Don’t ever “skip” a loan payment

It’s the holiday season and, odds are, your bank (pretty much every bank does this) has sent you a letter about skipping this month’s loan payment. Don’t ever, ever, ever do it.

Why? you ask.

Because skipping a payment isn’t like skipping school. Truancy days don’t have to be made up. Loan payments do.

Sure, the banks will make it look like the amount due in December is forgiven – our flier says something akin to “just send back this form telling us that you want to miss a payment for $49.95, and we’ll take care of the rest” – but all that happens is the amount owed for that month gets added to the end of the loan along with any interest accrued on it and the $49.95 fee. In other words, they take the amount you are skipping off the original loan and tack it on that end.

Of course, the small print says this. But I looked at the small print, and it wasn’t until the second or third line that it actually says you are still liable for the original amount of the loan. I consider myself to be an intelligent guy, and I had to study the letter to actually find these details. An witting person is going to see “skip a payment” and think that the banks are doing them a favor at the holidays. Now, common sense would indicate that this is too good to be true (because it is). But you would be surprised how many people actually “take advantage” of this option.

The truth is, if you need some extra cash at the holidays and can’t afford to pay on your loan, simply missing a payment will be cheaper for the vast majority of people. Most late charges cost far less than $49.95, and the hit to your credit is minor, especially if it’s a long-term loan such as a mortgage.

Since most of the people who view this are probably younger and don’t have much outside of student loans, this is just a little advice worth tucking away for future reference.

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    • James
    • December 11th, 2010

    good advice. also, I love fine print

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