Is your mailbox getting stuffed with offers from creditors? Here is a recent offer from Discover Bank that appears to be a debt consolidation loan to pay off debt. In order to help people better understand the offer, I’ll break it down for you below, page by page, and point out what I think are the important points.
While the offer appears to ooze exclusivity, the reality is it is a bulk mailed offer from credit bureau mailing lists and the only thing you are really eligible to do is open the very generic which does not identify the company on the envelope.
You might think you are exclusively screened to receive this offer but it is still contingent on “confirmation that your income, debt-to-income ratio, credit history, and application information meet the minimum requirements.” So there is no automatic approval or guaranteed acceptance even though you’ve been selected to receive this “exclusive invitation.”
They say, “Experts agree: Pay off higher-interest balances FIRST.” But what happens when your Discover debt consolidation loan becomes the higher balance? The offer says the interest rate will be between 6.99% to 18.99% but after spending 40 minutes reading the fine print in the additional enclosed brochure, I could find nothing that clarified if this was a fixed or variable rate for all applicants.
The offer refers to the enclosed Truth In Lending Disclosure but I could not find any disclosure in the offer sent.
The cover page of the marketing material makes a huge assumption in the facts and figures given as an example of how this loan will pay off debts. The mailer says, “Assuming Jim qualifies for our lowest fixed rate.” But the mailer gives no idea of what percentage of people actually qualify for the lowest fixed rate. Is that rate and the examples given even representative of the average person who applies to this program? Keep in mind the mailer already told us the average credit card rate was 15%.
So Jim will actually have his balances paid in full within just 48 months as long as he scores the sweet 6.99% interest rate at $359 a month.
I have to give a hat tip to Discover because it appears they are not charging any application or origination fees as they state.
But they say you won’t have to pay a cent in fees, well, that is as long as you are not late with a payment or send a bad check. They will charge a $39 returned payment fee and a $39 late payment fee. If your payment does not make it in by the due date they reserve the right to demand the entire loan to be immediately paid-in-full, according to the accompanying fine print. Additionally, if your account is sent to an outside collection company you may be charged additional collection fees and attorneys’ fees.
Here is where the footnote is for the Jim example. As it says, “Savings is an estimate, for illustration purposes only and assumes you make your Discover Personal Loan monthly payment on time each month.”
The important point here is to not accept the offer or example on face-value but to understand your rate may be significantly different than the example.
In the fine print included with the offer it shows not all loan amounts have a 6.99% rate. The example shows loans over an 84 month repayment period have a minimum 7.99% rate.
If you already have problematic credit your rate could wind up being higher than your current interest rates. You won’t know until you apply and when you do apply you’ll wind up with a credit inquiry against your credit report and if the card is issued, more available credit which might hurt your credit score. Keep in mind, if you use this loan to payoff and close older cards, you could reduce your credit score by closing older accounts which help improve your credit score.
Outside of those pesky fine print paragraphs, I could only find this spot on the marketing material that talked about the higher minimum interest rate for the 84 month repayment term.
The bottom of the application shows the credit bureaus they obtained the mailing list from. These included TransUnion, Equifax, Experian, and Innovis.
If you received an offer similar tho this one, it would make sense to spend a few minutes reading it over carefully to understand exactly what you might be applying for. Also take time to read through the otherwise boring fine print that accompanies the offer to extend you credit.
You will need to weigh the risk of applying for this personal loan and receiving an interest rate that is higher than the debts you are trying to payoff.
Keep in mind, there is no requirement for you to payoff debt using the loan. You could just take the loan and add to the pile of debt you might already have.
If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.