Hidden Dangers of Monthly Payments

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By FDIC

Focus on the long-term cost of the loan, not the monthly payment. "Many car dealers or even mortgage lenders will entice borrowers by asking how much they can afford to pay each month," said Janet Kincaid, FDIC Senior Consumer Affairs Officer. "It may be better to pay slightly more money each month, but for a shorter time period, if it means you will be paying less in total interest."

She also said that some people look so much at the monthly payment that they don't notice certain fees or service charges that are imposed. "You've got to look at the full picture before signing a loan agreement, including the APR and provisions of the loan that can increase fees," Kincaid said.

You can also avoid unnecessary interest charges if you pay for certain costs out of your own pocket instead of borrowing that money, too. Let's say you're getting a new mortgage and you're offered the chance to add the closing costs to the loan instead of paying them upfront. Sounds good on the surface, but remember that you're not getting out of paying the closing costs -- they're added to the loan balance, so your monthly payments will increase and you'll be paying interest on the closing costs.

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