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.

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

Loan Cosigning: How does it affect me?

The Myth: If I cosign on someone’s loan, it won’t affect my credit.

The Facts: Cosigning on a loan can affect your credit. The way the cosigned person manages the loan will determine whether the affect of that loan will be positive or negative to your credit. Please keep in mind that when you cosign a loan you are now partnering with the other person on the loan. In the case of a car loan, if the cosigned person has a late payment, you have a late payment. If the cosigned person has a repossessed car, you have a repossessed car, too.

Are you Co-Signing for someone? 

It takes a brave person to cosign a loan as you are taking on a lot of responsibility. You are promising to be responsible for the payments of the loan should the person you are cosigning for not be able to pay. You are also doing the cosigned borrower a huge favor by letting them use your credit to upgrade their credit score.

Let’s think about some of the factors involved in cosigning a loan. Is there a right way to cosigning a loan?

There really is a right way and a wrong way to cosign a loan for someone. The number one thing to remember is to not allow emotion to cloud your judgment. Let me give you an example; I work with the women at a community Women’s Shelter. I met a young lady there who was burdened with a large debt because she cosigned for someone. That someone was her boyfriend whom she was very much in love with. She loved him so much that she cosigned a $35,000 loan for a slightly used Lexus. Within two months they had broken up and he had disappeared with the car. He stopped making payments and the vehicle was taken to another state. The lender was unable to locate the car for repossession. The debt has been placed on her credit as a collection for the $35,000 loan plus collection fees. All because she let emotions cloud her financial decision making.

We love our kids and we want to help them get established in the world of credit. Cosigning on a loan is a great way to teach your kids financial responsibility. It will help them start their credit file with solid information lenders want to see. Getting your kids started in credit correctly is one of the best gifts you could give to them.

I like to think we know our kids pretty well and can judge if they will be responsible enough to make all the payments on time. But it is also important not to burden them with a debt they cannot afford which can turn into a debt where you become ultimately responsible for it. We need to understand their income and expenses to be certain they can afford the payments. You are not a bank, but it is important to understand your child’s finances; perhaps they could create a budget plan for you. It can show how much they have coming in salary and what their basic expenses are going out. It gives you an opportunity to have a good conversation about making payments on time and the importance of building credit for their financial future.

One last thought, if your cosigned borrower makes all their payments on time and the loan pays off correctly at the end, your FICO/Credit Score will benefit along with that person who you cosigned for. Every payment they make on time benefits both of you. That’s a beautiful thing!

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This didn't answer your question? please send me your questions on credit, banking, lending,or any other personal finance issue. I have access to many experts for your answers. You can post them on this blog or send your questions to me at gmeyer@meriwest.com.

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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.