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The Advantages of Credit Unions

Some of you may be familiar with credit unions, others may not. I was going through some olds posts that were submitted to the Carnival of Personal Finance, and I ran across a post that discusses discounts that are available to employees and students of certain organizations. The example was for Cingular Wireless (if you go there, it is under "Employee Benefits" on the left section). With this deal, you can save around 15% on your monthly plan. I checked it out, and my school doesn't have the benefit (I know my employer doesn't, we only have 14 employees). So, I wanted to see what benefits I did have. One of them happened to be a credit union.

Credit unions are financial institutions, similar to banks, but they are not-for-profit. In order to become a customer you have to become a member, which means that you are a part "owner" of the credit union. Since it is a not-for-profit, its goal is to provide the best service to its members, which are analogous to shareholders. Many of the same types of employees work at credit unions as do banks. The board of directors works for free (they have a vested interest, as they are also members). This all means low overhead, and profits are passed on to members. So, credit unions usually pay out slightly higher interest on accounts that they offer. Further, credit unions offer interest on accounts that typically do not earn interest at banks, like checking accounts (banks do offer interest, but for high balances; credit unions offer it in almost all cases). Also, they usually offer slightly lower interest on loans (recent auto loans can be an exception, depending on your credit).

I decided to check out my credit union at work. To become a member, you have to open an account (become a member) with a minimum of $25. I can get automatic deposits through payroll deduction, and the account is not tied to my checking account (very good for the undisciplined). Now, the good part. I checked out the interest rates for auto-loans. I have two vehicles that are from the 2002 model year, one carries a balance around $12900, and the other for $8084, with interest rates of 13.75% and 13.25%, respectively. Obviously, I did not get these vehicles with the grand zero percent plans that have been offered. My credit union bases interest rates for vehicles off of the model year and the term length on the loan. For 2002 models, the rates are 5.75% for 24-months, 6.25% for 36-months, 6.50% for 48-months and over, and 6.75% for 72-months.

I have had each of the vehicles for less than a year, with the more expensive one at a 72-month term. I decided that I wanted to accomplish two things: 1) get a lower monthly payment, and 2) get a shorter term. So, I decided to get each vehicle on a new four year term which would make the more expensive vehicle paid off over a year sooner, and the cheaper vehicle paid off about six months sooner. Both vehicles would be financed at 6.5%, which is less than half the interest rate than before. This seems perfectly feasible. I figured it up, and if I pay down each vehicle by about $1,000 and get them refinanced through the credit union for four years, I will save over $70/month, and have them paid off sooner.

Take a look at some of the often overlooked benefits of your employer and/or school. You could begin saving considerably more money. Coupled with this, my auto insurance is going to be cut in half early next year because my wife and I will be over 25, and I will have the last speeding ticket off my record. Overall, I will probably be able to reduce my living expenses by 30% without getting rid of anything at all.

Blogger Dus10 D Says:

December 02, 2005 2:16 PM 

*UPDATE* My wife has an email address at a larger, state run, university that does have a discount plan with Cingular. I was able to get an 8% discount on our monthly service fees. We can also get 25% of orders for accessories and new phones.

Anonymous CreditSearcher Says:

August 16, 2007 2:51 AM 

This is a reasonable review of credit union matter. But I have a question. If you become a credit union member, you are supposed to pay for your share. Are there any risks? Can it happen so that you lose your share and your debt will be sold to another company, if (god forbid) the union fails?

Blogger Humanus Says:

November 29, 2007 7:58 AM 

I guess - as iny other human activity - you have both chances - to prosper and to loose.

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