Archive for Loans

Why Do I Need To Get Preapproved For A Loan?

 
Q: I’m in the market for a new home, and everyone I talk to, from friends to financial advisors, suggests I get preapproved for a mortgage before I start house hunting. Why is this so important?
house with sold sign

Photo Credit: http://ow.ly/MP2m30gxTCA

 

A: You’re actually on the receiving end of great advice. When looking to take out a large loan, whether it’s for purchasing a home or buying a car, having that preapproval in hand before you start your search is crucial.

Depending upon the type of loan, the process of getting preapproved for a loan can take time. The lender will begin by asking for your financial history and other personal information. If you have a co-borrower, the lender will need this information about them as well.
 
You’ll be asked to provide your Social Security Number (SSN) and for permission to allow the lender to access your credit report. If the information you provide is satisfactory, as is your credit report, the lender will begin constructing the details of your loan. When they have determined how large of a loan you will be eligible for, they will grant you a preapproval letter. The letter will also detail your estimated interest rate on the loan, though that will sometimes also depend upon the specifics of your purchase, such as the year and condition of a car or appraisal on a home.
 
Having your preapproval letter will shorten the loan process significantly when you’re actually ready to take out the loan. However, that is only a small benefit of getting preapproved before you start “shopping.”
Here are some other advantages of getting preapproved for a loan:

1.) You’ll know what you can afford

Your preapproval will tell you exactly what you can afford. This way, you’ll avoid being disappointed later when you have your heart set on a certain home only to be told you can’t swing it financially. Knowing how large a loan you’ll qualify for will simplify your search and get you into your new home or car sooner.
Be sure to calculate other monthly costs, such as property taxes, home insurance and increased auto insurance rates when determining the actual amount of money you’ll need to shell out each month.

2.) Don’t get taken for a ride

Picture this scene at a car dealership:
 
Salesperson: So, you’re here to buy a new car! What are you looking for?
You: Well, I want something with a smooth ride and –
Salesperson: Got it. And how much of a monthly payment can you afford?
You: Weeelll, I think I can swing up to $200 a month, but I’d rather something closer to $150 if you —
Salesperson: Step right this way please! Let me show our new line of Camrys at just $205 a month! They have the most luxurious feel and the ride is smooth as butter!
 
What happened here is, quite simply, a salesperson looking to make the most money out of a customer. When you’re unsure about how much you can spend, the dealer will capitalize on your uncertainty and try to sell you a car that just barely skims the maximum amount you’ve decided you can afford.
 
Also, when you name a monthly payment you can manage, the dealer will work with that number instead of talking about the price of the car. They may try to inflate the payment with charges and fees just because they fit within your named payment amount.
 
In contrast, when you show up at the dealer with a preapproval in hand, the salesman will have to show you cars with price tags that fit within your loan amount.
 
Don’t get taken for a ride; get your preapproval before you set foot in the dealer shop!

3.) Be taken seriously

A car dealer will take you a lot more seriously when you wave that preapproval in their face, since having that information in hand shows you’re ready to buy.
 
When purchasing a home, the same rule holds true. A realtor will be able to assist you more efficiently when you know exactly how much house you can afford. They may also give you better service since you’re showing that you’re serious about buying a home. In fact, many realtors refuse to show homes to buyers who don’t have a preapproval in hand.

4.) Know you have financing you can trust

When you show up at the car dealership with a preapproval from your credit union, you know the deal is in your best interest. Many auto shops have access to several financing options and they’re almost always going to put customers into financing options that are in their own wallet’s best interests.

5.) Purchase your dream home

A preapproval makes you a valuable customer. It also helps you stand out from the pack. If you’re looking to buy a home in a competitive market, you may be competing with several other buyers for the same house. Having your preapproval will give you a leg up on bidding wars. A seller will be more eager to work with someone who’s already started the mortgage process. You can end your search sooner with a preapproval!
 
In the market for a new home or car? Don’t forget to call, click, or stop by Section 705 Federal Credit Union to hear about our fantastic rates on mortgage and auto loans!

Connect with us on FacebookInstagramTwitter, or YouTube!

 

Feeling Stuck In Your Car Loan? Shop Around!

How much could refinancing your car loan save you?

car loan applicationBills are a lot like bad weather. They’re going to come anyway, so you might as well not try to fix them, right? For some bills, that’s the case. For others, though, you can make a big difference in your monthly budget with a little legwork.
 
One of the bills you can change is your car payment. Refinancing your vehicle loan can lead to a lower monthly payment, a shorter term, or both! It depends on a wide range of factors, including the value of your vehicle, how much you owe on your current loan, and your credit standing.
 
If any of these factors have changed since you bought your car, you owe it to yourself to check out your refinancing options. Let’s look at some common life changes and when they might be cause to look at refinancing. Read on to learn about three scenarios where refinancing makes sense for your car or truck:

1.) Your credit improves

One of the biggest factors in determining your auto loan status is your credit score. When your lender is building a loan package, a credit report is pulled as a central part of that process. That number helps define your interest rate, whether or not you’ll have to pay a premium for insurance, and what other fees your lender might charge.
 
It’s worth keeping a copy of the credit report your lender pulled. That can let you see if your credit score has improved. It can take as little as nine months of steady repayment to boost your credit score, and that could result in a cheaper loan if you refinance.
 
If you didn’t have much experience with credit when you purchased your vehicle, refinancing can do you a world of good. Interest rates as high as 18% are common for borrowers who have little to no credit history. Having even a few months of solid payments on your side can cut that rate in half or more.

2.) You didn’t shop around before you borrowed

Many people feel railroaded throughout the car-buying process. They pick a car they like, then they are told what the price is, what the monthly payment is and everything else. It may seem like the choice of lenders for your car loan is predetermined.
 
Dealers tend to have a smaller range of lenders with whom they work exclusively. Those lenders know they have limited exposure to competition, so they can charge slightly higher fees and interest rates. By doing your own comparison shopping, you can save quite a bit on both the loan and any ancillary insurances or warranties you may have purchased. Dealer rates tend to be 1 to 1.5% higher than those offered at smaller lenders, like credit unions.
 
If you’ve never shopped around for a car loan, it’s definitely worth doing. By getting multiple offers, you can ensure you’re getting the best price available for your loan. Try to do your shopping inside a 15-day period. Otherwise, the multiple checks on your credit could negatively impact your credit score.

3.) You need to change your monthly payment

You may be in a much better financial situation now than when you bought your car. You may have a better job or more security. You may have paid off credit card or other debt. All of these things free up how much you can pay per month.
 
Most people don’t go into the refinancing process looking to increase their monthly payment, but you can save yourself money in the long term by committing to a faster repayment plan. If you can afford to pay more per month now, you can pay off the balance on your car faster. Shorter term loans usually also have lower interest rates, since the lender assumes less risk in making the loan. Once the car is paid off, you’ll have all that money to devote to other saving or spending priorities.
 
On the other hand, if money is tight, it might be a good idea to refinance into a longer term. While you might end up paying more in interest, you can reduce your monthly payment and save the money you need right now.
 

How much could you save on your car loan? Talk to a loan officer, apply, or try our loan calculator to see the difference. 

 

The Two Kinds of Interest: Earning V Paying

Two Kinds of Interest: Earning V Paying Interest

Interest Rate 101!

Albert Einstein once claimed the most powerful force in the universe was compound interest.  That’s pretty impressive praise from the person whose work helped create nuclear power and atomic bombs.  While interest can be powerful, it can also be confusing, because when people talk about it on the news, they mostly talk about it in terms of vague forces and odd numbers.  Here’s a quick rundown on what interest is, as well as how it affects your life today and in the future.
 
When someone borrows money, they pay back more than they borrow.  Whatever extra money they pay back is called interest, and that’s one way that financial institutions and credit card companies make money. That money is basically paying the lender for the risk they take, since there is a chance some of the money wouldn’t get paid back. So interest rates can go up or down depending on how likely the money is to be paid back.  Credit unions like Section 705 Federal Credit Union work in a lot of the same ways, except that the money they make from interest is shared with credit union members, like you and your family.
 
So, a high interest rate must be bad, because that means people have to pay more money back, right? Well, it’s not really that simple. If it were that easy to understand, then interest rates wouldn’t be on the news all the time.  There’s another kind of interest, which is what you earn on your money.  At a credit union interest on savings accounts is referred to as “dividend” because it is what you are paid for your share of the cooperative.
 
When you deposit money into your savings account, it’s like we’re borrowing money from you.  After all, we’re holding onto your money, so we pay you dividends.  The more money you put into your account, the more we pay you.  So, when you save money, you want a higher dividend rate, which allows you to make more money as your savings account balance increases.
 
That’s the confusing part about interest: Some people want a high rate and others want a low rate.  Unfortunately, those rates are part of everything around you:  If you own your home, you’ll want a low interest rate.  If you’re saving money for college, you’ll want a high dividend rate.  Just about any business that wants to open new locations or get new equipment is going to need a loan, so they’ll want low interest rates.  Retired people who have money saved are wise to seek out the highest dividend rates so their retirement savings will last.
 
Trying to balance all of these people is difficult, which is why the government created a central bank, known as the Federal Reserve (or the Fed) to manage all of this.  It can raise or lower the rates for everyone, but it can’t do both at the same time.  The Fed spends a lot of time figuring out what’s best for the country, and it tries to keep its work secret until it’s ready to reveal whether it’s going to raise or lower rates.  It sends out secret shoppers to check the prices on thousands of goods around the country, and uses all that information to figure out what to do.
 
Hopefully, the next time you’re watching the news, it’ll be more interesting when they talk about interest rates.  It might sound like boring business talk and math, but really it’s a report on secret government shopping spies who are working to figure out whether we need businesses to open up new locations or your college fund to grow.
 
LINKS: 
 

Dealer Auto Finance Scams

So, you’re buying a car? Don’t fall for these dealer auto finance scams.

Buying a car? Hold out until the end of the month! Dealers must meet quotas and may lower the prices.You’ve made it past the tedious comparison shopping, you’ve finished the detail-oriented research and you’ve even endured the haggling with the salesperson. Your tongue probably tastes like that terrible coffee they use in every car dealership in America, the kids are probably getting cranky and it’s pretty likely you’re thinking about everything else you could have done with your weekend. But, it’s almost over.

“I just gotta go in to see the finance manager, sign some papers, and we’re on our way home.” That feeling of relief washes over you, you let your guard down, and you don’t even realize until too late that you’re suddenly in a much higher monthly loan payment or longer term than you’d planned for. What, in the name of Lee Iacocca, just happened?

The stereotype of car dealerships usually involves a salesman with a pencil moustache and a polyester jacket who lies through his nicotine-yellowed teeth about undercoating or telling you how the used car you were looking at has only ever been driven to church on Sundays. That guy is easy to spot. If the salesperson lies to you, you have some legal protections. If you Google before you go, you’ll even know most of the tricks the salesperson might roll out. What you’re less protected against are the tricks that happen in the finance office. Below, we’ll talk about what to look for and how to avoid dealer finance scams so you don’t spend too much on your next car.

1.) Keep your wits about you. Never let your guard down at the dealership. Every person there wants to make money off of you and they’re very competitive. Even if he or she says that they don’t want or receive commission on your particular sale (“I just need to hit my quota” or “One more sale puts me at my bonus, I’ll take a loss on this one”), that person is almost certainly a very competitive person who’s going to be comparing notes with his or her coworkers this afternoon.

The finance office is designed to put you at ease, so you’ll lower your guard. The finance office is probably in a different part of the building, with different lighting and ambience. The offices may be appreciably nicer, with actual walls instead of cubicles, some of which may have art hanging on them. Clearly, the person you’re talking to is important, having been in such a nice office for so long.

And that’s what should scare you. The people in the finance office are often not financial experts by trade; after all they don’t need to do your taxes or invest your money. They only have to understand one transaction. Therefore, many dealerships will send their best salespeople to finance classes so they can have a smooth closer at the end of each transaction. Don’t let the gray hair fool you; the person in front of you is just as competitive and sharp as the one on the sales floor. After all, to get this office, the finance officer had to be really fantastic at making sales.

2.) Know your credit score. There are a lot of reasons to know your credit score before you make a large purchase, including the fact that you should check your credit report for irregularities fairly often, whether or not you’re buying anything. When you buy a car, it’s especially important. Finance managers like to use customer ignorance against them, and if you don’t know your up-to-date credit history, then they’ll smell blood in the water.

While the most obvious example is to try to charge you more than you need to pay, you might not expect that another classic is to offer you a loan at a far lower rate than you deserve. The idea is to offer you a rate so low you can’t say no, then wait a few weeks before telling you that the financing unexpectedly fell through. Don’t worry, he or she will tell you, you can keep the car. There’s a clause in your contract that says “subject to financing,” so he or she found a different lender. The good news turns sour, however, because your new rate is through the roof and you’ve already signed the contract and taken delivery of the vehicle.

Don’t take a loan at a rate that’s too good to be true. If you’re tempted by an offer in the finance office, ask how long it’ll be valid. Then, take it home and show it to your lawyer, so someone you trust can tell you if it’s on the up-and-up. If you don’t want to pay your attorney’s rate, you can also bring it to us. We’ll take a look, let you know about any potential pitfalls, and we might even be able to beat that rate or provide a better term, saving you even more money. Remember, if they say that the deal expires today (particularly on the weekend) or that you can’t take your contract with you, it’s almost certainly because they don’t want you to take the time to think about what you’re doing.

It’s never a good idea to trust someone who doesn’t want you to think.

3.) Walk in with an offer. Then, walk out with an offer. The best way to get a fantastic rate on a loan for a new or used car is to finance through Section 705 Federal Credit Union. We aren’t looking to make a profit, we’re looking to support our members. We’re also trustworthy – it’s why you’re here in the first place, after all – so you know our great rates aren’t scams. So, come see us first and you can walk into the dealership with your loan financing already approved. You’ll know how much you can spend, taking the pain out of negotiating. You’ll also know what interest rate you’ll get and have a pretty good assurance that your monthly payment will be manageable. Plus, you’ll only need to run your credit score once, so you don’t have to worry about losing points from looking it up too often.

Don’t let the salesperson know that you’ve already gotten financing, though. The dealership knows how much it wants to make on the transaction, and it doesn’t care if that money comes out of the trade-in, the sale, or the financing. If you know how much your trade-in is worth and you have your financing taken care of, then the only place they can make money is on the sales price. If they know that, they’ll be less flexible on the sales price. Let them think that if they give in a little on the sales price, they’ll be able to make it up in financing.

But you also need to be able to walk away. Just like any other part of the sale, whomever can walk away controls the deal. If the terms of the loan the dealer offers you sound great, thank them and take them with you and let’s compare notes. We’re here for you and we promise to burn the midnight oil figuring out what we can do to make the best deal you can get.
 
This might all seem a little excessive. Maybe you’re good at negotiating, you’ve looked up all the dealer scams and dirty tricks, and you can get the loan really close to what you want. You’re only off by $50 or so, and if you just sign the papers you can take the car home tonight and be done with the whole process. 

Remember, $50 may not sound like much, but over a 60-month loan, that’s $3,000 plus interest. Who would you rather see pocket that $3,000: the dealership or your family? To put it another way: if your child racked up $50 in extra data charges on your phone bill, how would you feel? What if he or she did it every month for five years? Let’s beat the finance office together.

Financial Resources: