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

 

Going from Bad to Worse – Collections are a Curse!

What do you know about collections? I get a lot of questions like: How long can they stay on my credit report? What effect do they have on my credit score? What’s the best way for me to pay them off and get them out of my life? 

Do you wonder about these things? A lot of folks do. Every day I get questions from our members about collections and how they affect their credit. Let’s see if I can give you some answers!

A collection takes place after we have been delinquent on a payment. That payment can be on a utility, a loan or a payment for other services where you may be billed later like a carpet cleaning. Technically, you can be late up to 89 days on your utilities like your water bill, heating bill, or even your phone or cellphone bill, even that invoice from the carpet cleaner. So long as you pay it by the 89^th day, no one at the credit bureau needs to know about it. Sure, the water company might charge a late fee or the cellphone provider might temporarily cancel your internet service, but it will not appear on your credit report and cost you a reduction in your credit or “FICO” score.

But, if you allow that bill to go unpaid that additional day so that is it 90 days late, your credit score will suffer. As a general rule, most businesses turn unpaid debt that is 90 days old to their internal collection departments or they may sell unpaid debt to a collection agency for further collection. What that means to you is a severe beating of your credit score. If you had an excellent score, it is now just okay. If you had a good score, your score has dropped significantly. An unpaid collection on your credit has the same power on your score the first day as it does seven years later when it expires and drops off your report! Unpaid collections drag your score down and prevent you from accessing future credit on good terms and rates.

My debt went 90 days delinquent and now a guy named Ralph is calling me from the collection agency. What can I do to stop this? You have a right to privacy and can write them a letter requesting they stop calling you. That’s the law and it works! Write the letter telling them to stop calling you and send it certified mail to the collection agency. Then, they can only call you to tell you they will stop calling or if they decide to take further legal action. Otherwise, all phone contact stops. Remember to keep a copy of your letter!

However, the best recommendation is to pay it and get it out of your life. This sort of debt is not your friend. Once you pay a collection, it changes from an upaid, also known as an open collection, to a paid or closed collection. Immediately upon paying it, your credit score will bump up a bit. As time goes by and the debt is 24 months, 36 months, and further into your past, you will see your score improve. With the collection’s status changing from an open/unpaid collection to a closed/paid collection on your credit report; it will still be a negative item, but much, much less than a collection that is unpaid. It will remain on your report for the balance of the seven years after you have paid it; i.e. if you pay it after two years, it will show as a paid collection for the five remaining years. 

With older collections some agencies may be inclined to provide you a fairly steep discount to pay them. Collection agencies buy your debt at a discount. You just have to ask for a lower pay off amount and start negotiating with the representative. If you decide on an amount, get it in writing and attach your check to it when you pay it. Then you have a contract with the agency. Do not send any money until you get your agreement in writing. 

Also, good debt offsets bad debt. This means that if you have other credit obligations besides that one debt that went bad, each time you make a payment on them you will improve your credit position. On time payments and keeping your debt balances low and under control are the keys to improving your credit score.

  

Questions? Ask the Your Credit Union Guy, Greg Meyer at gmeyer@meriwest.com

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 Our next Credit Myths Financial Workshop will take place this Wednesday Sept. 25th at our Main Office at 6:30pm. If you wish to join us, please contact me at gmeyer@meriwest.com or 408-365-6328 to reserve a spot. Don't be shy. We have space! 

Our October Workshops will be held at our Sunnyvale Financial Center on El Camino @ Fair Oaks in Sunnyvale. 

Auto Financing 101 

October 16th - 6:30pm to 7:30pm

Learn how to plan for, research, and negotiate your deal and financing for your next car. Be a step ahead of the car dealer. Take this class! 

Credit Myths

October 23rd - 6:30pm to 7:30pm

What are the top ten myths of credit? We will tell you and reveal the truth behind these myths. 

Both will be held at our office at 563 E. El Camino Real, Sunnyvale CA

Please RSVP with me at gmeyer@meriwest.com or 408-365-6328 to reserve your spot.

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.
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