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Boost Your Financial Knowledge

Whether you’re shopping around for competitive financing terms, securing your first loan or trying to build credit, understanding the basics of banking is essential. Use our dropdown menu of educational resources below to manage your finances with confidence.

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  • Auto Financing Tips
    • Shop around for current competitive financing terms before visiting the dealership. Compare the APRs of alternative lenders
    • Obtain loan pre-approval so that you know what you can and what you should commit to in a loan agreement
    • Review your credit report and correct errors well in advance of applying for a loan.
    • Make the largest down payment you can.
  • Can I borrow money?

    The ability to borrow money is a necessity at one time or another in most of our lives. Credit is an indicator or measure of that ability. In order to be able to borrow money, and to borrow wisely, there are certain aspects of credit, and of having credit, that you should understand.

  • How much should I pay for a car?

    Lenders will help you determine how much you are able to borrow to purchase a car. This involves a review of your monthly expenses in relation to your income. This is referred to as pre-approval. It is a service usually provided for no fee, and you are not obliged to obtain your financing from that lender. If you qualify for a large amount of money for a car loan you should then consider whether you really "want" to commit to the correspondingly high monthly payments. As you increase your monthly financial obligations these will reduce your borrowing power for other purchases, your ability to save money, and what may remain for your discretionary spending.

    Obtaining a loan to purchase a car is also referred to as automobile financing. Car loans may be used for new or used cars. Your car is the collateral for the loan, so the lender actually, at least partially, owns the car until the loan is paid in full. The title shows who owns the car and the lender will sign it over to you when the loan is paid off. If you do not fulfill the terms of the loan then the bank is able to repossess the car, sell it, and use the proceeds to apply to the loan balance. If those funds are insufficient to pay off the balance then you will owe that amount to get the lender. Loans for new cars are usually for 3-7 years, while used car loans are usually for shorter terms, 2-4 years.

    The interest rates for car loans vary from lender to lender so be sure to shop around for the best deal before you commit to a lending agreement.

    Car loans are commonly available from:

    • Credit unions
    • Banks
    • Financing companies
    • Dealerships

    You should be aware that dealers are sometimes able to offer low loan rates (and/or lower lease rates) for particular models of cars. These special rates are most commonly promotions that are underwritten by the automobile manufacturer in order to assist in the sale of those models. It is also common that there are additional conditions required of you in order to qualify for these promotions. You may need to:

    • Provide a larger down payment
    • Agree to a shorter duration for the loan
    • Provide a higher credit rating
    • Pay an extra fee to participate
  • Is borrowing against my home dangerous?

    If you are unable to make your monthly payments on your home equity loan you could lose your home. Because of this risk you have a legal right as a borrower to completely reconsider your decision for up to three days after signing a home equity loan agreement. You have the right to cancel the loan without a penalty. This protective right applies when you use your primary home as collateral.

  • Secured installment loan or rent-to-own -- which one?

    There are important differences between secured installment loans and rent-to-own services:

    • Secured installment loans are repaid in equal monthly amounts for an agreed period. The collateral used to guarantee the loan is the item you purchased with the loan. You are able to use the item you purchased while you are paying down the loan.
    • Rent-to-own is a rental agreement that allows you to apply rent payments to the purchase price. You are not required to purchase the item. If you do decide to purchase the item, the store sets up a plan whereby you rent the item until it is paid off. The store remains the legal owner of the item until you make the final payment. If a payment is missed, the store may repossess the item from you and you will be left with nothing.

    Installment loans charge interest and you are able to evaluate one to another by comparing APRs. Rent-to-own agreements are NOT loans, so no interest is charged, but other fees may be. Often by the time you own the item you will have paid much more than if you had originally purchased in cash.

  • Should I lease or buy a new car?

    There are differences between leasing and buying a car that may be important to you. One is not inherently better or worse than the other. The merits of one may match your particular needs better than the other. Consider the following:

    • Ownership. A lease agreement is essentially a long-term rental agreement. The dealer continues to own the car while you have the ability to drive it. You send payments to the dealership every month according to the lease agreement. These agreements are usually for periods of 2 to 5 years. When the lease is over you return the car to the dealer. In comparison, if you obtained a car using an installment loan, you end up owning the car following the last loan payment at which point the lender would send you the title of ownership.
    • Damage vs. normal wear and tear. Leases charge for vehicle damages that exceed normal wear and tear. If you were to buy the car using an installment loan there would be nothing in that agreement that concerns wear and tear.
    • Monthly payment. Car leases usually have lower monthly payments than car loans. This is primarily because the dealer is the owner of the car at the end of the lease. You usually have the option of purchasing the car at the end of the lease, but the cost may be higher than you are interested in paying. The total cost that you will have paid in this case will be more than if you had initially purchased the car.
    • Mileage. Leases usually put a cap on how many miles you drive per year. If you exceed the amount designated in the lease agreement you must pay a per mile fee on the additional miles when you return of the car to the dealership. You must pay the dealer for each additional mile driven at the rate stated in your lease contract. Typical charges are between 0.10 and 0.15 per additional mile. This would correspond to a $100 to $150 charge for each additional 1000 miles you put on the car. In comparison, if you were to buy the car there would be no mileage restrictions or penalties in the loan agreement.
    • Insurance rates. Automobile insurance usually costs more if you lease than if you buy the car with a loan. It is common that more coverage is required for leased vehicles. Furthermore, you should be aware of "gap" insurance. That kind of insurance pays for the difference between what ordinary automobile insurance coverage pays for a "total" loss based on book value and the amount that would need to be paid to the dealership based on the original price of the vehicle adjusted by the lease payments made.

    Many people prefer the benefits of leasing. Many people prefer the benefits of installment loan financing. You must decide for yourself which option best serves your needs.

  • The criteria for credit -- the three Cs

    Expect lenders to review the three Cs to evaluate whether you qualify for a loan -- capacity, capital, and character.

    • Capacity refers to your ability to meet your payment obligations. Lenders assess whether you have a sufficient source of ongoing revenue to pay your current bills and other debts plus meet the additional financial obligation related to the loan you seek.
    • Capital refers to your savings and other assets that may be used as collateral for a loan.
    • Character refers to your demonstrated behavior, specifically how good your history is of having paid bills or debts on time. The lender's primary source of information in this regard is your credit report.
  • What about dealer financing?

    Dealers are inclined to maximize the profit they receive from the sale of a car to you. Some dealers will try to add to their profit by providing you financing terms that are far worse for you (but good for them) than those that you could obtain yourself directly from a lending institution. If you apply for a loan at the dealership:

    • Negotiate the best price on the car.
    • Do not make your decision immediately in the showroom. Make a record of the terms of the financing and bring them home so that you may study them and understand them fully before you make a commitment. Give yourself sufficient time to review whether you really find those terms acceptable for the long-term commitment that you are making when you sign the agreement.
    • Watch out for penalties. Reject loans with penalties for paying it off early.
    • If you must leave a deposit get it in writing that it is refundable if you change your mind about buying the car.
    • Don't automatically sign up for "extra" service contracts and extended warranties. Think about those away from the showroom as well before you decide to commit to them.
    • Don't fall prey to advertisements that say you qualify for a deal even if you have bad credit. These are "too good to be true" and will most likely end up hurting you financially or cost you more money in the long run.
  • What are maintenance costs?

    There are maintenance fees that many financial institutions charge for administrative activities such as reviewing loan applications and routine servicing of accounts. Many, if not most, credit unions waive some of these fees as a benefit of membership.

    There are annual fees automatically charged by many credit card providers to keep those cards active, and to pay for the specific advantages linked with that particular card. There are sometimes fees for cash advances. There are almost always fees charged for exceeding your credit limit, as well as fees charged for credit card and loan payments that are late.

  • What can be used as collateral?
    • Automobile
    • House
    • Savings
    • Negotiable securities
  • What does rent-to-own mean?

    Rent-to-own agreements allow you to rent an item, usually from a retail store, until you pay enough to own it. The store actually owns the item until you make the final payment according to the agreement. If you miss a payment the store has the right to repossess the item. In that case you will lose the item and you will not receive any of the money back that you paid.

    Rent-to-own arrangements are not loans. There is no interest charged. There usually is an additional amount of money above the cash purchase price that you will pay for the convenience of not paying for the item all at once. Renting-to-own is usually more expensive than taking out an installment loan. There is almost always a cost differential whenever you take advantage of the convenience of paying over time. To the lender the fee is compensation for the risks that they accept in the agreement.

  • What is a home equity loan?

    If you are a home owner you may borrow money against its value. More precisely, you may borrow up to a percentage of the value that you actually own. The value that you actually own is referred to as your home equity. A loan against the equity that you have in your home is referred to as a home equity loan. Home equity loans may be used for any purpose. They are commonly used to consolidate other loans and to take advantage of lower interest rates. Many people use them as a source of money for making home improvements. Home equity loans are commonly used for funding education.

    Home equity loans may take the form of a home equity line of credit. A line of credit is useful if you need to borrow sums of money at various intervals of time while you accrue interest only on the amount of the balance at any point in time. The maximum outstanding balance you may have distributed to you at any time with a home equity line of credit is usually a percentage of the amount of equity you have in your home as determined by an appraisal performed at the initiation of the agreement.

    Common advantages of home equity loans:

    • They bear lower interest rates than most other types of loans.
    • The interest you pay may be deductible from your taxes.
  • What is an unsecured loan?

    An unsecured loan is one that is not guaranteed by putting your asset(s) at risk as collateral. Because this type of loan is inherently a greater lending risk the interest rates are usually higher than for secured loans.

  • What is collateral?

    Collateral is the asset that you put at risk or that the lender will become owner of if you default or fail to pay back the loan according to the terms of the lending agreement.

    It is common that the car you are purchasing or the house you are buying with the loan will be identified in the agreement as the collateral. Sometimes you may use other assets as collateral if the lender agrees. The lender usually has the legal right to take ownership of the collateral if you fail to make payments on the loan consistent with the terms of the agreement.

  • What is credit?

    Credit is the amount of money you are able to borrow -- usually to make purchases. A common way in which people are extended credit is via a loan. When you are loaned money you are agreeing to accept money from the lender and to pay that money back according to specific terms and with interest. The interest is the additional amount of money you agree to pay back to the lender as a fee for the convenience of using their money. This usable amount of money from the lender is referred to as the loan principal. Interest is the cost of borrowing money.

    A borrowing or loan agreement is serious and binding. It is a legal document. If you adhere to the terms of paying back the loan then that positive behavior has a positive influence on your overall credit rating. If you are late in making payments or you stop making payments then your credit rating will suffer and you may run other risks as a result. Properly used credit can be a very good thing. Improperly used it can be a source of problems.

    If you have good credit it means that you have a history of paying your debts and making regular payments on time. Having a good credit history makes it easier to borrow money. Having a poor credit history makes it more difficult to borrow money.

  • What is the interest cost of credit?

    Interest is the amount of money paid to the lender for the convenience of using their money. Interest is the cost of credit. Interest rates may be variable or fixed:

    • A variable interest rate is one that may change during the lifetime of the loan, but the extent and the timing of those changes are specified by terms in the contract.
    • A fixed interest rate means that it remains constant throughout the term of the loan.
  • When considering a home equity loan...
    • Do not agree if you feel that you may not have enough consistent income to make the monthly payments.
    • Do not let anyone pressure you into a decision.
    • Do ask questions until you are satisfied that you understand completely.
    • Do shop for the best rates.
    • Do remember that you have three days to change your mind, back out of the deal without any penalty, after you sign the agreement.
  • Why is credit important?
    • Credit may be helpful to you as an immediate source of money in an emergency.
    • Credit allows you to pay for purchases over time rather than all at once in cash.
    • Because of its inherent ability to extend payments for purchases over time your credit enables you to make larger purchases that would otherwise be out of your reach if you were to rely exclusively on cash, i.e., purchases such as a car or a house.