Signing a contract without reading it is like rolling the dice at a casino
Despite the financial ramifications people sign contracts everyday without first reading them.
For some reason the concept of signing a contract, agreement, or other piece of paper without reading it has pretty much become the common place way of living and purchasing things. It is no wonder why so many people get themselves into such binding legal situations they can’t afford or can’t complete.
Any agreement to pay, be bound by or be required to do something is a contract. Contracts are legal binding agreements that can be enforced for damages in a court of law; they can be wordy lengthy intimidating and confusing. Before signing any contract you should fully understand what you are agreeing to within the written agreement.
Despite this people sign them or feel forced to sign them day in and day out without reading or understanding all the terms and what they are agreeing to do. In fact many are directed into a small office or cubical to meet with someone who rapidly goes through a stack of papers, explains the general pages and says sign here. Companies have made it difficult for a person to have the time to read and understand a contract or make them feel they are somehow abnormal or being picky to take the time to read it. Sir, you are holding up the line!
People are going into deep debt, including going into or at the edge of bankruptcy, or at a minimum having their credit scores impacted because they have signed a poor contract(s). They are stuck with payments or something they wished they never had bought or agreed to do. They have become slaves by their own signature.
People will depend way too much on the short relationship and verbal understandings that have developed with a person who is working for the company and who is probably benefiting either by commission or some type of job performance quota to have you sign a contract. Many do care, but like any profession there are many bad apples.
The chances are good that the company person you are dealing with may be at a new job next month, next year or who knows. What is important to know is no matter what is said verbally to you, or clarified by someone in the company, if it is not written that way in the contract technically you really have nothing to stand on.
Don’t depend on talking to a manager or owner and think you have an understanding, in this economy they can also be gone tomorrow, or a new company or manager comes and only enforces what is written in the contract.
For example; if you have a verbal agreement to pay quarterly installments, and the contract says monthly a new owner, or company has every right to enforce the monthly payment. This could throw your account into delinquency and subject to other penalties as outlined for late or delinquent payments.
Most contracts will have some type of statement that no other agreements in either written or verbal form will supersede the written agreement. A side agreement is not worth very much if taken to task. If you do come to another understanding ask to have it placed as a written addendum into the contract to be initialed and dated to set the record straight.
You should never feel pressured, intimidated, made to feel stupid to ask questions, or sign a contract on impulse or feel your financial status is being used to embarrass you in front of others. These are all tactics to push people to sign. You are in complete control of your destiny and have every right to walk away, or ask to have a copy for you to take home, study, have someone else look at or have an attorney to review it.
If you are embarking into a large financial commitment be very straight forward to let the salesman or company know that you are just a stickler when it comes to contracts and to fully expect to have it read by you line by line before you will sign. In fact you even prefer to have a contract template to take home and review before even discussing going into a deal. This will give you or you and your spouse time to really decide if this is the right decision for you.
Realize contracts are written very one sided, for the company. You can ask to have sections reworded to make them clearer and to protect you. You have the right to negotiate the terms of any contract to protect you. The company doesn't have to agree to make changes, but many will or you can find a company that will. Don't fall to the salesman's pitch or urgency of "This deal won't last long", especially if you are buying a car, new mattress or furniture.
Here are some things to look for in any contract:
Who is the contract between, who is going to be held responsible for complying with the terms? Who are you going after if the company fails to live up to its agreement? Many financing contracts will actually be a loan agreement between you and a third party finance company. Once signed you are completely indebted to this third party company for the term regardless of what occurs with the product, service or company that sold it to you.
What is the term of the contract, how long will it last? Be careful to look for automatic renewals that occur if the contract is not canceled so many days in advance of the initial term. These often occur on service or maintenance contracts. Wording like; this contract is assumed to be automatically renewed if not canceled before 60 days of the initial term. Many companies will place this language in as a so called convenience factor for you, the consumer, in case you forget to renew. Now forget to cancel on the stated day in the contract and see just how willing the company is to let you out of it. This is also one of those sticky points where the company representative might say oh we never enforce that. OK then have take it out, as long as it’s in writing you are agreeing to it. A good company will rely on customer satisfaction and allow an ongoing contract with a 30 day cancellation clause without cause, or cure.
What is the payment and how is it calculated? What are you agreeing to pay, when will you be required to pay it and how much are you really paying. Leasing and lease to purchase contracts are very tricky as they have their own terminology and instead of using a standard annual percentage rate, they will use some complex and secretive lease factor. By using simple math you can look at the term of the agreement multiplied by the amount you are agreeing to pay, add in any deposits and figure out what you will actual pay when the contract is completed. Subtract this amount from the price as if you walked in as a cash customer and the remaining amount is the finance charges you are agreeing to pay. A straight forward reputable company should spell all this out for you, no hidden secrets. Some states will require the contract to be written in this manner.
Be careful with the language of no interest until so many months or years from purchase. Does this mean you will pay a balloon interest payment at the end of that period, or if you pay it off before the period will no interest be due?
A balloon payment is where a large balance is still due at the end of the contract term. These often occur on lease agreements to make the deal more attractive on the front end with low monthly payments. Other factors that may lead to a balloon payment might be connected to limited usage of a product, with additional charges applied over the usage. Car lease agreements are a good example, if you exceed certain mileage limits you will be required to pay a large amount at the end of the term. Again go by what is in writing and not what the salesman tells you.
What is the clause for delinquent or late payments? Some contracts will escalate if you are deemed one day late on one payment, this means the mail might be late, or you were sick one day and didn’t get a payment out. This escalation can be anywhere from taking away a low introductory rate and applying the maximum allowed interest rate, to paying damages or having the term due all at once. Again don't depend on what the salesman or person going over the contract tells you, if it is written that way expect it to be enforced that way.
What is the penalty for early termination? Most contracts will make the remaining balance plus liquidation damages due immediately, based on early termination. Others such as a lease agreement will allow early termination for out of town job transfers with a minimal or no penalty. Other contracts like a cell phone will allow you to transfer the account without penalty to another location.
Contracts to be leery of:
Lengthy complicated contracts in such fine print you need a magnifying glass. If one of these are presented to me it is a deal breaker, personally any company that has to go to this level has something they are trying to sneak onto me. Simply worded easy to read contracts should be your expectation in doing business with responsible companies.
Summary pages with a signature spot, these are coming about with more electronic signatures, much like the terms and conditions on software agreements that people click on and accept without taking the time to read the terms of the agreement. By no means suggesting you take the time to read every software agreement unless you are agreeing to pay or be obligated to what that agreement says, such as a cell phone contract.
Disclaimer; this article is not meant to provide any legal advice or be represented as being written by an attorney or professional licensed financial planner. If in doubt you should always consult a professional licensed attorney or financial planner to help you interpret and understand the ramifications of contracts and financial agreements that you are about to or have signed.