3 Financial Decisions To Make Before Interest Rates Start To Climb

Interest rates are headed back up. Every economic indicator, from employment reports to bond market performance, points in this direction. If you’ve been watching financial news shows, you’ve definitely heard this prediction. Yet to most observers, it’s somewhat abstract and far away. Sure, interest rates are going up; so what? And when?

You’ve no doubt heard that if you’re thinking about refinancing your home or buying a new one, now is the key time. That’s true, but that’s not the whole story. Here are three other financial decisions that can save you money in the long run if you make them soon.

1.) Consolidating your unsecured debt

If you’re carrying unsecured debt (credit cards, personal loans, or payday loans), you might find yourself paying a lot more soon. Don’t assume you are locked into your current rate. Most often, these kinds of debts use an adjustable interest rate. How much it costs to service your credit card debt is determined, among other factors, by the prime rate as set by the Federal Reserve. As the interest rates that the central bank charges other financial institutions rise, the rate your credit card provider charges you will probably also rise.

If you owe $7,000 on your credit cards (the American household average), a one percent change in the interest rate would mean an increase of $70 to your balance every month. That could mean an increase of as much as $15 on minimum monthly payments. That’s a tough hit, and it will also just make it harder to dig yourself out of
debt trouble.

It’s best to pay off this debt as quickly as possible. If you have a large balance, though, consider a debt consolidation loan. These loans have fixed interest rates, so your debt won’t get more expensive in response to changes in the economy. Working with a representative from your local credit union can keep this cost from consuming a bigger portion of your budget.

2.) Buying a new car

If you’ve been on the fence about upgrading your personal transportation or getting another vehicle for a new driver, the coming interest rate rise might be the final push you need. The rates that lenders can offer on car loans are influenced by the prime rate, too. An increase in the prime rate means car loans are going to get more expensive, thus decreasing your buying power.

For a $20,000 car, a one percent increase in interest rates means paying $10 more a month on a 5-year car loan. It means paying $400 more over the lifetime of the loan. That’s a direct decrease in the amount of car you can afford. Worse yet, dealerships may run promotions promising no interest financing for a portion of the loan. These promotions almost always revert to an adjustable rate based, in part, on the prime rate.

As a credit union member, you can get access to fixed rate auto loans that allow you to get the most car for your money. You can also plan with confidence knowing the portion of your budget devoted to paying your car note. You can even negotiate from a position of power knowing you’ve got financing squared away with a lender who’s got your back.

3.) Self-directed retirement planning

If you take personal care of your retirement funds, you need to prepare yourself for the market changes that will result from rising interest rates. These rates will be coupled with a decrease in bond rates. This change will send brokerage investors running from long-term growth bonds into securities and commodities. This market shift will likely produce a great deal of short-term instability, as speculators try to time the shift in the market. The resulting market volatility can place your retirement savings at risk.

Earnings on deposits rise when the cost of loans increases. The rates you can earn on certificates and savings accounts will go up in response to changes in the prime rate. Best of all, money you put into these accounts will be safe from the volatility of the market as changes occur in the economy or as inflation rises. In most instances, you also have the option of moving funds to other types of accounts and investments when the time is right for you.

It’s easy to think of the decisions of the Federal Reserve as occurring in another separate world. The events of Washington, DC can seem far removed from your community. The truth is, in an increasingly interconnected world, timing your personal decisions to take advantage of changes in policy can save (or make) you money in the long term. This may not be enough motivation to buy a car you don’t need or consolidate a $100 credit card bill. But, if you’re making big financial decisions, you need to be smart about your timing and act fast. Stop into your local credit union office to see how they can help you before it’s too late!

Do MORE of Everything this Summer

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With a Home Equity Line of Credit at an Unbeatable APR* until 2016!

With a home equity line of credit from NASA FCU, you’ll be able to take that special summer vacation, spiff up the house, pay for those unexpected expenses—or all of the above! And, for a limited time, when you open a home equity line of credit with NASA FCU, you can lock in a low intro 2.99% APR* until January 3, 2016! After the introductory period, rates are variable and start as low as 4.00% APR.

With a low intro 2.99% APR until January 3, 2016, you can put your equity to work for you and save more—with no points, closing costs^ or fees! Plus, it’s never been easier to get more from the equity in your home. Use your credit line—anytime—through eBranch or handy convenience checks. And the interest you pay is potentially tax deductible.**

So what are you waiting for? Apply online or call 1-888-NASA FCU, ext. 802 today.

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OR the Smart, Affordable Signature Loan!

Have expenses or a major purchase on the horizon? Or maybe you’d like to roll your higher interest loans into one lower monthly payment. Whatever your case may be, you can now easily get the cash you need—and do more of what you want—with the NASA FCU Signature Loan.

The Signature Loan is a smart way to manage your money, offering an affordable and predictable payment plan. You can use loan proceeds to pay for upcoming expenses or consolidate existing balances—and rest assured knowing that your interest rate and monthly payment are fixed for the life of your loan.

Apply for a Signature Loan and do more today. Apply online, call 1-888-NASA-FCU (627-2328), ext. 200, or visit your local branch, to take advantage of this easy and affordable way to pay for expenses.

 

*APR=Annual Percentage Rate. Introductory APR is good until January 3, 2016. Upon expiration of the intro rate, all balances will accrue interest at the variable APR in effect for your account. APRs are based on evaluation of the applicant’s credit. Your APR may vary. Other conditions apply. 4.00% Floor Rate regardless of a temporary lower Prime Rate. The APR is a variable rate and is based on the Prime rate as disclosed in The Wall Street Journal plus or minus a margin based on your credit history. The rate is subject to change. Maximum APR is 18%.

^No closing cost offer available one time only per property and for primary residence only. Closing costs must be repaid if line is closed before 24 months. For loan amounts of $100,000, closing costs typically range between $1,200 and $2,100. Closing costs can vary based on the location of the property and the amount of the Loan. Fixed Equity Loan Example: A $100,000 loan at 2.99% APR for 20 years would have an estimated monthly payment of $554.22. A $100,000 loan at 4.00% APR for 20 years would have an estimated monthly payment of $606.15.

equal-housing-lender**Consult your tax advisor about the deductibility of interest. We do business in accordance with the Federal Fair Housing Law and the Equal Credit Opportunity Act.

Get MORE Benefits with Premier Checking

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  • Premier Checking is for members who want to be rewarded for their combined Credit Union balances.
  • Premier eChecking is for members who want to be rewarded for enrolling in Direct Deposit or using NASA FCU Online Bill Pay (at least 3 times per month) with eStatements.
  • Premier Preferred Checking is for members who want to be rewarded with dividends for maintaining higher checking balances.

More Than a Traditional Account

  • Free Mobile Banking & Remote Deposit*—anytime, anywhere banking
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  • NSF FreePassTM—lets you enjoy a waived NSF fee for you once per year

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*Eligibility for Remote Deposit is subject to Credit Union approval.

2014 Mitchell-Beall-Rosen Scholarship Contest Concludes

2014 Scholarship

On Wednesday, May 21, 2014, the Credit Union officially concluded its 2014 Mitchell-Beall-Rosen Scholarship Contest by hosting the annual Scholarship Luncheon to recognize and honor the year’s Scholarship winners. The Scholarship, which is based on the quality of a 1,000-word essay and an in-person interview, is now in its 31st year and has awarded over $160,000 to more than 150 local students. Attendees received scholarships in amounts ranging from $1,000 up to the grand prize of $7,000.

Congratulations and best wishes go to these promising young members. For more information on the Mitchell-Beall-Rosen Scholarship Contest, visit nasafcu.com/scholarship.

10 Myths About Credit Unions

How much do you know about credit unions? Test yourself on these 10 myths-how many did you believe until today?

Myth #1: You must meet strict eligibility requirements.

Fact: While credit unions do require that members meet certain requirements to satisfy a common bond, many of these are broad and few of them truly limit membership.

Myth #2: Getting to the ATM is difficult because my branch isn’t nearby.

Fact: With 5,000 shared branch locations and 30,000 free ATMs available through shared networks, availability is not an issue.

Myth #3: Changing my banking from a traditional bank to a credit union will be a hassle.

Fact: Credit unions offer the same services as banks, including automatic bill payments and direct deposit. Most services will transition easily and go uninterrupted.

Myth #4: With all the fancy advertising, banks must have more money than credit unions.

Fact: While this may be true, it’s because credit unions are not-for-profit organizations. Rather than spend money on advertising and marketing, credit unions rely on the community for marketing. The money saved is rolled back into services for members or distributed back to members as dividends.

Myth #5: Credit unions don’t offer reward programs.

Fact: Many credit unions do offer reward programs on credit and debit cards. For those that don’t, take a look at the fees that are associated with the various accounts. At a credit union, you’ll save on fees. Do your bank rewards outweigh the fees you’re paying on each account?

Myth #6: Credit unions aren’t very tech-savvy.

Fact: Credit unions don’t promote mobile banking and remote deposit options as aggressively as banks, but that doesn’t mean they don’t offer them. According to a study by CFI Group, bank customers rated their satisfaction at 86 out of 100 in online and mobile banking versus 90 out of 100 among credit union members.

Myth #7: Credit unions are just like banks.

Fact: Credit unions are not just like banks. Members own a piece of the organization and own a vote in determining how the credit union is managed. Credit unions also return all earnings back to members with their low fees and great dividend rates.

Myth #8: Credit unions have an unfair advantage over banks because they don’t pay taxes.

Fact: Actually, credit unions DO pay taxes. As a not-for-profit, member-owned financial cooperative, there are some taxes that credit unions don’t pay. Those “unfair advantages,” of course, are passed on to members.

Myth #9: Credit unions are not regulated.

Fact: Credit unions are held to the same laws and regulations as banks. In fact, credit unions face more restrictions on the investments and loans they make.

Myth #10: Credit unions are good places to save money, but that’s about it.

Fact: Credit unions offer consumer loans, debit and credit card services, online banking and bill pay, checking accounts, retirement investments, mortgages, car loans, and more. They are a great place to take care of all your banking needs.

Six Questions Your Auto Dealer Hopes You Can’t Answer

Navigating automobile financing can be one of the biggest financial headaches you’ll encounter. But, unless you want to walk everywhere, it’s something you’ll have to deal with. The biggest hurdle is figuring out the angles and understanding the entities that stand to profit from the transaction. Let’s go through some of the more challenging parts of automotive financing by addressing some of the questions about automobile financing your dealer hopes you won’t ask.

1) How do dealerships secure financing?

Car dealers usually have a department that is responsible for setting up financing and insurance (commonly referred to as “F&I”). These people take the estimated price of the car, the actual value of the car, and your credit history to a number of different credit providers. These include major national lenders, auto manufacturer financial departments, and depending on the dealership, some local lending institutions. These vendors each quote an interest rate and other fees.

Car dealers usually have longstanding business relationships with their lenders, which often include incentives for the dealer as a “reward” for financing a loan through that lender. Because the lenders are competing for the dealer’s business, not necessarily for yours, those incentives are for dealers and not consumers. While the dealer knows that lower interest rates make you more likely to buy a car, in this transaction, you’re not the customer. You’re the product. The dealer is trying to sell your business to a lending organization and usually makes a profit on the transaction.

2) When should I tell the dealership I already have financing?

Let’s be clear: Financing is profitable for dealerships in many ways. If they know they can’t turn a profit from financing, they’re more likely to push harder to find profit elsewhere. You’re almost always better off keeping the auto loan for the last part of your transaction with the dealership, particularly if you plan on securing outside financing. This doesn’t mean, though, that you don’t want to think about financing until that point in time. Discuss your plans with a representative at the credit union; including the type of vehicle you are planning to purchase. Figure out what kind of rates they can offer. By doing your research ahead of time and knowing what financing options are available to you, you can let the dealer think there’s still money to be made in the financing, which may strengthen your negotiating position on other parts of the transaction, like the price of the car or the value of the trade-in.

3) How do dealerships make money offering 0% financing?

If you’re shopping for a car because you’ve seen an advertisement for 0% financing, you’re not alone. Campaigns, like Toyota’s “Toyotathon,” offer manufacturer’s deals like 0% financing for 60 months and are incredibly popular for car buyers and dealers alike. If it were honestly a losing proposition for the manufacturer, they wouldn’t keep doing it. This might invite you to ask how they could possibly make money on the financing. The answer is two-fold: volume and selectivity.

The volume part of the money-making strategy is simple. 0% financing gets people on the lot and encourages them to think about buying a specific brand of car. The manufacturer and the dealer both make money on each car sold, so the 0% financing trades some profit per car in the hopes that they’ll make up for it in number of cars sold.

Selectivity is the other side of volume. Not everyone who comes to a 0% financing event will qualify for that rate. Because most people who get to the point of discussing financing have decided to purchase a car, they’ll settle for a non-zero rate when it’s presented to them. Between these two strategies, advertising 0% financing does pretty well for a car dealer.

4) Does my salesperson benefit from financing my car purchase?

This really depends on the dealership. Most of the time, your salesperson only benefits from the price of the car, the warranty, and some high-markup items, like undercarriage treatment, upgraded tires, and other products. The financing department – the people who are responsible for getting quotes and delivering them to the salesperson – is likely to be the folks who receive any kind of commission on the financing. In these instances, it’s also very likely that the salesperson with whom you’re dealing has little to no control over your financing. He or she might be able to go back to the financing department and ask them to attempt to negotiate a better rate, but this negotiation may not have much success. In any case, someone at the dealership profits from getting you a loan.

5) What is GAP insurance, and is it right for me?

“GAP” or guaranteed asset protection insurance is automobile insurance that covers the difference between the total amount of the loan and the value of the car. It provides protection against the worst-case scenario, that you total a car (or the vehicle is stolen) and you owe more than it is worth. Your comprehensive insurance coverage will only pay out the value of the car, leaving you on the hook for the remaining interest and finance charges. A dealer may require you to purchase GAP insurance as a condition of financing your purchase. The cost of the insurance is almost always paid up front as part of the financing charges.

GAP insurance is designed for long-term, high-interest, or low down-payment financing. If you are buying a car without putting a lot of money down, or if your credit history is not stellar, you should consider getting GAP insurance. But, like any other purchase, you should shop around. Because most financing arrangements require you to purchase GAP insurance, dealerships maintain institutional arrangements with insurance agencies, expecting you to purchase it without much thought. It’s one last effort to make money off your purchase, and they rely on you to not notice. You may be able to find better rates on GAP insurance from a broker or from another lending institution.

6) What steps can I take to avoid being railroaded by last-minute financing changes?

Financing is among the easiest places for dealers to make money, because it’s almost always the last stop in the car-buying process, and they expect you to be both committed to purchasing a car and exhausted from making a series of decisions. High-pressure salespeople use this fact to their advantage. When it comes time to talk financing, frequently, the license plates are off your old car, and you’re sitting down with a sales manager. While it may seem counter-intuitive, this is the best time to walk away and get a second opinion on financing. If you have not already sought pre-approval from them, see if your credit union can offer you a better rate, lower fees, or a more flexible term. Ask them to commit as much as possible to a price on an offer sheet. Then, tell them you’d like to take some time to think about it. If you come back with a cashier’s check in hand, the sales manager may hem and haw a bit. But, at the end of the day, they’d rather make the sale than make a little extra on financing.

This is an especially important step if your history with credit is complicated. A giant lending corporation won’t see the steps you’ve taken to solidify your financial position. They don’t have the same relationship with you that your credit union does. They see you as a risk number and an interest rate they can justify, not as a member of a community institution. Always give your credit union the first chance to beat the dealer’s offer – your credit union works for you, not for a commission.

Ready to finance your next car? Still want to learn more?

If you’d like to discuss your auto financing options with a Auto Loan Specialist, call 301-249-1800, Ext 222.

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