Need cash to buy presents?
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Looking for a little extra jingle in your pocket?
Want to get caught up on your bills?
Just sign up for our easy skip-a-payment program!
These year-end invitations come in persuasive wrappers from credit unions, credit card companies, banks and other lenders. They’re written to suggest “Gee, we understand that money is tight around the holidays, so we’re offering to let you skip your usual monthly payment in December.”
While these letters are careful to point out such things as “interest will continue to accrue” on your outstanding balance and “your monthly payments may increase,” the actual amounts are not spelled out.
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In fact, a skip-a-payment offer is like a Trojan horse: you don’t realize what you’re letting into your financial life until it’s too late.
Rich Hyde, COO of Prestige Financial and a 22-year veteran of the credit industry, says if you accept the invitation, your December statement will show “$0.00 payment due.” In his view, “It puts the consumer in the position where they don’t understand they are still paying interest.”
The following month, your payment reverts to the usual amount. “Here’s where people get confused,” says Hyde. “Sometimes they think their [previous] payment was forgiven. But it’s basically tacked on to the end of your loan. You’re still accruing interest charges” on what is now a higher outstanding balance.
To compound the problem, with money freed up, you might be tempted to spend more during the holidays than you can really afford. You’ve just dug yourself into an even deeper financial hole.
Although Prestige Financial, which makes auto loans to buyers with sub-prime credit ratings, does not offer a skip-a-payment option, other companies where Hyde has worked did. “Often you see a change in behavior. People would forget to make their next payment. The delinquency rate went up.”
Hyde maintains that skip-a-payment holidays offer “no benefit to consumers.” On a $20,000 car loan with a 6-year pay-off and a 6% interest rate, he calculates you would end up paying $375 more if you skipped your December payment each year. “The lender only offers it because they’re going to make more interest on the loan over the long-term.”