in financial agreements, one might think that financial institutions are trying to hide something from us. In fact, the Consumer Financial Protection Bureau has, for quite some time, been fighting against financial companies using fine print in contracts that result in customers waiving their legal rights, that include unlawful or unenforceable terms, or that violate the Consumer Financial Protection Act (CFPA).
So, how do you protect yourself? From applying for a credit card to taking out a loan or opening an investment account, read before you sign. Pull a magnifying glass out and review the fine print before making financial decisions. Then, use this guide to educate yourself on common financial jargon to understand the terms in any agreement fully.
What Is the Fine Print?
The term “fine print” refers to supplemental information in an agreement and the small nature of the text. Because the terms in this section are sometimes unfavorable, many believe that the information in the fine print is deliberately obscure or hidden. Failing to understand the terms can significantly impact your financial well-being.
What Surprises Might You Find in the Fine Print?
Consequential terms or conditions are often buried in the fine print. These include:
- Cancellation fees
- Increased interest rates after an introductory or promotional period
- Reward limits or deadlines
- Late or missed payments, foreign transactions, exchanges, annual fees, and other fees
- Balance transfer fees
Decoding Common Financial Jargon
Here are some essential terms to understand to decode credit card fine print:
Amortization Schedule: This entails the percentage of payments that are applied to the principal versus interest over the length of the loan.
Annual Fee: There may be a yearly charge for maintaining a credit card. For the initial year or if certain conditions are met, annual fees may be waived.
Annual Limits: This is the amount of contributions allowed into specific types of retirement accounts. These limits may change depending on your age and current laws.
Annual Percentage Rate (APR): This is the yearly cost of borrowing money. APRs can be fixed and stay the same or can be variable, changing with terms, credit score, and other factor.
Balance: This is the amount owed to the credit card company or on your loan. For credit cards, if you pay the statement balance in full before the due date, no interest will be charged.
Balance Transfer: These are debts moved from one credit card to another, usually used to consolidate debt or take advantage of 0% APR for a limited time. Balance transfers typically charge a minimum or percentage fee.
Balloon Payments: A loan repayment structure where a greater amount of the loan is due at the end of the term.
Cash Advances: Borrowed cash from your credit card account through an ATM or convenience checks. These often come with high interest rates and fees.
Collateral: An asset or piece of property lenders may require as security for a loan. Typically, collateral for a car loan is the car itself and the house for a mortgage.
Credit Limit: The maximum amount you can charge on your credit card. Companies set limits based on your credit score, repayment history, income, and current debt.
Default Terms: Description of action the lender will take if payments are not made, which may include taking possession of collateral or legal action.
Down Payment: This initial payment made on a loan reduces the balance due, monthly payments, and overall interest paid.
Early Withdrawal Penalties: Money withdrawn from investment accounts before retirement age may result in penalties and income tax implications.
Fees: Credit card fees include annual, balance transfer, and late fees. Retirement plans may charge administrative, investment, or advisory fees.
Fixed Interest Rate: This is when the interest rate remains the same for the loan period.
Interest rate: The fee charged by the lender for using their money to make purchases.
Introductory APR: A promotional interest rate offered to incentivize new cardholders. Interest rates generally increase significantly after this initial period.
Minimum Payment: The smallest amount required to be paid each month. Paying the minimum due can significantly extend the time needed to pay off your balance and result in substantial interest charges.
Prepayment Penalties: Fees lenders may charge if borrowers make larger payments than the original terms state.
Principal: The original amount borrowed.
Variable Interest Rate: Interest rates that adjust with the market or after an initial rate.
Take time to read through all financial documents before signing, and don’t hesitate to ask questions about any terms you don’t understand. Seek professional advice if needed and familiarize yourself with consumer protection laws.
Finances FYI is presented by JPMorgan Chase. JPMorgan Chase is making a $30 billion commitment over the next five years to address some of the largest drivers of the racial wealth divide.
Source: Seattle Medium
