The devil is always in the details, and nowhere is this more evident than when looking at the pesky fine print on credit card applications and loan agreements. The U.S. government has even legislated these evil little notes when they passed the Truth in Lending Act (TILA) legislation requiring entities issuing credit to consumers to disclose certain facts prior to completing the transaction. Disclosure provides the information, but knowing what to do with that information is what helps you make wise financial decisions. Read on to uncover the hidden fees, terms and rules that could break your piggy bank.

SEE: Check out our credit card comparison tool and find out which credit card is right for you.

Loan agreements are packed with pages of tiny print and mind-numbing details. Five items to look for in a loan agreement include:

  • Finance Charge
    This number quantifies the cost of credit. In addition to providing (in dollars and cents) the amount of interest you will pay over the life of your loan, the finance charge section will also include any associated charges required in order to receive the loan (such as document preparation fees).
  • Annual Percentage Rate (APR)
    Annual percentage rate (APR) is the interest rate that you pay to a creditor on a yearly basis. This number factors in all expenses, including the interest on the loan, origination fees, discount points, etc. It's the reason a loan advertised at an 8.0% interest rate often results in a loan payment based on an 8.5% interest rate. APR is the amount to use when comparing loans from different potential lenders.
  • Amount Financed
    The amount financed is the actual dollar amount that you borrow. It is often less than the amount requested on your loan application because prepaid finance charges are deducted from it. Prepaid finance charges are paid at the time the loan closes. For example, if you apply to borrow $50,000, and must pay $2,000 in prepaid finance charges, the amount financed is actually $48,000. So, what does this really mean? It means the lender got paid the $2,000 up front, rather than through the loan.
  • Schedule Of Payments
    The payment schedule shows you the number of payments, the amount required for each payment and when they are due. The schedule may also show the amount of principal, interest and insurance (if any) that is covered by each payment (such as for mortgages). Furthermore, the first few payments that you make will be primarily weighted toward interest, with only a small portion dedicated to principal. The last few payments you make will be primarily weighted toward principal.
  • Total Payments
    This is the total amount you'll pay if you make all the scheduled payments on your loan. In many cases, the total payments can amount to more than double the amount originally borrowed, if extra debt repayments are not made.

SEE: Is Making Biweekly Mortgage Payments A Good Idea?

Credit Cards
Like loan issuers, credit card issuers are also required to disclose certain facts to borrowers. Most credit card applicants breeze over the disclosures when they sign up for the card, only to realize - after it's too late - how much the card is costing them. Details worth noting when you apply for a new credit card include:

  • Annual Percentage Rate (APR)
    In addition to the APR on the balance of any amount borrowed, credit card issuers must also disclose the APR on balance transfers, cash advances and defaults (all of which tend to be higher than the APR for purchases). Other common APRs include tiered APRs, which charge higher interest rates on balances above a certain amount; and introductory APRs, which are raised after a certain amount of time has passed. Both of these items should be reviewed carefully. It's also important to know if the APR is fixed or variable. If it is variable, you will want to know how often it can change and by how much.
  • Grace Period
    This is the amount of time, from the listed date on the statement, that you have to pay your bill in full if you want to avoid finance charges. Twenty-five days is a fairly common time frame, but some cards offer less time. Paying your balance on time and in full each month is the best way to avoid finance charges.
  • Method of Computing Balance for Purchases
    Credit card companies use a variety of methods for calculating balances. Some base their numbers on the average daily balance, others on the account's previous balance. Calculations may be done over one billing cycle or over two billing cycles. New purchases may be included or excluded from the calculations. Calculations based on a single billing cycle and the average daily balance generally result in lower finance charges.
  • Minimum Finance Charge
    This refers to the finance charge that must be paid in the event your finance charge is lower than the specified amount. For example, if your finance charge comes out to $0.75 this month and the minimum finance charge for your card is $2, you will need to pay $2. If you pay off your balance in full each month, the minimum finance charge will not be levied.

  • Annual Fee
    If the credit card issuer is charging you an annual fee for the privilege of using the card, you should know the amount of the fee and whether it is levied on a monthly or yearly basis.
  • Other Fees
    This category includes transaction fees for balance transfers, cash advances and for instances when you've exceeded your spending limit. Returned-check fees, late-payment fees and other miscellaneous expenses also fall into this category.

SEE: Understanding Credit Card Interest

Loans and credit are common components of modern life. They are tools that can either be used to help you achieve your goals or to help you dig a financial pit from which bankruptcy may be the only escape. Understanding how these tools work will help you learn how to use them properly. Reading the directions is a great place to start your education.

Related Articles
  1. Retirement

    Understanding Credit Card Interest

    Paying these rates can impact your disposable income and your investment returns.
  2. Credit & Loans

    Watch Out For Changes In Credit Card Agreements

    If a credit card company changes its terms, you could pay a steep price. Find out how to stay informed.
  3. Credit & Loans

    Take Control Of Your Credit Cards

    The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly.
  4. Credit & Loans

    10 Reasons To Use Your Credit Card

    There are several benefits to paying with credit instead of debit, if you use a credit card responsibly.
  5. Credit & Loans

    5 Extreme Ways To Raise Your Credit Score

    Desperate to rebuild your credit score because you can’t obtain a loan with a decent interest rate? Here are some extreme options to try.
  6. Personal Finance

    The Top 5 Personal Finance Experts to Follow in 2016

    Here is a look at five money and investing experts who can help you reach your financial goals for 2016.
  7. Term

    Who Benefits from Microfinance?

    Microfinance describes banking services provided to low-income people or groups. Specific services offered by microfinance institutions include microloans, micro-savings and micro-insurance products.
  8. Economics

    What is a Trade Credit?

    Trade credit means that a customer purchases goods from a seller who allows the purchaser to pay for those goods at a later time.
  9. Investing

    Amazon Financing Now in the U.K.: Is America Next?

    Amazon has unveiled a great credit product in the U.K. Will America be the next country to have access to this financing option?
  10. Credit & Loans

    Why You Should Use Your Credit Card For Purchases

    Responsible credit card users who always pay off their monthly balances should use their cards to buy everything.
  1. Can debt collectors add fees to my debt?

    According to the Federal Trade Commission, under the Fair Debt Collection Practices Act, debt collectors cannot add any other ... Read Full Answer >>
  2. How can you pay your Walmart credit card?

    Holders of Walmart credit cards can make payments on their balances due by mail, online or at Walmart and Sam's Club stores. ... Read Full Answer >>
  3. Can personal loans be transferred to another person?

    Personal loans cannot be transferred to another person, because these loans are determined based on your unique credit score ... Read Full Answer >>
  4. Are personal loans considered income?

    Personal loans are not considered income for the borrower unless the loan is forgiven. In other words, you cannot be taxed ... Read Full Answer >>
  5. Can personal loans be included in bankruptcy?

    Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
  6. Is Apple Pay safe and free?

    Apple Pay is a mobile payment system created by Apple to reduce the number of times shoppers and buyers have to pay for goods ... Read Full Answer >>
Trading Center