Have you ever wished you could take a holiday from paying your bills? Well, be careful what you wish for. A colleague recent forwarded “Holiday Skip-A-Month” certificate from their credit union.
The accompanying letter reads:
Another year has passed and the holidays are approaching quickly. To help you make the most of the season during these tough economic times, [your credit union] is pleased to offer you the option to skip your November or December 2011 installment loan payment.
It’s easy. Simply indicate which month you want to skip on the certificate below and return it to [your credit union].
Use the extra cash for anything you need like shopping, parties, or to keep some extra money in your pocket during this busy time of year.
We truly appreciate your business and the excellent way you’ve managed your account. So please accept this offer to skip you loan payment in November or December. We hope it will make your holidays even more enjoyable. Mail or bring in your Skip-A-Month Certificate today.
Wow. That’s just wrong on so many levels. For starters, there’s a $35 fee for this “service.” And if you read the fine print, you’ll see the following:
“This offer is a bonus skip payment. Interest will continue to accrue on our loan and your original loan term will be extended.”
So yes, you get to skip a payment. But you also wind up extending the term of your loan (not surprising, since you still owe the outstanding balance) and you increase the total amount of interest that you’ll pay over the life of the line. All for the low, low price of $35.
Maybe I’m just being a Grinch, but here’s a tip… If you can’t afford to meet your financial obligations, then you should probably shop less and throw fewer parties. Skipping a payment while incurring interest costs simply isn’t worth it in the name of “keep[ing] some extra money in your pocket during this busy time of year.”
Based on a bit of Googling, this seems to be a pretty popular promotion at credit unions across the country, and all seem to have similar terms. You pay a $25-$50 fee for the privilege of extending your loan and increasing your total interest cost. And, in most cases, this seems to be an annual thing.
With rates on signature loans hovering in the 9-13% range for qualified applicants, a single skipped payment could easily add $100-$200 or more in interest payments over the life of a loan (depending on balance, term, etc.) and that’s not even including the service fee.
And if you do this every year over the life of a multi-year loan, the damage grows. And grows. And grows.
My advice? Instead of stringing out your debt, you should be trying to pay it off as quickly as possible. Yes, you might need to make some sacrifices in the short term, but in the long run you’ll thank yourself.
11 Responses to “Skip a Bill Payment for the Holidays? No Thanks”
Suppose that we are leasing out the house and (this gets complicated) we aren’t planning to spend the “skipped payment” on anything extra but pay on some other debts that have accumulated while we have suffered from medical problems. And the plan is to go ahead and pay the ins, int and tax portion of the payment. Saving only the principal for that month. The guy leasing the house now plans to buy it. There’s no contract no guarantee but he’s never hesitant to pay his lease and has paid two months ahead. He’s waiting for a nasty divorce to go through. If I had a contract that he was going to buy the house I wouldn’t pay anything on the principal from now until he buys.
Isn’t it ironic to see these offers more often from credit unions? You’d think credit unions are looking out for the members.
It’s basically a small add-on loan, of the amount of the skipped payment, for the duration of the remaining term plus one month, at the same interest rate, with a $35 origination fee. I wonder if fewer members would bite if the loan offer is presented this way: would you like to pay $35 application fee to borrow $500 for 3 years at X% interest rate? The fee is relatively high if the loan amount is low or if the remaining term is short. If there is no fee and if it’s a 3% car loan, it’s not that bad.
Wow! I’d say that’s just evil, except that yeah, it might offer a slight short-term benefit for folks who’d like to spend time with their families on the other side of the country or to provide a special gift for someone who really needs it.
But overall…long-term: what a rip!
Actually I just did this. My car loan is 2.79% vs. credit card debt at 9.99%-19.99%. For $39, I skipped a car payment and put that money towards paying off the higher interest credit card debt.
I have a slightly different take on this, but only because my credit union makes us the same offer each year on our car loans. Of course, our credit union does this for FREE, no charge at all, just extending the term of the loan by one month (and the resultant interest accrual) so they come out ahead if you take the deal.
I’m not advocating spending like a drunken sailor on credit, and we aren’t doing that this year, but we have in the past when we had to drive across the country to visit family (like my young daughter) and could only afford to do it once a year or so at Christmas. At 3.7% for our car loans, that is FAR cheaper than the 9% we pay on unsecured credit card debt, and it meant we could be with family for the holidays.
We are in a position now to, instead of taking their “free car payment”, we will instead just not pay triple our car payment this month. Much nicer feeling. 🙂
Doing anything on credit is shifting responsibility for paying things off to your future self. Whether that be credit cards, personal loans, car loans, house loans.
A lot of people do skip paying their loans in December. Without a voucher like this. In this way, the banks are legitimising such an action. “Tell us you’re going to skip” rather than just doing it. Of course, they’re also encouraging people who’d not even have thought of it to do so, and as you note it’s not free, but it’s a lot better for everyone if those who’d have skipped the payment anyway, plan it in advance.
While I doubt I’d ever even consider using such a voucher, I would neither heap scorn upon credit unions who offered them, or people who used them. Assuming a monthly repayment of $1000+, I can imagine that a lot of people would rather pay $35 and extend their loan by a month in the distant future and add a few hundred to the pile of what’s owing in order to have greater cash flow at this time of the year. It’s not financially sound, but we make financial trade-offs all the time. Getting a loan in the first place is a financial trade-off. The loan product we pick with the financial organisation we go with involves trade-offs. Buying dinner out for $40/head vs eating leftovers at home for free is a trade-off. The important thing is to recognise what you’re trading and to decide how comfortable you are with that.
I got this offer from Capitol one. They said basically the same thing, they will make the minimum payment. They said that even if I pay the bill they will still pay it regardless, whether I ask them to or not. If I want to skip a payment, I would need to contact them to let them know. The min. Payment is $15. I think my cc balance is around $25. I laughed when I saw their offer, because in this case it is in fact, free money. I will pay the full balance off and see what happens 🙂 LOL
This is popular here in Barbados too. One of my credit card banks sends a notice to that effect a couple times a year. But I never bite. I always have this niggling feeling saying that I’m going to somehow pay for it at some point.
You should have seen the face on the bank accountant when I refused an offer like this the first time. She was very surprised. My bank provides the same “offer” every 3 months and now I get a call about it. I can’t make them stop calling because for them since I am able to make the payments I probably like to do it and they can help me by extending my loan. :-). For me it is so funny, they think they’re the only ones who can do math don’t they!I’m working hard to pay the loan and get it over with and the last, really last thing I want is to have it extended.
I agree completely. Banks and credit card companies will do anything to ensure responsible payers stay in debt longer.
I get the same thing on my motorcycle loan every year from my credit union. Apparently there are those who partake because they send out a special letter with the offer each year. So what about some of the other holiday offers and gimmicks you see? I just got several dozen mailing labels from my insurance agent for all my Christmas cards. Last year’s set got thrown away in about April when I found them in a stack.