Thursday, September 27, 2012

Why Credit Unions Cut Your Costs

Each time I go out to talk about the credit union, one of my first questions is "Who can tell me the difference between a credit union and a bank."  I am still surprised that most people don't understand why we're different.  Most people can tell me that credit unions offer the same kinds of products and services as banks....checking, check cards, car loans, credit cards, online banking and so on.  That's true. Some even know that it's cheaper to do business with a credit union than a bank. That's also true. But most can't articulate why our credit union has some of the best rates and the lowest fees in the Baltimore area.

We credit unions are not-for-profit.  Period.  We don't have to pay outside stockholders.  We pay you, the members who own this cooperative organization.  The way we do that is by providing lower loan rates, higher savings rates and low or no fees.

One objection that I hear a lot is that credit unions are not easily accessible.  While that may still be true of some, times have changed.  Destinations Credit Union participates in two ATM networks that allow you to access your money from more than 60,000 locations all over the country (more than some of the largest big banks!).  Chances are, wherever you live, work or travel, you can get to your money.  You can also use one of the 4,600 shared branch locations throughout the U.S. to conduct routine banking transactions.  And, of course there is the free online banking and bill payment, not to mention mobile banking through your cell phone.  These days, it's easy and convenient to do business with Destinations Credit Union.

If you are already a member of a credit union, good for you!  If not, you're missing out on easy ways to cut your banking costs.

Thursday, September 13, 2012

Pick Your Payment....Really?

I originally wrote this for the Parkville/Overlea Patch, but felt it was worth sharing on our blog as well.

There's a trend in car dealer financing that really bothers me. You see the ads...pick your car, pick your payment. How can you pick your payment? Yes, I'd like a brand new expensive hybrid that gets great gas mileage, but I only want to pay $200 a month for it. Really?

There's basically only one way to pick your payment: extend the term of your loan. Your interest rate is based on factors such as your credit rating, and possibly the term of the loan or how much you put down. The car price is whatever you negotiate it to be. That only leaves how long you plan to pay on the loan, or term of the loan.

It used to be that 48 months was the typical repayment period on a new car. But, like everything else, the car prices have gone up. For people to be able to afford the payments, traditional lenders (including my credit union) have extended terms of 5 to 6 years. That's still fairly reasonable — most of us expect to keep our cars that long, and a car that's 5 years old isn't likely to have a lot of problems.

So, how is the pick your payment financing going to work? Let's say I'm going to be a little more reasonable about my payment: I will pay $400 per month to get the $30,000 Prius I want. And, let's say I qualify for a rate of 5% based on my credit history. 
At a traditional lender, a 5 year loan will cost me $566 per month, but I want to pick my payment at $400 per month.  What does that do to my loan? 
  • First it will extend the loan from 60 months to 90 months: about 2 and a half years longer. 
  • Next, it will cost me about $2,100 in extra interest over the life of the loan. 
  • Third, by the time the car is paid off, it will be nearly 8 years old.
Imagine if I stuck with my $200/month payment!  My house would probably be paid off before the car! 

Think long and hard about the facts before you "pick your payment."  Personally, I think I will just look for a car that fits my $400 per month budget!