From the Desk of Roger Douville

From the Desk of Roger Douville,

Back end products are an increasingly sensitive compliance issue for all lenders today. The CFPB is cracking down on who can sell what and where they can sell it. But these products do add value for the member. With the rising cost of vehicles and the skyrocketing cost of vehicle repair, these products provide peace of mind against budget busting surprise repairs.

NBC news published an article with data from Bankrate, in February, 2017 that reminded us 63% of Americans lack sufficient cash reserves to cover a $500 financial setback. What is even more eye opening is that “higher income respondents (defined as $75,000 or more in annual earnings) said they do not have enough cash to handle such an emergency”. That might explain why we see 60-day delinquency ratios close to 1% in even the top tiers for some programs across the country.

There is no doubt that being cautious about increasing loan advances on shrinking collateral values is prudent. Adding more unsecured negative equity to the loan amount seems counterproductive. However, forcing members to seek shelter in revolving debt options or payday loans to cover surprise life events is not worthy of the credit union credo of “people helping people”.

The fact is that these products are being used and provide real value for our members. A planned expense is better than a surprise expense any day. In refinance, like purchase, it’s not just about lowering the rate, consumers primarily want payment relief, something that they can budget and plan for. Not surprisingly, credit union back end products are among the least expensive for the consumer!

With that, our focus should be on educating our members. Properly disclosing the costs and benefits of these products. Let’s spend time and effort being “real” with our members and setting the proper expectations. rateGenius Loan Officers make educating members on the costs and benefits of GAP and VSC products a top priority. As lenders, we need to look at our programs and reassess what limits our programs have and whether or not they make sense for the member.

Are we simply relying on old lending standards to guide our advance policies in today’s economic environment because that’s the way it’s always been done? Are lower cap limits on these back end products actually counterproductive to our credit union goals? Or worse yet, negatively impacting the financial success of our members? Or can we discern that a bumper to bumper VSC program on a high end unit is logically more expensive than a mid-level program on a compact car?

All the best,

Roger Douville
VP of Lending Services

4 Tips to Live Within Your Means

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Know the difference between wants and needs

Knowing when you should spend money and when you should save can be tricky. Check in with yourself before making a purchase over $40. Ask yourself if you can live without it. If the answer is yes, then it is likely not something you need.

Additionally, trying to eat out less during the week can save $30-50. Try packing your lunch during the week and indulging a bit more on the weekends. Monitoring your food and wardrobe spending is a great way to stay on budget.

Shop in your closet, not retail stores

How many times do you find an old shirt or pair of shoes in your closet that you forgot you had? Go through all of your closets and find older items that you can add to your wardrobe again. If styles have changed a bit, you can add a jacket or different pay of shoes for a fresh new look. Check this out for ways to style clothes you already own.

Establish an emergency fund

Emergency funds keep your life intact in the case of an emergency. Having an emergency savings account will provide aid if you are living paycheck-to-paycheck. Money should be added to this account each month in order to build up a savings of 3-6 months worth of expenses. If unplanned medical or car expenses come up, you will be ready without jeopardizing your budget.

Lower expenses

If you are struggling to live within your means, you may want to consider reviewing your expenses. There are likely 2-3 monthly expenses that are not needed. Instead of a gym membership, try doing workout videos at home or running outside. If you spend a hefty amount on salon services, try new hair and nail techniques that you can do yourself from home. Also, review your cell phone and cable bills. There may be an opportunity for you to cut back and lower those payments as well.

If you have a mortgage or a car note, consider a refinance. Refinancing your car is easy and can be done in three simple steps: apply, sign, and make your new payment. RateGenius can help you with your next refinance!

DIY projects instead of new purchases

Certain times of the year can lead to higher spending on gifts and entertainment. During the summer, you can plan fun games and activities for the kids without spending tons of money at amusement park. Simple learning projects and outdoor activities such as swimming and biking are little or no cost!

During the holidays, choose to make personalized gifts by re-purposing items that you may not use, or scour Pinterest for fun DIY projects.

How are you sticking to your budget?

 

5 Things to Know Before Applying for a Credit Card

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If you have never had a credit card before, the application process can be confusing. Deciding which credit card is right for you can be overwhelming. Don’t be fooled into applying for the first offer you receive. Research to find the credit card that works best for your situation.

Is there an annual fee?

While an annual fee may not be a deal breaker, it is best to know if the rewards or benefits of the card are worth the amount the credit card company charges annually. Annual fees range from $55-105/year depending on the type of credit card. If you do not plan on using a rewards card in order to earn more than that in points or credits in the year, then this card may not be the right one for you.

Is there an introductory period?

Introductory periods are great because you can usually get 0% interest for some extended period of time. If you plan to make a big purchase that you cannot pay for in cash immediately, but will be able to afford in a few months, this option could be perfect for you. This means that you could make your purchase, but not pay interest on it for a number of months. If you do not plan on paying off your purchases quickly, then it may be best to reconsider getting a new credit card.

Are balance transfers free?

If you are trying to pay off your debt, balance transfers can really help. Balance transfers allow you to transfer the balance of one credit card to another. Why would you do this? Let’s say you have a credit card with a 20% interest rate and one with an 8% interest rate. If you want to pay the credit card off, transferring it to the lower interest rate would allow you to pay more towards the principal, or non interest balance, which will allow you to pay the credit card off faster.

What is the APR?

When most people apply for a credit card, they look at all of the introductory benefits of the card. Well, let’s say you apply for a new credit card with the intention of paying the balance off within a few months. What happens if you lose your job during this time? You may no longer be able to pay off the card, but you will still have the balance due. Once your introductory period is over, you will have to pay the standard APR. If the interest rate is high, you could end up paying much more than you bargained for. Pay attention to the standard rates before applying for a new card.

Are there any rewards points offered?

Rewards cards can range from cash-back options to redeemable points. Consider your need for a credit card and use that to decide whether or not you should look for a rewards or loyalty cards. If you are planning a vacation in the next year, you may decide that a travel card with a introductory points would be most beneficial. Many of these cards will provide points for each dollar spent on approved purchases that can be used for travel, food, or cash.

Which credit cards do you prefer?

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5 Things You Should Know About Credit

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Your credit report and your credit score are not the same

While your credit score is calculated by the information on your credit report, these two things are different. Your credit report is made up of all inquiries, account history, debt accounts, public records, and much more information. The score may determine the interest rate you are offered on an offer of credit, but many times, the credit history on your report will decide if you are approved or declined for credit.

Credit reports help you stop fraud

Viewing your free credit reports once a year, as suggested by the federal government, can help to spot and stop fraud. If someone has stolen your identity, there will likely be credit inquiries and/or accounts that you are not aware of. You should contact the credit bureaus immediately and start the process of regaining your identity.

Your credit score is based on 5 areas

There are 5 core areas that make up a credit score. They are credit inquiries, credit utilization, average credit age, payment history, and account mix.

Credit inquiries refers to companies reviewing your credit report after you have submitted an application. These inquiries stay on your credit report for two years; however, only the previous 12 months will have an effect on your credit score.

Credit utilization accounts for a large percentage of your credit score because it is based on the amount you currently owe your creditors. Installment loans such as, mortgage, car notes, etc. are included in this number; however, revolving credit, such as credit cards, has the biggest impact on this score.

Credit age measures how long you have had a credit history and how long your accounts have been open. The longer you have had credit, the better this score will be. This is why it’s important to not close old accounts if not needed.

Payment history has the largest impact on  your score because it is what tells a creditor that you will make the necessary payments to them in a timely fashion. It is very important to pay your accounts on time to prevent losing excessive points for late or derogatory payments.

Account mix is the mixture of different account types on your credit report. Having a mix of accounts including credit cards, auto loans, mortgage loans, etc. will help to improve this section.

Your credit score influences your interest rates

If you are in the market for a new home or car purchase, your credit score will impact the amount you are paying. Interest rates are generally decided based on your credit score; the higher the score, the lower the interest rates. Be sure to shop around for the best rates before buying a new home or car.

Joint accounts affects your credit the same as individual accounts

Contrary to popular belief, if you co-sign a loan with someone, you are held equally liable for repayment of the loan. Therefore, if the loan defaults, your credit score will be impacted.

Tell us something you’ve learned about your credit score!

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How Secured Loans Help Build Credit

pablo-7What is a secured loan?

A secured loan is money that you borrow from a financial institution that is secured against an asset that you own or money that you place on hold. These loans are great for people who want to build or repair their credit because they do not require credit history and they have lower interest rates.

If you are securing your savings account, you are able to build credit with an amount of money that you have already saved. Some institutions may require a minimum balance in order to fund a loan, but most of them have low minimum requirements, making this type of loan possible for many Americans.

What is an unsecured loan?

An unsecured loan is money borrowed from a bank or lender where you agree to make payments until the loan is paid in full. Because the loan isn’t secured on your home or car, the interest rates are usually higher. Missing payments could lead to late fees and negative history reported to the credit bureau.

Securing assets

Generally, you can secure a home or car can be used to secure a loan. If you are interested in either of these options, you will want to ensure you own the asset you would like to use. You can talk to your financial institution regarding their specific requirements.

What happens if you don’t make payments?

If you decide to secure your home or car for a secured loan, you run the risk of having a foreclosure or repossessed car if a payment is missed. Therefore, you will want to ensure that you are able to make the payments as required prior to taking out the loan.

How these improve credit score and history

Over time, a secured loan helps to establish a positive credit history. If you have little, no, or derogatory credit, talk to your financial institution to find the best loan for you. If a secured credit card is available, your credit purchasing amount will increase as you make payments. Be sure to ask about any additional fees to have these accounts.

Have you tried a secured loan? Share your experience with us.

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