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Chapter 3: Fringe Financial Services

Some financial businesses do not offer loans or lines of credit, but instead charge unusually high fees for services that you can get for free or at a much lower cost elsewhere.

Check-cashing Services
Millions of Americans do not use traditional financial institutions to cash their payroll, personal, and government checks. Instead, they use check-cashing services. The same companies that offer payday loans often provide check-cashing services. There are several reasons you may turn to check-cashing services, including:

  • You haven’t yet opened a checking account, or due to a history of bouncing checks, you have become ineligible for a checking account at a conventional financial institution.
  • A check-cashing service seems convenient. Perhaps there isn’t a financial institution in your immediate neighborhood or you need to cash the check during off-business hours.
  • The people who work there speak your primary language, making you feel more comfortable and the atmosphere less intimidating.

To cash a check at one of these establishments, all you need to do is bring it in and pay the fee. The clerk will give you the cash, minus the fee.

Many check-cashing businesses charge two percent or more of the amount of the check to provide you with the money. Therefore, it could cost you $24 to cash a $1,200 check. The majority of these businesses post their fees in percentages, which can be hard to figure out on the spot. If you use a check-cashing service, be sure to ask for the fee in dollar amounts.

Although the fee may not sound overly expensive, it adds up if you are cashing several checks or use these businesses on a regular basis. If you can use a traditional financial institution where these services are free, paying extra for them doesn’t make sense. Also, if you depend on check-cashing services, you may end up carrying a relatively large amount of cash with you, which can be a dangerous practice.

Rent-to-own Retailers
Need furniture, electronics, or appliances but you neither have cash nor good credit? Some retailers exist to help you get what you want with a rent-to-own arrangement. However, keep in mind that the long-term cost for these products can be very high, and may not be in your best interest.

Though the advertised payments are often low, the total cost to purchase an item may be two to three times more expensive than making the purchase through such traditional means as credit cards, store charge cards, layaway plans, and, of course, cash. Rent-to-own outlets routinely charge 200 to 300 percent interest on purchases.

Contracts for such plans are typically weekly or monthly, and can be renewed at the end of each rental period. After a specific number of payments, you own the goods outright. Some contracts require an additional (and often large) final payment.

Example: The cost to buy a $250 DVD player at a rent-to-own store would be much more than if you used a credit card with an average to high APR:

Rent-to-own Purchase
Credit Card (Average-High APR)
Amount Financed: $250
Amount Financed: $250
Monthly Payment: $57
Monthly Payment: $16
Number of Months: 18
Number of Months: 18
Finance Charge: $772
Total Interest Payments: $41
Annual Percentage Rate: 265%
Annual Percentage Rate: 19.8%
Total of Payments: $1,022
Total of Payments: $292

Besides the interest rate, rent-to-own companies may add on other fees, including:

  • Processing fees
  • Delivery fees
  • Set-up/installation fees
  • In-home collection fees
  • Home pick-up fees
  • Damage waiver fees
  • Reinstatement fees (charged if you miss a payment but want to continue renting)

When used as a very short-term arrangement, obtaining merchandise from a rent-to-own company really isn’t such a bad deal. However, if you are using it to eventually own the products, the ultimate payout can be huge.

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