Credit

Being that it's unbearably hot outside I've decided to include a post from one year ago at this time. I think this post is somewhat relevant since a few of the big car companies are going bankrupt and we're in a recession.

June 2008

One thing I’ve seen recently, on websites such as Craigslist and Leasebusters, is people who want to get out of their vehicle leases and will offer financial incentives to anyone willing to take over. Sounds appealing – but is it a good deal?

I’ve seen ads which offer as much as $6,000 to take over a lease. Granted this was a BMW with payments over $700, but you can certainly find cheaper cars with lower payments; of course, the cash incentive (if any) will be less.

Depending on the incentive and time period left in the lease, it has the potential to save you some money. The cash incentive lowers your effective payment, thus it’s a cheaper option than entering into a lease from day one, AND you frequently can avoid paying a deposit.

Why would anyone want out, after paying large deposits in many cases?

Simple – life situations change – loss of a job or transfer to another city or the birth of a child – there are so many situations where the car could become a financial drain.

What are the costs?

There are various costs to be considered when taking over a lease: there’s usually a lease transfer fee and your vehicle insurance may be higher as the leasing company may require higher levels of insurance.

Also, watch the mileage – make sure there’s enough mileage left on the lease so that it’s worthwhile given your driving habits. If there’s only a few thousand km’s left on a lease, it might not be worthwhile.

At the end of the lease, you’ll also need to make sure you can just give the car back, if you don’t want to keep it. Some leases can hold you responsible for the decrease in value – I would prefer a ‘drop off’ lease, where you simply give the keys back.

Assuming the car has been reasonable maintained you shouldn’t be on the hook for drop in value, if applicable. As always, check the terms of your lease … do your homework!

This brings up another issue – if the previous owner badly maintained the vehicle, you could be on the hook for any drop in value. I would want confirmation from the dealer and/or previous owner that the car was maintained acceptably.

At the end of the day, I like the idea of getting money BACK when purchasing a car.

So, if you’re in the market for a car and plan on leasing, check out lease transfers – get a newer car, save the deposit AND put some cash in your pocket.

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I received my new Visa in the mail the other day, with a bonus security feature – it's now a chip-enabled credit card. What is that? At chip-enabled credit card terminals, I have to enter a PIN in order to complete my transaction. I received the PIN a few days later in the mail.

What exactly is a chip card?

"Chip cards contain an embedded microchip to encrypt information, making it more difficult for unauthorized users to copy or access data from the card ..."

At the front of the card there is a chip that looks like a thin piece of foil. An added benefit of this chip is that many cards are moving to a "contactless" payment system. Below a pre-determined point (sometimes $25) all you'll have to do is wave your card to complete a purchase.

I noticed that at Starbucks they actually don't require a signature anymore for my coffee purchases. They simply swipe the card and the transaction is done. Kind of scary if a thief gets a hold of my card – Starbucks look out!

It's good to know that I have this extra level of security now. I really like the fact that credit card companies are trying to keep on top of the burgeoning credit card fraud industry. I have to admit, though, I haven't seen too many of these chip terminals around yet, but they will be here soon, I'm sure.

What other security features are available or on the way?

I know right now when I make unusual transactions – like my trip to New Jersey back in February – I'll get a call or they will even freeze my card until I call them back. Some credit card companies even offer a photo-id card with a small picture of you embedded on the front of the card – I know my credit card company offers it but I haven't taken advantage of it yet.

Of course, for many transactions you have to enter your 3 or 4-digit code (CVV or Credit Verification Value) from the back of your card. For most online transactions, I find I now have to do this.

What about online security?

Having a chip-enabled or photo-id card isn't going to help you much from online fraud. Definitely the CVV number is going to help you, but it might not protect you from phishing scams where you get tricked into entering your info. Some cards are even extending the PIN and password to online transactions, as well.

Now that e-Commerce has been around for a long time, and we're switching to a cashless society, thieves are getting more and more ingenious in the ways they can grab our money.

Credit card companies are going to have to keep up and continually offer new levels of security.

RELATED POSTS

• My Credit Card Was Compromised

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I thought I'd reprint this post I did back in November on how to creatively use lines of credit. With the economy in recession, I wonder how many people have had their lines of credit or credit cards unceremoniously closed or reduced? I know some business are facing this possibility and are having their lines of credit lowered or simply eliminated.

NOV 1/2008

Most of us have lines of credit (LOC) these days, either racked up with debt or just sitting there waiting to be used. Rather than just filing away your statement month after month, why not get creative with the way you use them?

Here are a few ways that I try to be creative with the bank's money:

Bank Account - if you have a balance, why not use your line of credit as your bank account? My brother-in-law does this – he has his paycheque and anything else deposited directly to his LOC. He also writes cheques directly from it. The advantage is you’ll minimize your interest and there are no bank charges! The disadvantage is your banker might not like you if you happen to have a credit balance.

Emergency Fund - Many people advocate having an emergency fund of at least six months cash in case something seriously happens to you. I fully agree but I want my cash working for me. So, I keep an empty LOC around just in case – I take the emergency fund cash and invest it in something more worthwhile than a bank account. Quite often, if you invest the cash in something more worthwhile, it may not be that liquid so the LOC takes care of this.

Investment Opportunities - if you don’t have the money to make that stock purchase that you know can’t ‘go wrong’, leverage your finances and borrow. The interest on the LOC may be tax deductible but keep in mind leverage works both ways – if the investment doesn’t work out, you’ll have a nasty debt to contend with. Another option is buying real estate and using the LOC for your down payment - but, you’ll have to qualify and money is pretty tight these days.

Debt Consolidation - pay off your high-interest credit card debt with your hopefully, lower-interest LOC. You’ll save on interest charges but don’t be tempted to rack up those cards again!

I’ve got several lines of credit which are just empty and waiting for the right time to use them – thankfully, none of them have any balances. One of them is kept as my emergency fund and is hooked up directly with my bank account in case I need it. I have another one that is only to be used for investment purposes – this make it easier at tax time to keep track of any interest I’ve paid to earn investment income.

I have fairly good credit, so I’ll probably try to get as many LOC’s as I can, in case I need them.

With the market the way it is, I am biding my time, until the perfect ‘opportunity’ comes up.

UPDATE

Thankfully, I still have my lines of credit and the bank hasn't lowered any of the limits … yet. I'm hesitant to use them right now due to the state of the economy and the fact that I may be looking for a new contract in November.

I could use them for investing purposes … but I don't think I'm willing to do that yet.

Also, with the new credit card legislation soon to be introduced in Canada and already introduced in the US, are credit card companies and banks going to be taking out their frustration on consumers? Will it trickle over into other areas of the banks' business?

Has your bank cancelled or lowered any of your lines of credit or credit cards?

RELATED POSTS:

• Stocking Up On Credit

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