Credit Union Loans - Hard to understand

P

power2

Guest
Two years ago I took a 30 K loan with the CU repayable at 340 per month over 10 years. I paid off 10 k after 1 yr in a lump sum. I currently have 20,500 to pay back. Every month my interest on the 20.5 k figure is roughly € 170. So I continue to pay 340 of which half is taken up by interest,. This does my head in as it seems it will take around 10 years to pay off.

BOSI/AIB seem to be offering loans of 20 k repayable in 5 yrs at circa 400 pm

PS Anytime I ask the crew of ladies in the CU to explain its all I can do not to have a brain meltdown.
 
I also find credit unions hard to follow, however it was always my understanding that interest was charged on the decreasing balance. Is this not one of the main advantages that credit unions push. You may also get an interest rebate if they have made a profit.
 
Forget about the "decreasing balance" malarky and ask them for an APR when comparing their offers with those from other institutions. Of course the APR will not include the cost of having to keep money on deposit/in shares while borrowing.
 
As far as i know the CU charge 12.5% interest on their loans, but you do get 25% of any interest you pay in the year as a rebate at year end.
Recently i have seen them offer more competitive rates. Why not take out some of your savings and take it off the outstanding balance. No point leaving it in there getting 1% interest on it p.a whilst paying 12.5% on loan.
 
CU are not great regarding interest rates but they have the advantage of paying overpayments and non-uniform payments whenever you like. They are also more flexible than banks. Regarding the figures above if you look at it roughly like this
So after yr 1 you have paid
12 x 170 off the principle = 2040
12 x 170 interest
But the 170 per month interest will decrease each month and more will go off the principle so in reality after yr 1 you wil have reduced debt by say 2.5k i.e your 170 in month one will reduce to say 168 in month 2 and so on.
In year 2 you now owe roughly 17.5k so you will pay
12 x 195 off the principle = 2360
12 x 145 interest
Again allow bit more for decreasing interest and you should have about 3k reduced from principle so loan after 2 years is 14.5k.
In year 3 you will now pay
12 x 217 off the principle = 2604
12 x 123 interest
After 3 years your loan will be roughly 10k and going on the same principles above you should be paid off in < 3 more years at 340 month.
These are rough figures but may give you an explanation that is better than melt-down in the CU. If you increase your payments to 400pm it will be sooner. I base these figures on the fact that the CU appear to be offering a rate of about 8.5%
Does this makes sense ?
 
elcato said:
I base these figures on the fact that the CU appear to be offering a rate of about 8.5%
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Not including the cost of keeping money on deposit or in shares while borrowing though I presume?
 
Clubman, you seem very negative regarding CUs? Have you had bad experiences?

Firstly the money on deposit would be earning interest. It may only be a small percentage of the loan depending on the credit union and the credit history of the member.
The fact that this person paid off 10 grand after one year shows them immediately the next month the interest that they are paying on the amount owed... no penalties...charges... delayed application of amount over agreed monthy repayment..

I doubt that you will find paying lump sums off bank loans to be as simple or that they have the same uncomplicated impact on the repayments.

I would guess that this person has an "equal repayments" method of paying which means that in the early days there is a much higher interest proportion than in the latter stages when the interest is relatively small.

I think that the very open manner in which the credit unions show how much of your money is going on principal and how much is going on interest is excellent... but the truth can also be frightening !!
 
ontour said:
Clubman, you seem very negative regarding CUs? Have you had bad experiences?
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Only indirectly (e.g. like other CU members having to foot the bill for the ILCU's failed computer system debacle a few years back and having to put up with their restrictive practices forcing CUs to buy insurance products through a single provider rather than being allowed to shop around). Maybe some CUs offer good value credit but until they all quote APRs that include all costs (e.g. including the cost of holding money on deposit or in shares after any net interest or dividends are taken into account) then it's impossible to know. The truth may well hurt but until we know what it is in regard to the true cost of CU borrowing who can tell?
 
The biggest advantage for me in using a Credit unions over the years is that most of them are not registered with the ICB ! If you are a discerning borrower and don't feel that you need an underwriter to tell you what you can and can't afford to borrow then credit unions are very useful imo - not always the cheapest though !
 
Two years ago I took a 30 K loan with the CU repayable at 340 per month over 10 years. I paid off 10 k after 1 yr in a lump sum. I currently have 20,500 to pay back
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Loan 2004 30K
Repaid 2005 10K
Owe 2006 20.5K

What have your repayments been paying. there not even covering the interest

I calculate that after 24 months you should owe 16K and the full 30K including the 10K you already have repaid should be repaid in approx 6 years 9 months approx.

Ask to speak to the manager for an explanation. These figures don't appear to be right.
 
Some CUs now work with the ICB and more are due to do so over time.
 
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