When is 0% for a car loan not really zero??

Good Morning! Today’s blog is guest written by our Personal Auto Shopping Service Manager, Bill Fultz. Bill had over 20 years in the auto sales business before he came to work at our credit union. Here, Bill gives us an education on how a zero percent auto financing deal may not actually equal zero percent for the consumer and could cost them more than conventional financing.

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This time of year, we make our members a lot of auto loans. One of the phrases we often hear is, “I can get Zero Percent financing at the dealership.” But, is Zero Percent financing really 0%? Do you save more money taking the car with the dealer’s 0% financing or would you be better off negotiating the price of the car including the rebate and taking out a loan from your local credit union?

Here is the dealer’s basic program: 0% financing for up to 60 months or you have the option of taking a rebate from $1,000 to $2,000 and find your own financing. Which one is the better deal for you? Let’s look at this 0% deal and compare it to a low interest Meriwest Credit Union 60 month loan with the manufacturer’s rebate applied.

Dealer loan:

$20,000 @ 60 months 0% interest = 60 payments of $333.33

Meriwest Credit Union loan after $2000 rebate is applied:

$20,000 minus $2,000 rebate = $18,000

$18,000 @ 1.99% * = 60 payments of $315.20 total interest paid: $925.20

$18,000 + $925.20 = $18,925.20

You save $1,074.80 ($20,000 - $18,925.20) with a Meriwest Credit Union loan

(This is an example. Your actual savings will depend on the size of the rebate on the Vehicle you purchase and the actual rate you qualify for at the Credit Union).

Besides the outright savings using your Credit Union loan, you also get that savings up front!  That means that even if you decide to sell or trade in your vehicle before the 60-month loan is paid, you already have saved the money when you purchased. 

If you decide the 60-month 0% is the better way to buy, also consider that in order to actually save the full amount you must keep the car the entire 60 months.  If you sell or trade before that time period, you have lost the value of the rate.  Statistically most 60 month loans are paid off by members in a period of 36 months, as members choose to sell or trade in their vehicles on a newer model and in some cases as a result due to an accident.  

Members who take the up front cash rebates are free to do as they please with regards to trade-in etc, since they are not forced to keep the vehicle for the full term of the loan in order to realize the advantage of low or 0 % financing.  So, if you are in the market for a new vehicle from a manufacturer offering large rebates or artificially low interest rates, contact a Meriwest Credit Union financial service representative to give you a comparison between a Meriwest loan and the Dealer’s.  You might find out that 0% isn’t really as good as it sounds!

About P.A.S.S.: Whether you're looking for a new or used auto, using P.A.S.S. means you don't have to deal with dealership salespeople. Instead, you work directly with Bill Fultz, Meriwest's Personal Auto Shopper and your very own insider in the automotive world. He has access to thousands of new and used cars in dealer inventories all over the state. Need a new or used car? Check our link at WWW.Meriwest.com/PASS for more info.

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Our next Financial Education Workshop:

Credit Myths and Credit Repair

December 11, 2013 - 6:30pm

Meriwest Credit Union Main Office

Training Room

5615 Chesbro Ave

San Jose CA 95123

Please RSVP to Gmeyer@meriwest.com

 

Can 25 FICO Points Keep Me from a Good Interest Rate?

This really depends on how much credit you have to manage at once and what your current credit score is as it relates to the credit tiers. If you are near the edge of a tier, than yes, 25 points could affect the interest rate you may have to pay. If you have only one credit card, it would be difficult to maintain a high score and utilize more than 30% of the card’s available balance. The 30% rule is still valid, meaning that to maximize your score you should not utilize more than 30% of your available consumer lines such as credit cards. As your credit usage increases above 30% you will likely have a corresponding decline in your FICO score. That is not to say you cannot ever max out a card. They would not allow you such high available balances if you could not max them out. But, before anyone maxes out a card, they should have a plan on repayment. Consider your budget and manage your money so you can pay a larger amount than the minimum payment monthly. This will pay the card down faster and help build your score.

Quick Example: In Debt Forever

Credit Card Balance:      $2,500

Interest Rate:                 18%

Minimum Payment:        $  45

Years to Pay Off               10 (120 payments @ $45 each)

Total Payments:            $5,400

Total Interest Paid:         $2,900

Now you have actually paid a total of $5,400 on that original $2,500 balance, More than twice what you originally owed. In this example, a $100 monthly payment at this rate would pay off the balance in 31 months, 75% faster!

Your credit report shows your high balance usage on all of your cards. It also indicates how you have made payments. If there have been any late payments, delinquencies, etc. Lenders look at this data. It tells us if this person has the ability to pay off debt or live with it by paying their minimum payments.

Now, let’s say someone has a car loan, a home loan, and couple of credit cards. They have installment and revolving credit in their financial portfolio. This person can utilize a higher level of their credit cards and still maintain a high score due to the other accounts they have.

FICO looks at your total credit usage. As you gain experience and manage your credit where you have no late payments and have maintained credit cards and other credit given to you, and paid back balances, you will see your score get stronger and more resilient and less effected by the credit line usage factor.

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Credit Myth in California: If I get a divorce, I am not responsible for my spouse’s debts.

Credit FACT: California is a community property state. A spouse can be liable for debts entered into by the other spouse during the marriage, even if they were unaware of them. In these community property states, debts entered into during the marriage are considered community debts, and both spouses can be liable.

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Special Events

Family Financial Education: Identity Theft Workshop

This is a great workshop for the whole family. This one hour workshop is worth a lifetime of identity protection knowledge. You will learn how to protect your identity from thieves and hackers.

March 20^th at 6:30 PM

Meriwest Credit Union Main Office

5615 Chesbro Ave, San Jose CA 95123

To RSVP: Greg Meyer Gmeyer@meriwest.com or 408-365-6328

Credit Union Pre-Owned Car Sale

Take the Car of your Dreams and put it in your Garage!

All Day March 23^rd and 24^th   

Meriwest Credit Union Main Office

5615 Chesbro Ave, San Jose CA 95123

For more info: Link to Car Sale Page

Federally insured by NCUA. We do business in accordance with the Federal Fair Housing Law and Equal Credit Opportunity Act.
Copyright 2013 Meriwest Credit Union. All rights reserved.

Setting Financial Goals...And Reaching Them!

Are your financial goals set in concrete or can they be blown away as easily as a dandelion? 

Achieving your dreams and creating the financial future you want always begins with one important first step: a goal. Whether you're looking to help your child set goals so she achieves academically or have your own financial or self-improvement goals for the New Year, there IS a science to setting and meeting them.

A 2010 study in Applied Psychology followed college students who went through a multi-step goal setting program. Those who followed it completely showed significant improvement in their grades compared to those who did not.

While New Year's resolutions are notoriously short-lived, a clear process will put any objective you've set for yourself within reach. No matter what you have in mind, you can apply these steps to whatever goals are important to you, and the whole process should take less than 90 minutes.

1. Take a few minutes to write about the financial future you'd like to achieve. It's okay to start with a vague idea, but include as many specific details as possible.

2. Looking at the financial future you've envisioned for yourself, pick six specific and attainable financial goals that could help you achieve that future.

3. Number your goals according to their order of importance.

4. Look at each goal and write a paragraph about how achieving that specific step will benefit you.

5. For each financial goal, break it into smaller more manageable steps.

6. Identify obstacles that may get in the way and come up for a strategy for overcoming them should you need to do so.

7. Write about your commitment to reaching these ultimate financial goals.

That's it. Sound easy? Perhaps. But by taking the step of committing your goals to paper and working through these steps, you've laid the groundwork for success.

A goal is simply a dream with a deadline....may all your dreams come true!

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Reality Based Budgets for Teens and College Students – Jan. 16^th

Our next Financial Education Workshop will be Reality Based Budgets for Teens and College Students. It is a post college simulation of renting an apartment, buying a car, and developing a spending and savings plan. It is a fun and interactive session for the whole family and really opens the door to discussions about managing money. If this is something you or a member of your family needs, please feel free to join us. These workshops are open to the public.

Reality Based Budgets

6:30pm January 16^th at our Chesbro Main Office Location

5615 Chesbro Ave, San Jose CA 95123

Please RSVP with Gmeyer@meriwest.com.

The Costs of Bad Credit – Part One

I have always thought having and using credit was expensive. The whole idea of paying money to use money irks me. In our society, borrowing money is a necessary evil in order to build a good financial history. So, after high school or college, we enter the financial world and start using credit. Some of us used credit to enhance our lifestyles with purchases of stereos and TV’s; others purchased cars or even homes. Of course, we were all aware there is a cost to using credit. We pay a fee known as interest to borrow or, in a sense, rent the money we don’t have.

But for some of us, there were some hard lessons learned about the costs of using credit. When a payment is late, there is an additional late fee added on to your costs. A typical credit card late fee can be as high as $35. The late fee on a mortgage can average 5% of your monthly payment. A $3,000 monthly mortgage payment would have a late fee of $150! Late loan payment fees apply to RV loans, motorcycle loans, ATV loans, and other types of consumer loans.

Credit card companies will not only charge you a late fee, they will also charge the cardholder penalty interest. Your credit card’s interest rate may be a nominal 14.5%. But a late fee will cause that rate to more than double to 29.99%! Now any money you borrow through your card will cost you twice as much in interest as it did prior to your late payment. What’s the difference? One thousand dollars held for one year at 14.5% interest will cost a borrower $145. The same amount of money held for one year at the penalty interest rate of 29.99% results in a cost of $299! Is it like that forever? No. If you make six months of on time card payments after being charged with a late payment, you can get your credit card’s interest rate back to the original rate.  

Another one of the costs of credit are the fees paid by someone who allows a debt to go into collection. A debt or bill becomes a collection when the debt is reaching its first date of delinquency; usually the 90th day of nonpayment. At that point, the firm holding the debt can try to collect it themselves through their lending department or internal collection department or they may sell the debt to a collection agency. That collection agency buys it at a discount of 10%, 20%, or more from the original holder. The agency will also place their own “collection” fees on the debt. This may increase the debt by another 10% or so. When you consider late payment fees and collection fees, it makes paying on time look so attractive!

Late fees, penalty interest rates, and collection fees are only part of the cost of bad credit. Making credit mistakes also means there is a hit on your FICO score, reducing it. When one’s credit score gets low, the cost to do business via credit increases.

Part 2 of "The Costs of Bad Credit” will feature the expense of high cost credit products intended for families with compromised credit scores who cannot access regular affordable credit products. Check this blog next week for the scary conclusion to, “The Costs of Bad Credit.”

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And don't forget our Meriwest Facebook page.  We love to get new fans and have them check in when they visit our branches. It is also a great way to keep up with new products and services and what your credit union is doing in the community.

Our next "Credit Myths and Repair Workshop" will take place at our Milpitas Financial Center on Aug. 29th at 6PM. Credit Myths goes over the Top Ten Myths of credit and how to access your credit report for FREE.  I hope you can join us!

Have a great week!

7 Steps to Buying your First Car

Buying a car is often our first big expenditure and our first foray into the world of credit. Buying a car is not all about numbers, dollars, and cents; it is an emotional experience. It is that dream of rolling down the open road with the window down and our elbow resting on the door while we cruise along going somewhere in our car. That dream of buying a car is important, but equally important is the work that gets us to that point.  Your first car purchase is a major financial transaction and should not be taken lightly.

For many, a vehicle means freedom. But, it also means economic empowerment as it gives you increased job opportunities and increased earning potential. You will also have an improved quality of life. Some crosstown buses can take hours to reach their destination. With your personal car, you will have more quality time with your friends and family. Since you will be making a regular monthly payment on the loan, your car ownership is also an opportunity to improve your overall credit picture.

1. Your first step in the transaction is to know how much of a car you can afford. Refer to your budget to see how much disposable income you have available after paying your rent and monthly bills. That is what you have available for a car payment and insurance.

2. Do you know the condition of your credit? What's your FICO Score? First, get your free credit report at  WWW.AnnualCreditReport.com. This website is managed by the three credit bureaus and the Federal Trade Commission. You can access and printout your report from all three bureaus for free once a year. Yes, NO CHARGE.

3. As for your FICO Score, you can access that at WWW.MyFico.com. MyFico.com is not free ($14.95 a month), but it will be the most accurate representation of your score that is available. If you cancel before the end of the ten day free trial, you will not be charged.
1. Do you need a co-signer? Need to learn more about it? Check out our Co-Signer Blog from a couple of weeks ago.

4. What have you saved for a down payment? The down payment is part of your purchase price. It determines the amount you will be financing. A significant down payment can decrease the monthly payment amount. The down payment also plays a role in determining your interest rate.   Often lenders will give you a better rate based upon larger down payments. A large down payment tells your lender that you have “skin in the game.” They will be more comfortable lending to you and providing a favorable rate if you have a personal investment in the vehicle they are financing. We offer the “You Name It!” savings account that is designed just for this sort of purpose.

5. Once you are financially up to date, you can start researching the car you want to own.  What do you need? Good gas mileage? Sporty? Four Wheel Drive? Do you need a wagon or SUV for your family? Or is it going to be basic transportation? This is where you need to study and learn what the best and most affordable car is in your price range. Here are three excellent websites I am using to research my next vehicle purchase. Each of these has extensive information on the technical issues and the fair market prices of the car you may be purchasing.
1. Credit Union Dealer Network  WWW.CUDLAutoSmart.com
2. No. American Dealer's Association Guide  WWW.NADAGuides.com
3. Edmunds Automotive  WWW.Edmunds.com

6. Now we need to shop for vehicle financing. Credit Unions, banks, finance companies, and auto dealers all offer auto and truck financing. I am partial to credit union financing because I like lower rates, faster approvals, faster loan processing, and, a big reason I like them, discounted extended warranties for my car. I put a lot of miles on my vehicle. By financing my car through the credit union, I can buy the extended warranty at a huge discount over the warranty the dealer will sell. Once you have selected your lender, you should get pre-approved for a car loan. Then there is no doubt about how much car you can afford and it makes your purchase negotiation much easier!

7. Now it's time to go to the dealership or private party and negotiate your best deal. The best negotiating tip I can give you is to stick to your budget. Dealers will try to egg you into a slightly higher payment for some options, “The premium stereo will only cost you another $15 per payment. Are you going to let $15 keep you from having the best stereo?” REMEMBER: $15 per month on a 36 month loan means you will pay the dealer $540 for that stereo. Stick to your budget and don't let the dealer try to sell you on the payment amount.

• Meriwest Credit Union offers a full array of tools to help with your auto purchase decision. We have loan calculators, vehicle research, interest rates, and even a link to tell you the value of your trade-in.

Many of our members tell us that building their budget and getting their financing is the easy part of buying a car. It is negotiating the price of the car that seems to be the hardest part of the process. One option I have used in the past is an Auto Broker. An Auto Broker can find the car you want and often negotiate a good price for you as they bring large volumes of business to the dealership. But Auto Brokers charge for their services; sometimes well over $500 for high end vehicles. An option that some credit unions have for their members is an auto buying service or, as we call it, a Personal Auto Shopping Service or P.A.S.S.  It is an Auto Broker who works for your credit union and works for you for no charge! It's as if you have a friend in the car business.

If you are interested in our Personal Auto Shopping Service, please contact Bill Fultz at 408-365-6321. Bill has 25 years in the car business. Let Bill use his connections and expertise to get you the best deal.

Auto Sale at Meriwest Credit Union – Main Office

May 19th - 9AM to 5PM
May 20th - 10AM to 6PM
5615 Chesbro Ave, San Jose CA 95123

Get special dealer pricing and financing deals.

To get pre-approved for financing, call Meriwest Credit Union at 877-MERIWEST or online at Meriwest Credit Union Auto Loans.   

Upcoming event: Identity Theft

May 16^th @ Meriwest Credit Union

Chesbro Ave. Main Office-Please RSVP with Greg Meyer at gmeyer@meriwest.com