You can take your bank savings and put them off the loan(s). That would reduce your current outgoings slightly,...
Taking some of the share balance off the loan balance will have the same effect as above - slightly less repaid each month due to a reduction in interest due!
I don't think that there is anything "slightly" about this.
What's Net APR?
It's a concept which the Credit Unions don't like discussing. it is best illustrated by way of example
||APR|interest
Loan|10,000|10%|1,000
Shares|9,000|1%|90
Net loan|1,000||€910
In this case the customer is paying €910 per year for net borrowings of €1,000.
That is a net APR of 91%.
If any financial institution other than a Credit Union was doing it, there would be a law against it.
It is the law (Credit Union Act 1997) that dictates that a borrower maintain no less than 25% of the loan in shares(savings).
The CU Act, The League's policies, and the policies of most credit unions do not allow people/ dicourage people from paying off expensive loans with shares which earn very little.
Brendan
That applies if the borrower wants to withdraw some of his shares while he has a loan. However a borrower can offset all his shares against his loan as per Section 32(5) of the Credit Union Act.
Is this an accounting issue or what? The net position of the CU doesn't change when the borrower sets off their shares against a loan. If I have a €10k loan and €4k savings, then the net position is €6k. If I have a €6k loan and zero savings, then the net position is €6k. The risk to the CU is the same either way, so it doesn't really diminish the security. Or am I missing something?Section 32(5) seems to provide for set off at the instigation of the credit union, with the consent of the member. Many CUs would not favour this as it diminishes the security they have for the loan and consequently, raises the provision they may have to make in case of default.
Or am I missing something?
The ILCU wouldn't call it a performing loan! (either with or without quotes!)...Lastly for the credit union if the borrower falls behind on payments, they can dip in to those shares, catch up on the repayments and still have a 'performing' loan...
The ILCU wouldn't call it a performing loan! (either with or without quotes!)
Res 24 AGM 2002 says "...For the purposes of this resolution, a transfer of shares, leaving the same net indebtedness to the credit union after such transfer has been made shall not constitute a payment on principal..."
IMHO I'd say some of the reluctance to apply all savings against indebtedness is that they, CU's, are keeping their options open to "dip in" with "costs" if and when they eventually come round to the fact that the debt IS bad and must be written off!
Sounds like the ratios are measuring the wrong things so.From the accounting perspective in credit unions the ratios look bad if there is no shares but looks better when there is 4k in share. At the end of the day the exposure is still the same.
I'm a bit lost at this. If a transfer of shares against a loan is not a repayment of the principal, then what is it?The ILCU wouldn't call it a performing loan! (either with or without quotes!)
Res 24 AGM 2002 says "...For the purposes of this resolution, a transfer of shares, leaving the same net indebtedness to the credit union after such transfer has been made shall not constitute a payment on principal..."
...I'm a bit lost at this. If a transfer of shares against a loan is not a repayment of the principal, then what is it?...
In fact it is a repayment of principal!
But...
For the purposes of this resolution, a transfer of shares, leaving the same net indebtedness to the credit union after such transfer has been made shall not constitute a payment on principal."
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