Financing: The Good, The Bad and The Ugly

WHAT TYPE OF FINANCING IS RIGHT FOR YOU?

People get financing for all different reasons: to make a major purchase like a home or car, buy big-ticket items like furniture and TVs, make home improvements or repairs, pay for college or medical bills… the list goes on and on.

Financing fast facts:

  • Always find out the APR and your minimum monthly payment
  • Check your credit score, correct any errors and pay down debt before applying
  • Shop around for the lowest APR
  • Stick to reputable lenders and retailers

Most will finance an item at least once in their lives

The two main types of financing are secured and unsecured. Secured financing relies on an asset that the seller can collect to cover the contract, if unpaid. Car financing and mortgages are two common types of secured financing. For example, if you don’t pay your mortgage, the bank could take the house.

Unsecured financing, such as a payday loan or revolving line of credit, doesn’t require any collateral and is therefore more difficult to get than secured financing. Approval for these types of transactions often relies on your credit history and income.

Retail installment contracts

A retail installment contract is a secured contract that allows you to borrow a specific amount and pay it back over a specified length of time. For example, you might borrow $2,400 and agree to pay it back at $200 a month, plus finance charges, for 12 months in a 1-year contract.

If you buy furniture or appliances, those items would be used as collateral to secure the loan. Retail installment contracts with monthly payments, like Conn’s YES MONEY®, are one great option.

Things to know before you borrow

You can greatly improve your chances of getting approved if you do a little homework beforehand:

  1. First, check your credit score. By law, you are entitled to three free credit reports (one from each reporting bureau) once a year, which you can get at annualcreditreport.com. You do not have to pay a fee or sign up for a credit reporting service.
  2. Once you receive your credit report, look it over carefully for mistakes and possible fraud and get any errors corrected immediately.
  3. If you have outstanding debt, pay off as much of it as you can.
  4. When you apply for financing, make sure you know the APR, the repayment terms and the penalties for late or missed payments.
Financing comes in many forms. Which type is right for you, and which should you avoid?