Contracts are...binding

This is part II in a series about reading and understanding contracts. Let's review what I went over last time:

1. In order for a contract to be binding, you must actually sign the paperwork.
2. Make sure the person(s) signing a contract are the actual parties involved. Do not let someone sign for someone else, and do not accept a contract with someone who does not yet own the item in question.
3. Read the contract. Read all of it.

These might seem elementary financial instructions, but I cannot believe how many people sign without reading what they are signing for.

I think this problem is exacerbated by the number of contracts (many of them nearly meaningless) that we sign in order to do anything. For example, there is a statement of use policy for nearly every website (including blogger, the host for this one). This policy is several screens long and is pretty standard. Incidentally, I have read it -- more than once. I used to teach a class on blogging, and I made each and every student read it too. It's important to know what's going on.

That being said, I generally skim most contracts of this type, usually because I have already read many versions of them and they are usually all very similar. I look for unusual terms, such as "arbitration" (what is allowed? Are they protecting themselves from lawsuits?) or glance at the privacy policy to see if my e-mail address is being sold down the river. THIS IS IMPORTANT. I have turned down contracts simply because the policy says they are going to trade my e-mail with whomever comes along.

Paper contracts are a different matter. I learned the hard way that credit card companies can withdraw a low-interest deal because of non-payment -- and then charge up to 32% interest. Thirty-two percent! This is an unbelievable amount. My mother was recently surprised that I have a credit card that has a "high" interest rate of 9% through my credit union. Why? Because if, for some reason, we forget a payment, the rate stays the same and they only charge $10. Most cards would charge $32 and raise the rate to 22% the first time you are late, even if it's by a few hours (and for some cards, the cutoff is at 5 p.m. EST on the day the payment is due). Don't be fooled by those "deals" credit card companies give you. They have so many rules, they are just waiting for you to screw up. If you read the policy first off, you'll know whether the deal is really worth it, because they have to disclose all those "hidden" fees. They aren't really hidden -- they are right there on paper, just waiting for you to read them.

Long contracts really are a pain to read, but read them you must. It took us three hours to sign the paperwork for our house when we bought it, but my husband and I BOTH read every single page. The title company rep was rather impatient with us, but I was determined to know what I was signing; thousands of dollars hung in the balance. Another time, a woman wanted us to sign a rental contract without reading it. When we did, we noticed that a crucial escape clause was missing. The woman, up until that point very sweet and accommodating, got very angry. It was fine, she said. There was a sign on the wall saying that the escape clause was there. I pointed out that I wasn't signing the wall hanging, I was signing the paperwork in front of me, and she could redecorate tomorrow. She became furious; didn't we want the apartment? she would say. Did we want to go elsewhere? We went all the way up to the president of the company (it was a large one, incidentally). Every single person refused to change the contract to include the escape clause. In the end we did exactly what she suggested -- go elsewhere. And the people at the next place were perfectly happy to let us read the contract, primarily because everything was on the up and up.

I think the main reason people don't read their contracts is that they feel embarrassed, particularly when someone says, "Oh, it's there." Don't take their word for it. Maybe they are well-meaning, maybe they are impatient, or maybe they are out to take you for all you've got. Remember, though, that most of these people, regardless of their level of honesty, don't care about you. They don't care if you lose $10K. They want to get you in and out so they can get back to studying their nose hairs or, better yet, making money from another client. So don't let what they think affect you! Probably you will never see them again. It's YOUR money. It's YOUR time. Use it well.

READ THE CONTRACT.