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, the amount of your monthly payments, and the
amount you must pay for licensing, registration, taxes, and
maintenance.
The company must also give you a written statement about
terms, including any insurance you need, any guarantees,
information about who is responsible for servicing the
property, any standards for its wear and tear, and whether or
not you have an option to buy the property.
Open-end Leases and Balloon Payments
Your costs will depend on whether you choose an open-end
lease or a closed-end lease. Open-end leases usually mean lower
monthly payments than closed-end leases, but you may owe a
large extra payment--often called a balloon payment--based on
the value of the property when you return it.
Suppose you lease a car under a three-year open-end lease.
The leasing company estimates the car will be worth $4,000
after three years of normal use. If you bring back the car in a
condition that makes it worth only $3,500, you may owe a
balloon payment of $500.
The leasing company must tell you whether you may owe a
balloon payment and how it will be calculated. You should also
know that:
-- you have the right to an independent appraisal of the
property's worth at the end of the lease. You must pay the
appraiser's fee, however.
-- a balloon payment is usually limited to no more than three
times the average monthly payment. If your monthly payment
is $ 200, your balloon payment wouldn't be more than
$600--unless, for example, the property has received more
than average wear and tear (for instance, if you drove a
car more than average mileage).
Closed-end leases usually have higher monthly payment than
open-end leases, but there is no balloon payment at the end of
the lease.
Costs of Settlement on a House
A house is probably the single largest credit purchase for
most consumers--and one of the most complicated. The Real
Estate Settlement Procedures Act, like Truth in Lending, is a
disclosure law. The Act, administered by the Department of
Housing and Urban Development, requires the lender to give you,
in advance, certain information about the costs you will pay
when you close the loan.
This event is called settlement or closing, and the law
helps you shop for lower settlement costs. To find out more
about it, write to:
Deputy Assistant Secretary for Housing Attention:
RESPA Enforcement
U.S. Department of Housing and Urban
Development 451 Seventh Street, S.W. Room 5241
Washington, D.C. 20410
Should you need to phone:
(202) 708-4560
A Federal Reserve pamphlet, entitled "A Consumer's Guide
to Mortgage Closing Costs," also contains useful information
for consumers.
APPLYING FOR CREDIT
Discrimination
When you're ready to apply for credit, you should know
what creditors think is important in deciding whether you're
creditworthy. You should also know what they cannot legally
consider in their decisions.
What Law Applies?
EQUAL CREDIT OPPORTUNITY ACT requires that all credit
applicants be considered on the basis of their actual
qualifications for credit and not be turned away because of
certain personal characteristics.
What Creditors Look For
The Three C's. Creditors look for an ability to repay debt
and a willingness to do so--and sometimes for a little extra
security to protect their loans. They speak of the three C's of
credit-capacity, character, and collateral.
Capacity. Can you repay the debt? Creditors ask for
employment information: your occupation, how long you've
worked, and how much you earn. They also want to know your
expenses: how many dependents you have, whether you pay alimony
or child support, and the amount of your other obligations.
Character. Will you repay the debt? Creditors will look at
your credit history (see chapter on Credit Histories and
Records): how
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