Should I Take the Zero-Percent Financing Offered by the Dealer?

Mercedes Benz Car Show Room Floor.

Q: I’m in the market for a new set of wheels, and I’ve seen some dealers advertising zero-percent financing. Should I take this offer?

A: An auto loan without any interest sounds like a dream; however, there are many considerations before deciding to take out a zero-percent financing loan. Let’s take a closer look at zero-percent financing so you can make an informed, responsible decision about your auto loan.

What is zero-percent financing?

An auto loan offer of zero-percent financing means the dealer financer is offering to lend the buyer money without charging any interest over the life of the loan.

With traditional loans, the lender is willing to extend money to the buyer because the lender will reap the benefits of the interest payments over the life of the loan. A zero-percent car loan, though, offers no reward for the lender. In fact, the loan is actually being offered by the auto manufacturer. The automaker stands to benefit from the loan as much as it would from an upfront cash payment for one of its cars. The only difference is that the money is earned over a longer time span. Automakers may offer zero-percent financing on slower-selling models or to help clear out stale inventory to make room for newer models.

Can anyone qualify for zero-percent financing? 

Zero-percent financing may be heavily advertised, but it can be difficult to qualify for one of these loans. They are typically only offered to buyers who have excellent credit, including a credit score above 700 and a long credit history. These buyers are more likely to make every payment on time and they may even pay off the loan early, making it low risk and profitable for the automaker.

It’s also important to note that not everyone can afford to take out a zero-percent financing loan. Since the lenders are only profiting from the actual sale on these loans, they will rarely agree to bargain down the price, nor do they offer any other incentives, such as cash-back rebates.

When is zero-percent financing a good idea?

For buyers who qualify, a zero-percent financing loan may be a way to save on steep interest payments throughout the life of an auto loan. A buyer can easily save several thousands of dollars in interest payments over the life of a zero-financing loan.

It is crucial that qualifying buyers crunch the numbers to be sure they can easily afford the monthly payments on a zero-interest loan. If all the numbers add up and the buyer’s credit makes the cut, a zero-interest loan can be a great way to save money on a new set of wheels.

When is zero-percent financing a bad idea

Zero-percent financing may not be in the best interest of buyers who can’t actually afford the loan. As mentioned, lenders generally will not bring down the price on a car with a zero-percent financing offer. Buyers may be blinded by the temptation of not paying any interest and therefore consider a vehicle that has a higher monthly price tag than they originally planned.

Another point to consider before committing to a zero-down financing loan is the term of the loan. Some of these loans feature longer terms than traditional auto loans, as much as six years. Six years is a long time to be paying for a car. The buyer’s auto needs may change before then and they won’t own the car for a year longer than they would have through a traditional loan. On the flip side, lots of zero-percent financing loans are only four years long, which can significantly increase the monthly payment amount.

Even if the loan terms do meet the buyer’s needs, it still may be worthwhile to skip the zero-percent financing and take out a traditional loan so the buyer will not miss out on cash-back rebates. These are typically not available on auto loans with special financing offers, and can mean missing out on robust incentives.

Let’s take a look at the purchase of a single car and run it through both kinds of loans.

A car is selling for $20,000 with the offer of a zero-percent financing loan that needs to be paid off in four years. Monthly payments on this loan will amount to $416.

Alternatively, the buyer can consider a traditional loan for the same car. An auto loan furnished by a credit union at the average national rate according to data extracted by the NCUA would give the loan an annual percentage rate (APR) of 3.45 percent. Over five years, this would amount to a monthly payment of $363.

In addition, with a traditional loan, the buyer can take advantage of manufacturer rebates. If this car would have an offer of a $2,500 cash-back rebate, its price would drop to $17,500. Through a loan with an APR of 3.45 percent, the monthly payments would only be $318. The total amount paid on the car would also be less than the amount paid through the no-interest loan, at $19,080.

If the buyer chose to take out a loan through a bank, with auto loan APRs averaging at 5.10 percent, the monthly payments (without the manufacturer’s rebate) would be $378. If the manufacturer offered a rebate, that amount would fall to $331 a month.

Evidently, when there is a shorter loan term involved, it is not always worthwhile to take out a zero-percent financing auto loan.

If the offer does not feature a shorter loan term, the difference between scenarios wouldn’t be as dramatic. A five-year loan on $20,000 with zero interest would cost the buyer $333 each month, only $15 more than the traditional loan through a credit union after the rebate; however, a five-year loan term may not be an option on a no-interest loan. Also, when you take out a loan through , you’ll enjoy personalized service and zero pressure to make a decision.

It’s best to run your own numbers through a free auto loan calculator to see what your actual monthly payment would be before taking on a loan. It’s the best way to determine if you can afford the payments without overextending your budget.

If you’re ready to get started on your auto loan, stop by today to get started. We’ll have you seated behind your new set of wheels in no time! Below you will find some links to our page for our Auto Loans.

Auto Loans Vehicle Search

Your Turn: Have you chosen to forego a zero-percent financing option? Tell us about it in the comments.

The Effects of China’s Market Crash On Typical Americans Like You

Predicting the future of international finance can be a fool’s errand. Fluctuations in a small aspect of a small market can ripple in untold ways, changing the environment all the time, like the proverbial butterfly responsible for all of those hurricanes.

Unfortunately, shrugging in the face of the unknown is really uncomfortable when it comes to finances. When we need to know how it will affect us, we go to financial advisors.

What about when we don’t have any specific investments in either area?  How might it affect us then?  Below are some of the people likely to be affected by the economic news of China’s struggles last week.  Some it will hurt, some it will help and some we’ll have to wait and see. 

You might be hurt if:
Your portfolio is heavy on retail brands.  In the last decade or so, American demand for retail goods slowed at the same time Chinese demand grew, so many of our corporations recorded sales growth that was largely or exclusively based on Chinese consumers.  Yum! Brands, Intel, McDonald’s and Starbucks all rely on Chinese consumers for between 15 and 20 percent of their revenue, and the Chinese middle class just got hit with back-to-back market crashes.  We won’t really know which companies were hit the worst until sales figures and quarterly reports start coming out, but you should identify which stocks you own that are heavily invested in China and see what they plan to do to keep afloat.
 Your income is directly related to manufacturing.  Banks around the world are stockpiling dollars because American currency seems much safer than a Euro that’s dealing with a crisis in Greece or any Asian currency that is inextricably tied to China.  As a result, the dollar has increased in value about 3% in the past month.
That sounds great, but a strong dollar makes exporting more difficult and makes imports cheaper, both of which make it harder for American manufacturing firms to compete with overseas factories. The Obama administration, like the Bush administration before it, has repeatedly pushed China to strengthen its currency for this reason, but has little to show for it.  Some financial analysts suggested the Asian free trade agreement signed last month was meant to prevent exactly this kind of situation: Chinese market insecurities resulting in problems for American manufacturing.
You might be helped if:
You own a business.  Whether your company is big or small, a strong dollar gives you a leg up right now.  Obviously, you can order stock from overseas, knowing it will cost less and pocket the profit.  It might be time to think bigger, though.  If your dollar is worth 3% more than it was a month ago, that means any loan you take out will come at a discount.  If you wanted to buy a $10,000 piece of equipment from China but scoffed at the interest rate, you can cut it considerably right now. 
You own a home.  It may not be obvious at first, but everything in your home goes through China. Your car had parts manufactured or assembled there, your clothes, your furniture … everything. You’ll feel the effects of Chinese firms trying to get sales every time you go to the store and possibly until Black Friday.

But you could also get a great deal on home fixtures and appliances very soon. Chinese factories need the cash, and with their domestic housing bubble bursting, you’re the only one left to buy that amazing new washer/dryer.  What if you moved up your remodel to this fall?  You could be looking at glorious home goods at ridiculous prices.

Talk to Destinations Credit Union about automobile and personal loans. Get one of the lowest loan rates in the Baltimore area in addition to the cheaper cost of the goods you want to buy.  Let’s see if we can help you capitalize on this opportunity. 


Sources:

http://www.theguardian.com/us-news/2015/jun/24/barack-obama-fast-track-trade-deal-tpp-senate

Borrowing Against Your 401(k) – Is It Ever A Good Idea?

One of the many perks available to working folk is a company-matched retirement plan, named after the part of the tax code authorizing it. These tax-deferred retirement packages are the principal retirement vehicle for just over half of all people in the United States. Americans sock away about 6% of their pay in 401(k) plans to receive employee matching and tax breaks.
One feature many people don’t realize about 401(k) funds is that the account holder can borrow against the balance of the account. About 87% of funds offer this feature. The account holder can borrow up to 50% of the balance or $50,000, whichever is lower, but the whole amount must be repaid within 5 years. There’s no approval process and there’s no interest. It’s basically a loan you give yourself, and is a popular enough option that 17% of millennial workers, 13% of Gen Xers and 10% of baby boomers have made loans against their 401(k) accounts.
Despite these benefits, borrowing against a 401(k) is a risky proposition. There are harsh penalties for failure to repay and taking money away from retirement savings is always risky. Borrowing from a 401(k) account should not be a decision that is made lightly.
As with most financial moves, there are benefits and disadvantages to borrowing from a 401(k). It can be difficult to sort through them, particularly if your need for money is acute and immediate. Before you borrow from a 401(k), though, ask yourself these four questions:
1.) Will the money fix the problem?
Many borrowers use money from their 401(k) to pay off credit cards, car loans and other high-interest consumer loans. On paper, this is a good decision. The 401(k) loan has no interest, while the consumer loan has a relatively high one. Paying them off with a lump sum saves interest and financing charges.
But the question of whether repaying that loan will fix the underlying problem remains. Take a look at your last six months of purchases. If you had made a 401(k) loan six months ago and paid off revolving debt, would your debt load still be a problem? Perhaps not – your current situation may reflect an emergency or an unplanned expense. On the other hand, if your credit cards are financing a lifestyle that is above your means, you may find yourself back in the same position a year down the road – and with no money in your 401(k).
Borrowing against a 401(k) to deal with a medical bill, a first-time home purchase or an emergency car repair can be a smart move. Using a 401(k) loan to put off a serious change in spending habits is, as one financial expert put it, “like cutting off your arm to lose weight.” Before you borrow against your future, make sure it will really fix your present.
2.) Will the investment offer a better return?
Your 401(k) is earning money for you. It’s invested in stocks, bonds, and mutual funds that are appreciating, usually at a fairly conservative pace. If you pull money out in the form of a 401(k) loan, that stops.
The statement that a 401(k) loan is interest-free is only technically true. You have to pay back what you pull out, but before you do, it doesn’t earn any interest. Therefore, the “interest” you pay on your 401(k) loan really comes in the form of the gains you never produced on the money you borrowed since you were not investing it during that time.
If you’re borrowing from your 401(k) to invest in a business, ask yourself if your new venture will beat the return you’re currently getting. If you’re planning to pay off your mortgage, compare the interest rate you’re paying to that return. Don’t worry about trying to time or forecast the market. Assuming a 4% return (a safe average) is the most prudent course of action.
3.) Is your job secure?
If you’ve recently been promoted or gotten new training on an important job duty, you can be pretty confident you aren’t going to be let go from your job any time soon. If your recent performance reviews haven’t been stellar, or if your company has some layoffs pending, you might want to beware. If you’re at all hesitant about your future at the company, hold off on borrowing from a 401(k).
If you lose your job or retire with a loan outstanding, you have 60 days to repay the loan in its entirety. Otherwise, it counts as a “disbursement.” You’re responsible for taxes on the entire amount and you’ll have to pay a 10% early withdrawal penalty. Staring down big bills like that after you’ve just lost your job is not a fun predicament.
While job loss can happen at any time, you want to make sure you’ll be happy and welcome at your current employer for the next five years before you pull money out of your 401(k). You may also want to consider accelerating your repayment plan to get your 401(k) refunded as quickly as you can. Unlike some loans, there’s no penalty for early repayment. Plus, the sooner the money is back in your account, the sooner it can start earning for you again.
4.) Do you have other options?
If you’ve identified your need for money as immediate, consider what other options you may have available before you dig into your retirement savings. For home repairs, using your home equity line of credit can be a smarter choice. For an outstanding car loan, refinancing may make more sense. For a medical bill, it may be wiser to negotiate a repayment plan with the hospital.
If you’re purchasing a first home, consider the tax implications of mortgage interest. In many cases, you’ll receive preferential tax treatment for interest paid on a home loan. You won’t receive that same benefit from a 401(k) loan.
Borrowing from a 401(k) can be a good way to solve a short-term, specific problem. It does have risks, however, and the consequences to your future can be severe. If you’ve got another option, that’ll be better option for you more often than not.
SOURCES:

http://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp

Car Buying Tips

If you have great credit, getting a car loan at a great rate is no problem. In tight credit markets, some buyers with less than stellar credit may have trouble getting a loan at a reasonable rate.

There are lots of ways to finance your car, even without the best credit, but be careful — these may cost you a lot of money in the long run.

Check your Credit Union’s rates first!

No matter what your credit score, chances are we can offer you a better rate because we are not-for-profit and owned by you, our members.

Do your research

You will most likely pay more for your vehicle if you go into a dealer not armed with information about the vehicle you are interested in purchasing. Make sure you do the research and know how much you should be paying for your new or used vehicle. The internet has made it easy to get this information — just go to the AutoSmart section of our website to get started.

Get Pre-Approved

Apply for your loan to see exactly how much you can afford before you go shopping for your car.  You’ll know exactly what your credit score is and what rate you qualify for through this process. You can then make your best cash deal. Apply online and simply leave the make and model information
blank or write in “pre-approval.”  If you already have your financing in place, beware of a dealer scam involving getting you to fill out a credit application, even though you are not applying for credit. They claim it is required by the “Patriot Act,” but it is not. This is an attempt to run your credit to try and get you into the dealer financing.

Beware of “Choose Your Payment”

Many dealers are now offering to let you choose your payment. While this may seem like a good idea on the surface, all it really does is extend the term of your loan, costing you thousands in extra interest and leaving you with a car that is worth far less than you owe on the loan. As an example, a $20,000 car financed at 7% APR for 5 years will run you $396 per month and you will have paid at total of $3,763 in interest by the time it is paid off. Taking that same loan, and choosing a payment of $250, you will be paying the loan for 9 years and will have paid over $7,000 in interest! If you can only afford a payment of $250, choose a car that fits your budget, instead of choosing a payment on a more expensive car.

Low Rate Financing vs. Taking a Rebate

It is generally better to negotiate the best cash price, take the rebate, apply it to the principal balance of your loan and finance at the best possible rate outside of the dealer. If you run the numbers, you’ll usually find you save money this way.

Purchasing GAP Insurance

If you put less than 20% down on your new vehicle, you may want to consider GAP insurance. The minute you drive a new car off of the lot, the value depreciates significantly. If your car is stolen or totaled in an accident, you may find you owe more on the car than the insurance is willing to pay you.
Guaranteed Asset Protection (GAP) insurance makes up the difference.  Don’t just take what the dealer offers you though! Check around because you can usually get the policy less expensively elsewhere (such as your credit union).

Extended Warranties

You may want an extended warranty on your vehicle, especially if you have trouble coming up with the funds to repair it on your own. However, beware of the dealer “requiring” the warranty in order to get the loan. Some unscrupulous dealers will tell you that in order to sell the product. Most likely, you will pay less for a warranty if you purchase it through the Credit Union. It’s a choice, not a requirement!

If you have questions throughout the car buying process, call Destinations Credit Union.  We’re here to help you get the best possible deal.

Three Famous Scary Stories And What They Teach About Smart Money Management

It’s that time of year again! The nights get longer. Haunting winds rattle

shutters and swaying trees cast spooky shadows in the moonlight. It’s time to tell ghost stories!

These stories scare us, but they can also show us something. Let’s see what three of the most popular ghost stories can show us about financial responsibility for a spook-tacular Halloween!

1) The Ghost in the Attic

The story

It starts a little differently each time. Maybe there’s a bump in the night. A squeaky floorboard creaks and groans even when no one is walking near it. More and more squeaks and bumps that no one can explain keep happening. The cabinets open and close by themselves. Loud noises come from nowhere in the middle of the night. Everyone is terrified and no one can sleep. Blood starts dripping from walls as screams come from the vents and doors slam. This house is haunted.

It turns out there’s some history to the house. A gruesome murder took place there. It was built on an ancient Native American burial ground. The attic was home to an abandoned child who was forced to live there because of his hideous deformity. The only way to get back to normal is to give these angry spirits what they need.

The reality

If your house has creaking floorboards, or your heating and cooling system goes bump in the night, you might be headed for a far more serious problem than ghosts. Unexplained noises in the house could be signs of serious structural problems. Knocks in the walls can be a plumbing issue about to break loose. Uneven construction can really make cabinets open by themselves and doors slam uncontrollably. Like in the story, many of these problems come out of your house’s history. It might have been built on an old mine site or just built in a hurry.

Left untreated, these little problems can create big trouble. Squeaky floorboards can break, pipes can rupture, and foundation problems can ruin your home. If you’re counting on homeowner’s insurance to pay for these accidents, think again. Homeowners’ insurance policies broadly don’t cover “construction defects,” which means you’ll be stuck holding the bill.

Consider getting out in front of these problems. You can use your home equityline of credit to repair your foundation, fix structural problems in your home, and perform other necessary upgrades. Don’t let the specter of uncertainty ruin your ghoulish good time!

2) Vampire Infestation

The Story

Up a winding mountain pass deep in the Transylvanian high country sits an ancient mansion. The simple folk who live in the valley will not go near it, nor will they even speak a word about it, for fear of attracting the dark attention of the master of the house. The man is never seen and the house might be assumed empty if it were not for the ominous cackling that echoes through the farms and pastures that surround the mountain.

 Legend tells that the man in the mansion is an unholy abomination who subsists on the blood of the innocent. Young children have been found by the road leading up to the mansion, their flesh cold and clammy as though the life itself has been drained out of them. Travelers who arrive at the village scoff at the tale of Dracula’s Mansion, but those who journey up to it are never seen again.

The Reality

While you don’t have any vampires in your life (probably), you do have something you never see that’s sucking the life out of your financial success. Outstanding debt is a seldom-seen figure that casts an ominous shadow over your household finances. Make no mistake: The beast is feeding on your innocent salary and putting your whole household in its sight. The average household has $17,000 or more in debt and faces an average minimum payment of $423 per month.

If you want to drive a stake through the heart of this monster, consider a debt consolidation loan. These loans can repair your credit, lower your monthly payment and free you from the control of the heartless creature. Best of all, you won’t need to deal with the smell of garlic!

3) Zombie Apocalypse

The Story

The streets are quiet. There are no cars or pedestrians. An overcast sky casts flickering shadows on the desolate streets. The ordinary noises of a city are starkly absent. The only clearly audible sound is the slow chomping of the walking dead who are feasting on the bodies of recent victims.

Cowering in basements and perched on rooftops, human survivors band together. Their goal is simple: stay alive for one more day. Long past the point where rescue helicopters stop flying, these brave souls will go their own way and resist being part of the zombie horde.

The Reality

Zombies are a cautionary example of what happens to us when we consume just for the sake of consumption. A zombie is a sad creature who lacks the capacity to plan or see further than the next meal. We’ve all been there – splurging on a candy bar in the checkout lane, not because we were hungry, but because we wanted it and it was there.

The best way to zombie-proof yourself is to make a realistic budget and sticking to it. Make a plan for your income that includes saving and investing. Be sure to include space for planned indulgences – like discount Halloween candy on November 1.
SOURCES:

http://www.free-online-calculator-use.com/credit-card-minimum-payment-calculator.html

Long-Term Planning And Your Auto Loan: How Destinations Credit Union Can Help You Save


If you’re thinking about buying a new car, you know that the best time is rapidly approaching. The end of the model year means car prices on current year vehicles will never be lower. That means now is your chance to grab a new car for the lowest possible price.

If you’re a savvy enough consumer to wait until dealers are desperate to sell, you owe it to yourself to wait just a little bit longer to do your research on financing options. Don’t be fooled by dealer promises of zero percent financing. Let’s take a look at three hidden costs that come with these advertised low rates. 

  1. You may not qualify for zero percent financing. Car commercials don’t talk about the fine print, but dealers place a pile of restrictions on zero percent financing. If your history with credit is anything less than perfect, don’t expect to qualify for these rates. Roughly 60% of people who apply for those loans get rejected. 
  2. These loans are usually short-term. If the dealer is offering zero percent financing over the life of the loan, expect it to be no more than 3 years. This means a much higher payment than you’d have on a 5- or 7-year loan. Additionally, many zero percent financing offers only cover part of the life of the loan – usually 6 months. After that, you’ll be paying more in interest.
  3. Most importantly, choosing zero percent financing will usually prevent you from taking advantage of other discount options. Zero percent financing is offered instead of manufacturer rebates and other discounts. Also, these financing packages are usually incompatible with special discount programs like Ford’s Friends and Family package.

This last hiccup can mean zero percent financing is actually more expensive than a loan obtained through a private lender, like Destinations Credit Union. To see this effect, let’s take a look at some numbers. We’ll assume that you’re paying $20,000 for a car. You’re presented with two choices. You can take 0% financing on a 3-year loan or you can get 1.74% APR* on a 5-year loan from Destinations Credit Union, plus a $2,000 rebate. Let’s see how those options break down.

 
If you take the 0% financing option, your monthly payment will be $555. Assuming no other fees or problems, you’ll pay $20,000 over the lifetime of the loan. Your payments will be higher, and if you can’t make one of them, you’ll be paying more in interest next month (in addition to all the months that follow).
If you take the rebate and reduce the cost of the car to $18,000, your monthly payment will be $314 for a 5-year loan at the credit union – a much more reasonable amount. Over the lifetime of the loan, you’ll pay a total of $18,808. That means you will save $1,192 and have a lower car payment.

Even if it’s not incompatible with cash back incentives and other rebates, having outside funding lined up before you go to the dealership can be a tremendous advantage in negotiating. By continually postponing questions of financing, you can let the dealer think there’s still money to be made. This position might lead them to give you more on your trade-in, lower the price of the car or offer you more options.

The loan you get to pay for your car may be the biggest financial decision you make outside of your home. You owe it to yourself to do your research and treat this momentous decision with diligence. You wouldn’t buy a car just because it had an enticing price tag. Why would you do that with a loan?

Remember, dealerships make money from financing. They want you to finance your car through them, because it’s one more way for them to profit from the sale. It’s also one more piece of information they can use to manipulate the total price of the car in their favor. You can take that power away from them by doing your research on car financing.

If you’re considering buying a new car, your first call shouldn’t be to the dealership. It should be to Destinations Credit Union. Our professional staff can answer any questions you might have about auto loans and other options to finance your new car. Buying a car is one situation in which that old cliche` “knowledge is power” really is true. Take the time to educate yourself about your vehicle financing options (visit the AutoSmart section of our website to help with your research). Your wallet will thank you for it! Call Destinations Credit Union today. 

*APR=Annual Percentage Rate.  Rates may be higher based on credit history.

 


Are HELOCs A Good Idea These Days?


Debt is the wealth killer. You’ve heard this piece of advice repeated in a million different corners of financial news. You’ve read articles telling you to get rid of all your debt in order to build wealth and save for the future.

There’s one very notable exception, though, and you’re living in it. Debt secured by your home has low interest rates, and regular payments can do wonders to improve your credit score. In many cases, too, you can get preferential tax treatment to the interest you pay.

 Money you owe on your home is often called “good debt” and there are a few ways in which it’s different than other kinds of debt. First, it’s secured. That is, your ability to repay the debt is ensured by the value of the property. Second, its effective interest rate is lower even than advertised. Your home will likely appreciate in value. The value of appreciation of real estate has been 6.4% on average nationwide. So, instead of losing you money, your mortgage just decreases your investment income. Third, creditors take the presence of installment loans, like mortgages, as signs of responsible use of credit, not to mention the consistent repayment history looks very favorable to potential lenders and credit scoring entities.

If you’ve already paid for your house, there are still ways you can reap the benefits of getting this “good debt.” You can use what’s called a home equity line of credit, or HELOC, to pay for a variety of expenses. There are a few key differences between a HELOC and your mortgage.

First, HELOC rates are far more stable. Between 2010 and 2014, home equity loans had an interest rate that fluctuated by more than 2%, while HELOC rates changed by less than .5%. Second, HELOC loans generally offer lower interest rates from the start. Because they’re secured by the equity you already have in your home instead of the possible resale value of your home, lenders need to charge less interest to secure the value of the loan.

Because of these benefits, HELOC loans are on the rise. More than 200,000 people took out HELOC loans in the last quarter, up 9% from last year. More people are borrowing more, too. The average HELOC limit in March was just over $100,000.

Bear in mind, HELOC loans are not risk-free. You’re securing your purchases with your home. If you don’t pay your loans, you can face very serious consequences. You can lose your house, seriously damage your credit, and still be liable for the balance of the loan. Like all debt, HELOC loans are serious financial instruments. You should have a good reason for using it and a plan for paying it off.

If you’re interested in getting a HELOC, Destinations Credit Union can help. Let’s take a look at a few ways our members are using their HELOC to improve their lives and financial well-being:

  • Financing home improvement. This is the most common reason given for using a HELOC. It makes sense. Improvements to your home increase its value, so home improvements are like a low-risk investment. Using the equity that’s in your home to finance these improvements is the cheapest way to increase the value of your holding.
  • Debt Consolidation. If you have a lot of “bad” debt, like credit cards, car payments, or other high-interest loans, you can save a lot of money each month by paying off that debt with a HELOC. Your HELOC will have a lower rate of interest and you’ll only have to make one payment each month. Plus, you may be able to take advantage of preferential tax treatment for the interest (consult your tax advisor for details).  But, beware of running up a lot of bad debt once again – you’ll be in worse shape if you do that!
  • Purchasing a car. Unlike your home, your car is certainly going to depreciate in value. If you buy a used car then resell it immediately, you will almost certainly lose money on that transaction. This depreciation means the interest rates on auto loans will be higher than those on your HELOC. You can also get a lower price overall by buying the car outright.
  • Major purchases. For most people, the biggest source of wealth is their home. A home loan is one of the few monthly bills that actually builds wealth instead of zapping it. If you need to make a major purchase, the biggest source of capital you’re likely to have is your house. If you want to start a business, purchase a boat or an RV, or buy rental property, a HELOC is one of the best ways to finance it.
  • Covering emergency expenses. Most financial experts recommend keeping an emergency fund that could cover you for between 6 months and 1 year if you lost your job. That’s good advice. If you don’t have the cash on hand, though, you can open a HELOC to cover medical expenses, car repairs, and other unexpected costs. You should still work to build savings that can prevent borrowing in the event of a catastrophe. Opening a HELOC can provide you some security in the mean time.

If you own your home and are considering any of the above plans for your future, you should call or stop by to speak to a representative from Destinations Credit Union today. The friendly and knowledgeable staff can answer any questions you might have about what a HELOC is and how you can use one. They can even get started with the paperwork so the credit is there when you need it. Don’t wait until you’ve got a giant bill for remodeling or an expense you can’t cover; speak to a representative about HELOC loans today!

SOURCES:

 http://homeguides.sfgate.com/benefits-home-equity-line-credit-9182.html 

3 Financial Decisions To Make Before Interest Rates Start To Climb


By all indications, interest rates are headed back up. Every economic indicator, from employment reports to bond market performance, points in this direction. If you’ve been watching financial news shows, you’ve definitely heard this prediction. Yet to most observers, it’s somewhat abstract and far away. Sure, interest rates are going up; so what? And when?

You’ve no doubt heard that if you’re thinking about refinancing your home or buying a new one, now is the key time. That’s true, but that’s not the whole story. Here are three other financial decisions that can save you money in the long run if you make them soon.

1.) Consolidating your unsecured debt

  

If you’re carrying unsecured debt (credit cards, personal loans, or payday loans), you might find yourself paying a lot more soon. Don’t assume you are locked into your current rate. Most often, these kinds of debts use an adjustable interest rate. How much it costs to service your credit card debt is determined, among other factors, by the prime rate as set by the Federal Reserve. As the interest rates that the central bank charges other financial institutions rise, the rate your credit card provider charges you will probably also rise. (Note:  Destinations Credit Union’s MasterCard is a fixed interest rate, meaning it will not go up automatically when rates rise.)

If you owe $7,000 on your credit cards (the American household average), a one percent change in the interest rate would mean an increase of $70 to your balance every month. That could mean an increase of as much as $15 on minimum monthly payments. That’s a tough hit, and it will also just make it harder to dig yourself out of debt trouble.

It’s best to pay off this debt as quickly as possible. If you have a large balance, though, consider a debt consolidation loan. These loans have fixed interest rates, so your debt won’t get more expensive in response to changes in the economy. Working with a representative from your Destinations Credit Union can keep this cost from consuming a bigger portion of your budget.

2.) Buying a new car

  

If you’ve been on the fence about upgrading your personal transportation or getting another vehicle for a new driver, the coming interest rate rise might be the final push you need. The rates that lenders can offer on car loans are influenced by the prime rate, too. An increase in the prime rate means car loans are going to get more expensive, thus decreasing your buying power.

  

For a $20,000 car, a one percent increase in interest rates means paying $10 more a month on a 5-year car loan. It means paying $400 more over the lifetime of the loan. That’s a direct decrease in the amount of car you can afford. Worse yet, dealerships may run promotions promising no interest financing for a portion of the loan. These promotions almost always revert to an adjustable rate based, in part, on the prime rate.

  

As a credit union member, you can get access to fixed rate auto loans that allow you to get the most car for your money. You can also plan with confidence knowing the portion of your budget devoted to paying your car note. You can even negotiate from a position of power knowing you’ve got financing squared away with a lender who’s got your back.

  

3.) Self-directed retirement planning

  

If you take personal care of your retirement funds, you need to prepare yourself for the market changes that will result from rising interest rates. These rates will most likely be coupled with a decrease in bond rates. This change will send brokerage investors running from long-term growth bonds into securities and commodities. This market shift will likely produce a great deal of short-term instability, as speculators try to time the shift in the market. The resulting market volatility can place your retirement savings at risk.

  

As the rates that lenders charge for loans go up, though, so does the rate they provide their investors. The interest rates you can earn on certificates and club savings accounts will go up in response to changes in the prime rate. Best of all, money you put into these accounts will be safe from the volatility of the market as changes occur in macroeconomic policy. When things have settled down, you can pull the money out of these accounts and put it into a more growth-oriented investment.

  

It’s easy to think of the decisions of the Federal Reserve as occurring in another separate world. The events of Washington, DC can seem far removed from your community. The truth is, in an increasingly interconnected world, timing your personal decisions to take advantage of changes in policy can save (or make) you money in the long term. This may not be enough motivation to buy a car you don’t need or consolidate a $100 credit card bill. But, if you’re making big financial decisions, you need to be smart about your timing and act fast. Stop by Destinations Credit Union’s office to see how we can help you before it’s too late!

Responsible Use of Credit or Debt Trouble? How to Recognize the Difference

Debt may be a four-letter word, but it certainly has its place. A home mortgage, for example, is good debt, and so is a credit card with a reasonable rate and a manageable balance. Without the ability to borrow money to finance a home, most of us would be stuck renting, because who has hundreds of thousands of dollars for such a purchase? 

However, debt does have a dark side. And it’s important to know when your use of credit is a good thing, as well as when it’s time to cut back and watch the bills more carefully.

The truth is, you already know the answer to that question without running any numbers. If making payments on time is difficult and causes you stress, if you’re charging necessities to a credit card because you have no other options, if your bills are what’s keeping you up at night, if you’re borrowing from Peter to pay Paul, well, then you know there’s a problem.

While a crisis can put even the most responsible consumer into this type of situation temporarily, when this pattern becomes a way of life, there’s reason for concern. Generally speaking, if less than 30% of your income is going to debt, you’re doing great. However, if 40% or more of what you earn is going to debt payments, something needs to change.

Figure out your number, also known as your debt-to-income ratio, by adding all your monthly debt payments together, and dividing it by your monthly income. Calculators on websites such as bankrate.com can do the math for you. (Or come in to the credit union and we’ll run the numbers for you.)

If you find yourself in some difficulty with debt, or even if you need help budgeting, Destinations Credit Union offers free financial counseling through our partner – Accel.  

5 Tips For Buying Your Next Car

If you have great credit, getting a car loan at a great rate is no problem.  In tight credit markets, some buyers with less than stellar credit may have trouble getting a loan at a reasonable rate.  There are lots of ways to finance your car, even without the best credit, but be careful — these may cost you a lot of money in the long run.

Check your Credit Union’s rates first!  No matter what your credit score, chances are we can offer you a better rate because we are not-for-profit and owned by you, our members.


Do your research


You will most likely pay more for your vehicle if you go into a dealer not armed with information about the vehicle you are interested in purchasing.  Make sure you do the research and know how much you should be paying for your new or used vehicle.  The internet has made it easy to get this information — just go to the AutoSmart section of our website to get started.


Get Pre-Approved


Apply for your loan to see exactly how much you can afford before you go shopping for your car.  You’ll know exactly what your credit score is and what rate you qualify for through this process.  You can then make your best cash deal. Apply online and simply leave the make and model information blank or write in “pre-approval.”


If you already have your financing in place, beware of a dealer scam involving getting you to fill out a credit application, even though you are not applying for credit.  They claim it is required by the “Patriot Act,” but it is not. This is an attempt to run your credit to try and get you into the dealer financing.


Beware of “Choose Your Payment”


Many dealers are now offering to let you choose your payment.  While this may seem like a good idea on the surface, all it really does is extend the term of your loan, costing you thousands in extra interest and leaving you with a car that is worth far less than you owe on the loan.  As an example, a $20,000 car financed at 7% APR for 5 years will run you $396 per month and you will have paid at total of $3,763 in interest by the time it is paid off.  Taking that same loan, and choosing a payment of $250, you will be paying the loan for 9 years and will have paid over $7,000 in interest! If you can only afford a payment of $250, choose a car that fits your budget, instead of choosing a payment on a more expensive car.


Low Rate Financing vs. Taking a Rebate


It is generally better to negotiate the best cash price, take the rebate, apply it to the principal balance of your loan and finance at the best possible rate outside of the dealer.  If you run the numbers, you’ll usually find you save money this way.


Purchasing GAP Insurance


If you put less than 20% down on your new vehicle, you may want to consider GAP insurance.  The minute you drive a new car off of the lot, the value depreciates significantly.  If your car is stolen or totaled in an accident, you may find you owe more on the car than the insurance is willing to pay you.  Guaranteed Asset Protection (GAP) insurance makes up the difference.  Don’t just take what the dealer offers you though!  Check around because you can usually get the policy less expensively elsewhere (such as your credit union).   


Extended Warranties


You may want an extended warranty on your vehicle, especially if you have trouble coming up with the funds to repair it on your own.  However, beware of the dealer “requiring” the warranty in order to get the loan.  Some unscrupulous dealers will tell you that in order to sell the product.  Most likely, you will pay less for a warranty if you purchase it through the Credit Union.  It’s a choice, not a requirement!