Why High Payments Don’t Have to Bog You Down

 

Many Americans currently paying off a car loan may realize that their payments are mostly going toward the interest rather than the actual cost of the car. Though many lenders and dealerships will offer car loans, some consumers are more concerned with having a new car than with the terms of their loan. Unfortunately, this is a common problem, but there is a real solution.

One solution is to get an auto loan refinanced in order to get a lower interest rate. This way, consumers  put money toward paying off the cost of their vehicle rather than paying toward interest. It is typically better to refinance sooner than later, as the interest on any loan accrues each day – therefore, getting a new loan early on can potentially save quite a bit of money.

Of course, there is one way to prevent paying too much in interest altogether: pay attention to loan terms. If there is both a high interest rate and a long term, this is a tell-tale sign that your loan amount will significantly exceed the value of your vehicle (LTV ratio).

Most Americans Can’t Afford Auto Repairs

Jill Cornfield, a retirement analyst for Bankrate, notes that “if you are human, have a pet, kids, a house or a place to live, something is going to happen that will cost you money.”

However, our changing economy, demographics, and spending patterns has left many Americans strapped for cash, and more have had to sacrifice proper car maintenance because they just don’t have the funds to pay for it.

AAA recently conducted a study that led to an alarming statistic – 60 percent of Americans don’t have enough savings to cover a $500-$1,000 unexpected expense, such as a brake malfunction or a new radiator.

Instead of worrying about such problems, those in need should consider auto loan refinancing as a way to lower their monthly payment. This would give them extra funds to put towards emergency situations such necessary repairs.

Additionally, purchasing a vehicle service contract, though a potentially higher upfront cost, could save money in the long run because they cover the expensive parts and repairs. This will reduce the potential for a vehicular issue to unwind a person financially.

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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