Anatomy of a Car Payment

When you get a loan to buy a car, you’ll get a new set of keys — and a new monthly payment. It may have you wondering how this payment is determined and how it’s calculated.

So many questions, and we’ve got answers! Let’s break down the parts of a car payment, explain how monthly payments are calculated and offer tips for managing your payments well.

What are the components of a car payment?

Principal

The principal is the amount of money you borrow to purchase the car. For example, if you buy a car priced at $35,000, and you put $5,000 as a down payment, the principal of your loan is $30,000.

A portion of each monthly mortgage payment will go toward paying down the principal balance of your loan.

Interest

Interest is the cost of borrowing money from a lender. It’s calculated as a percentage of the principal amount and is added to your monthly car payment. The interest rate on your loan will depend on a handful of factors like your credit score, the length of the loan term and the current market conditions.

Loan term

While this is not really a part of the loan, you’ll likely see this referenced on your monthly statement or loan bill. The loan term is the length of time you have for repaying the total loan, typically expressed in months. Common auto loan terms range from 36 to 72 months, with some loans extending even longer. The longer the term is, the lower the monthly payments will be, but the more interest you’ll pay over the life of the loan.

If you’ve rolled additional costs into the loan, they may also be part of your monthly payment. This can include:

Taxes and fees

If you choose to finance taxes, registration fees or other upfront costs of the loan, these will be included in your loan amount and will increase your monthly payment. These costs are not itemized separately; instead, they’ll be incorporated into the principal.

Add-ons

Optional add-ons like extended warranties, gap insurance and other products you choose to finance will also be included in your loan principal, thus increasing your monthly payment.

Additional costs of car ownership

While not included in your monthly loan payment, these expenses are an inherent part of owning a car:

Insurance. Lenders typically require you to carry comprehensive and collision coverage as part of your financing agreement, ensuring the car is protected if in an accident.
Maintenance. Your car will need regular maintenance and upkeep, which you’ll need to budget for.
Fuel or electricity. Of course, you won’t be able to drive a car without gas or springing for electricity to power it.

How are car payments calculated?

To calculate your monthly payment, the lender will take the principal of the loan along with any add-on costs, and the interest amount due, and divide this number by the months in your loan term. This is the amount you’ll need to pay each month.

Managing your car payment

Managing your car payment well requires careful planning and budgeting. Here are a few tips to help you stay on top of your payments and minimize the overall cost of your car loan:

Compare offers from multiple lenders to find the best interest rates and loan terms.
If possible, make a larger down payment to reduce the amount you need to finance.
Choose a shorter loan term.

High Point FCU auto loans offer great terms, easy eligibility requirements for qualifying members and a quick application process. Call, click or stop by today to learn more.

Three Common Money Mistakes People Make

Managing money responsibly doesn’t just happen. Even with the best of intentions, many people make mistakes in how they handle money – and they don’t even realize it. But there’s good news! Harmful behaviors can be unlearned. Let’s look at three common money mistakes and how to fix them.

Mistake #1: Ignoring one’s financial situation

It is common for people to go about everyday living without a whole lot of thought toward their money. They may not know how much they have in their checking and saving accounts. They could also jam their heads in the sand when it comes to their outstanding debt. Awareness of how good or bad their credit score is? Forget about it! The hard truth, though, is that ignoring money can lead to big-time consequences, like excessive debt, missed payments and zilch in savings.

The fix: To avoid this mistake, assess your income, expenses and savings regularly. Creating a budget can help you get a handle on your financial inflows and outflows. This way, you can identify areas where you can cut back, save more and achieve and maintain financial wellness.

Mistake #2: Not having a clear money vision

The second common money mistake is a lack of financial plans or goals. Without an established money vision, it can be challenging to make smart money choices.

The fix: Establish short-term and long-term financial goals. Whether it’s saving for a down payment on a house, starting a business or planning for retirement, having a clear vision will guide and motivate all your financial decisions while ensuring they’re choices you can live with for years to come.

Mistake #3: Not discussing money

The third common money mistake is failing to talk about money with one’s life partner. Money is a sensitive topic, and many people believe they can avoid arguing over money by not talking about money. Unfortunately, though, not talking about it can lead to misunderstandings, conflict and financial instability within the relationship.

The fix: Have open and honest discussions about money with your partner. By establishing open lines of communication, you can work together to create a joint financial plan that aligns with both partners’ values and aspirations.

Use this guide to learn how to fix three common money mistakes and avoid making them in the future.

Step 3 of 12 to Financial Wellness: Pay Down Debt

You’ve tracked your spending, designed a budget for your monthly expenses, and you’re on a good path to financial wellness. In this next step, you’ll create a plan for paying down debt.

Consumer debt can be one of the biggest challenges to financial wellness. With some intentional action and commitment, reaching true financial wellness is possible.

Here’s how to pay down or off your debt in five simple steps.

1. Organize your debt

List every credit card you own along with an outstanding balance. Jot down the amount owed to each card issuer. Next, list the interest rate of each card. Repeat these steps for other loans you may have as well.

2. Choose your debt-crushing method

There are two approaches generally advised to folks who are seeking to get rid of their debt:

The snowball method involves paying off your smallest debt first, and then moving to the next-smallest until all debts have been fully paid.
The avalanche method involves getting rid of the debt that has the highest interest rate first before moving on to the debt with the next-highest rate until all debts are paid.

Choose the method that makes the most sense for your personal and financial circumstances.

3. Maximize your payments

Once you’ve chosen your debt-crushing method, find ways to maximize your monthly payments. You can do this by trimming your spending in one budget category and channeling that money toward your debt. You can also find ways to get some extra cash for your payments, such as freelancing for hire.

4. Consider a debt consolidation loan

When you consolidate debts to one low-interest loan, it’s a lot easier to manage the monthly payments. Plus, the savings in interest you won’t pay can be significant, especially if the new loan has a low interest rate. If this approach sounds right for you, consider taking out a personal loan from High Point Federal Credit Union.

5. Negotiate with your creditors

Many credit card companies will be willing to lower your interest rate once you prove you are serious about paying down debt. After kicking off your debt payment plan, it’s worthwhile to contact each credit card company to discuss options.

No matter which strategy you go with or the methods you use for paying off your debt, commit to not adding more debt onto your card while paying it down. Paying off a large amount of debt will take time and willpower, but living debt-free is key to financial wellness. Best of luck on your debt-crushing journey!

Beware of Debt Relief Scams

Big debt can be a big beast. One that takes huge bites out of your budget and destroys any chance you might have at strong financial wellness. Unfortunately, scammers know this, so they target victims with debt relief scams.

Here’s what you need to know about debt relief scams and how to avoid them.

How the scams play out

Debt relief scams target consumers who may have a lot of credit card debt under any or a combo of the following guises:

Debt repair service to greatly increase their credit score in no time
Service to remove negative credit report info
Promise to reduce credit card rates

The target, who is desperate to shed their debt, will pay any price for the promised outcomes. The scammer then fails to come through as promised, leaving the consumer even deeper in debt.

Red flags

These red flags can help you identify a debt relief scam:

Someone guarantees to bring your credit score up by a specific number of points within a short time.
The service promises to get rid of factual credit report information on your credit file.
They demand an up-front payment.
The service claims to be affiliated with a credit card company, but that company doesn’t recognize the service.
They tell you to cut off all communication with creditors.

The do’s and don’ts of credit repair

If you’re looking for a legitimate credit repair service, these tips can help.

Do:

Research the service you consider using. Look for a secure site with a phone number and street address, as well as positive reviews from past clients.
If the service claims to be affiliated with a credit card company, give the company a call to verify.
Ask for a clear explanation of all fees and conditions.

Don’t:

Never pay an upfront fee for a debt relief service.
Don’t believe a service that guarantees to bring up your score by a certain amount in a specified timeframe.
Don’t believe that a service can get rid of negative information on your credit file.

If you’re deep in debt, don’t despair. Let Olean Area Federal Credit Union help you get out of debt through a debt consolidation loan. Call, click or stop by today to learn more.

Your Complete Year-End Financial Checklist

As 2021 draws to a close, take a moment to go through this year-end financial checklist to ensure your finances are in order before the start of the New Year.

1. Review your budget

Is your current monthly budget working for you? Are you stretching some spending categories or finishing each month in the red? Take some time to review your budget and make any necessary changes.

2. Top off your retirement plan

Check to see that you are taking full advantage of your employer’s matching contributions for your 401(k). If you haven’t contributed as much as you can, you have until the end of the year to catch up, to a limit of $19,500. If you have an IRA, you have until April 15 to scrape together the maximum contribution of $6,000, with an additional $1,000 if you are 50 years or older.

3. Check your progress on paying down debt

Review your outstanding debts from one year ago and hold up the amounts against what you now owe. Have you shed any debt from one year ago, or is your debt growing? If you’ve made no progress, or your debt has deepened, consider taking bigger steps toward paying it down in 2022.

4. Get a free copy of your annual credit report

The end of the year is a great time for an annual credit checkup. You can only request a free copy of your credit report from all three credit reporting agencies once a year. Get your annual credit report here, and look for fraudulent charges and other signs of possible identity theft.

5. Review your investments and asset allocation

You may need to make some adjustments to your mix of stocks, bonds, cash and other investments to better reflect your personal financial goals and/or the current state of the economy and market.

6. Review your beneficiaries

Has your family situation changed during the past year? If it has, be sure to switch the beneficiaries on your accounts and life insurance policies to accommodate these changes.

7. Review your tax withholdings

Review your W-4 to see if the amount of tax withheld from each paycheck needs to be adjusted. If you’re not a numbers person, ask your accountant for help.

Use this checklist to make sure your money matters are in order before the start of 2022.

6 Steps to Crushing Debt

Getting rid of high debt takes hard work and willpower, but it’s doable. Here’s six steps to help you start crushing debt today.

Step 1: Choose your debt-crushing method

There are two approaches toward getting rid of debt:

The snowball method involves paying off your debt with the smallest balance first and then moving to the next-smallest, until all debts have been paid off.
The avalanche method involves getting rid of the debt with the highest interest rate first and then moving on to the debt with the second-highest rate until all debts are paid off.

Each method has its advantages, with the snowball method placing a heavier emphasis on achieving results at a faster pace, and the avalanche method focusing more on actual savings to the borrower money in overall interest paid. Choose whichever method appeals to you more.

Step 2: Maximize your payments

Credit card companies are out to make money, and they do this by making it easy to pay just the minimum payment each month. Beat them at their game by maximizing your monthly payments. Free up some cash each month by trimming your spending in one budget category or consider freelancing for hire and channel those funds toward the first debt on your list. Don’t forget to continue making minimum payments toward your other debts each month!

Step 3: Consider a debt consolidation loan

A personal loan from High Point Federal Credit Union can provide you with the funds you need to pay off your credit card bills and leave you with a single, low-interest payment to make each month. Or, you can transfer your credit card balances to a single card having a low-interest or no-interest introductory period.

Step 4: Build an emergency fund

As you work toward pulling yourself out of debt, it’s important to take preventative measures to ensure it won’t happen again. You can do this by building an emergency fund. Start small, squirrelling away whatever you can in a special savings account and adding the occasional windfall to beef up your fund.

Step 5: Reframe your money mindset

What got you into this mess? Are you consistently spending above your means? Is there a way you can boost your salary or significantly cut down on expenses? Lifestyle changes won’t be easy, but living debt-free makes it all worthwhile.

Step 6: Put away the plastic

Credit cards are an important component of financial health, but when you’re working to free yourself from debt, it’s best to keep your cards out of sight and out of mind. Learning to pay your way with cash and debit cards will also force you to be a more mindful spender.

Best of luck on your journey toward financial freedom!

The Promises and the Perils of Buy Now, Pay Later

Gotta have it now, but don’t have the cash? Why not buy now, and pay later? (BNPL). It’s the perfect way for you to walk away with that overpriced exercise bike even if your wallet is practically empty, right?

Maybe. Or maybe not.

Let’s take a look at these programs, how they work and what to be aware of before you sign up.

How BNPL works

You’ll find a BNPL button when checking out at most online retailers. This option will usually link you to a BNPL app, such as Afterpay, Affirm or Quadpay. A brick-and-mortar store may offer you this option at checkout as well. Here, too, you’ll pay up through an affiliated app.

If you choose to go with a BNPL option, you’ll need to get approved. Apps will usually run just a soft credit check to confirm your information. Once approved, you can choose to link your debit card, checking account or credit card so the app can collect the payments when they’re due. Next, you’ll generally make a 25% deposit on the purchase, and the item is yours! Most BNPL plans require you to pay off the rest in three fixed installments, but payment schedules can vary.

When to choose BNPL

BNPL programs can be a good choice for items you urgently need, but can’t afford right now, like medical equipment that’s not covered by insurance. It can also be ideal for workers with an uneven income flow who may experience lean times of the year, but know that better cashflow is ahead.

Why BNPL can be a bad idea

It encourages overspending. It’s easy to think that, if you’ll only be paying a small part of the price today, why not buy it now instead of financing the full amount?
Missed payments are penalized. Some services slap an interest charge on your outstanding balance, with rates as high as 40%. Other programs will charge a one-time late fee, which can be as high as $39. Others will tack on an extra fixed fee to all subsequent payments.

It can kill responsible financial habits. If a consumer has purchased multiple items through BNPL programs, the monthly payments won’t be so minimal. The payments will need to be factored into a budget and can eat into other categories, like savings.

Buy now, pay later programs can be super-convenient, but they also present risks. Our best advice? Use with caution.

Debt Consolidation: Not A Silver Bullet, But Still A Good Idea

Using a personal loan to refinance your existing debt can make your debt more manageable. You’ll have one monthly payment at one interest rate instead of many smaller bills due on different days of the month.

Will personal loans work for you?

1. Have I fixed the debt problem?

Think about why you’re in debt. If a medical bill, job loss or some other temporary hardship describes your situation, the fact that you have a job or have paid the medical bill means you’ve solved the problem that caused the debt in the first place.

If, on the other hand, you accumulated debt by overspending on credit cards, a debt consolidation loan may not be the answer just yet. First make a budget you can stick to, learn how to save and gain responsibility in your use of credit. Getting a debt consolidation loan without doing those things first is a temporary solution that can make matters worse.

2. Can I commit to a repayment plan?

If you’re struggling to make minimum monthly payments on bills, a debt consolidation loan can only do so much. It’s possible that the lower interest rate will make repayment easier, but bundling all of that debt together could result in a higher monthly payment over a shorter period of time. Before you speak to a lender, figure out how much you can afford to put toward getting out of debt. Your lender can work backward from there to figure out terms, interest rate and total amount borrowed.

If you’re relying on a fluctuating stream of income to repay debt, it may be difficult to commit to a strict repayment plan that’s as aggressive as you like. You can still make extra principal payments on a personal loan, so your strategy of making intermittent payments will still help. You just can’t figure them into your monthly payment calculation.

3. Is my interest rate the problem?

For some people, the biggest chunk of their debt is a student loan. These loans receive fairly generous terms, since a college degree should generally result in a higher-paying job. Debt consolidation for student loans, especially subsidized PLUS loans, may not make a great deal of sense. You’re better off negotiating the repayment structure with your lender if the monthly payments are unrealistic.

On the other hand, if you’re dealing with credit card debt, interest rate is definitely part of the problem. Credit card debt interest regularly runs in the 20% range, more than twice the average rate of personal loans. Refinancing this debt with a personal loan can save you plenty over making minimum credit card payments.

4. Will a personal loan cover all my debts?

If you have more than $50,000 in credit card debt, it’s going to be difficult to put together a personal loan that can finance the entire amount. It’s worth prioritizing the highest interest cards and consolidating those instead of trying to divide your refinancing evenly between accounts. Get the biggest problems out of the way, so you can focus your efforts on picking up the pieces.

Debt consolidation doesn’t work for everyone, but it can do wonders for many people. The ability to eliminate high-interest debt and simplify monthly expenses into one payment for debt servicing can change a family’s whole financial picture. Gather your account statements and your paycheck stubs, and contact High Point Federal Credit Union today!

When and Why to Take on Business Debt

Taking on debt, such as a loan or a line of credit, can provide a business with the cash it needs to expand or fund a new venture. Here’s what you need to know about when and why it can make sense to take on business debt:

When is it a good idea to take on business debt?

When seeking resources to help grow the business. It takes money to make money, and a small business loan can help business owners pay for an expansion when they don’t have the resources to fund it on their own. The funds can be used to broaden the company’s line of products or services, finance a move to a larger location, fund a marketing campaign or hire additional staff.

When trying to build credit. Taking out a small loan or opening a new line of credit can be a great way to build a credit profile for a business and to strengthen its relationship with financial institutions. Small loans and lines of credit can help a business prove it is responsible and trusted to repay its debts. This will open doors to larger loans that may be needed in the future.

Why is debt often a preferred source of funds?

Here’s why debt can be a preferred source of funds for a business, as opposed to selling equity in the company:

It has lower financing costs. Unlike equity, debt is limited. Once the loan is paid back, the business owner can forget it ever existed. On the flip side, selling equity in a company generally means forking over a part of the profit for as long as the business exists.

It provides tax advantages. Business debt can decrease a company’s tax liability by lowering its equity base. As an added bonus, interest on business loans and lines of credit are usually tax-deductible.

It mitigates risk. Taking on debt to access funds instead of selling equity lowers the company’s risk in the event that the business does not succeed.

If you’re ready to take out a business loan or open a new line of credit for your business, we can help! Call, click, or stop by Olean Area Federal Credit Union today to secure the funds you need to grow your business.

Millennials Hit Hardest by Coronavirus Recession

The coronavirus recession hasn’t been easy on anyone, but millennials may have been hit the hardest.

Here’s why the coronavirus pandemic has been especially hard 25- to 39-year-olds:

Another recession

For millennials, economic recessions are nothing new. This generation has already lived through the Great Recession of 2008, the impact from which is still being felt today.

The Great Recession hit millennials when they were still in college or just starting out on their career paths. For some, it meant the choices for their first post-college job were slim. For others, it meant dropping out of college when there was no longer a guarantee of a degree netting a high-paying job. Regardless of how they were impacted, many are still playing catch-up.

Job losses across the board

More than 40 million workers in the U.S. have filed for unemployment since the beginning of the pandemic, and millennials have been hit harder than most.

According to a report by Data for Progress, 52% of respondents under age 45 have lost jobs, been furloughed or had their work hours cut due to COVID-19. In contrast, just 26% of respondents over age 45 have suffered a job loss during this time.

The economy shed 20.5 million jobs in April. Of these, 7.7 million were in the leisure and hospitality sector — a sector dominated by millennials. An additional 1.4 million lost jobs were in health care, primarily in ambulatory services — another field that employs a large amount of millennials.

No nest egg

Many millennials are carrying piles of debt and have minimal or no savings. According to surveys conducted in 2018 by the Federal Reserve, 1 in 4 millennial families have a negative net worth, or debts outweighing assets. One in six millennials would not be able to find the funds to cover a $400 emergency. For these young employees, a relatively mild setback from the coronavirus can be devastating to their finances.

Can Millennials recover?

Millennials have been hit hard again, but there is hope. The forward-thinking millennial can use the challenges presented by COVID-19 as an opportunity to move onward toward a brighter future.

What’s a Recession Anyway?

You’ve likely caught the term “recession” thrown around on the news in the last several months. But, do you know the exact definition of a recession? How is it different from a depression? How long do recessions last?

So many questions — and we’ve got answers! Here’s all you need to know about recessions.

What is a recession?

A recession is a widespread economic decline in a designated region lasting several months or more. In a recession, the gross domestic product (GDP), or the total value of all goods and services produced in the region, decreases for two consecutive quarters. In most recessions, the GDP growth will slow for several quarters before it turns negative.

What’s the difference between a recession and a depression?

A depression has similar criteria as a recession, but is more severe. For example, in both a recession and a depression, the unemployment rate rises; however, during the Great Recession of 2008, unemployment peaked at 10%, while during the Great Depression, unemployment levels soared to 25%.

Depressions also last longer than recessions. The Great Depression officially lasted four years, but continued to impact the economy for more than a decade. In contrast, recessions last only about 11 months, according to data from the National Bureau of Economic Research (NBER) .

Why the COVID-19 recession is unlike any other

The COVID-19 recession, also known as the coronavirus recession, is unique because it was not sparked by any inherent problem within the economy.

Another anomaly of the coronavirus recession is the super-healthy state of the economy before it hit. In February, unemployment levels were at a 50-year low, stock markets were at a record high and the U.S. economy had enjoyed its longest period of growth in history.

The unusual triggers and the explosive start of the current recession may be good news for its end. An April Reuters poll found that nearly half of 45 economists believed the U.S. recovery would be U-shaped; meaning relatively quick.

How will this recession affect me?

The coronavirus recession can impact the average consumer in multiple ways.

First, many are struggling with sudden unemployment or will be facing joblessness in the coming months. The most recent data from the Bureau of Labor Statistics show the unemployment rate at 10.2%.

Secondly, the economic uncertainty has triggered record-low interest rates, which in turn sparked a rush to refinance. If you are currently paying high interest rates on a long-term loan, you may want to consider refinancing for a lower monthly payment. Explore our current rates by clicking here.

Finally, investments in stocks, bonds and real estate may lose value during a recession.

If you are experiencing financial difficulties of any kind, feel free to reach out to us to see how we can help.