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MONEYFIT VIDEO SERIES

Basics of Credit

We want you to understand that a good credit score matters in very real ways. Let's review the basics of credit. What is credit? What factors make up a credit score? How do you build good credit? Be sure to obtain your Free Credit Report at www.AnnualCreditReport.com to review your history and correct any mistakes.

Hello and welcome to this week’s edition of The Genisys Money Fit Series

Today we are reviewing the basics of credit, like:

  • What is Credit
  • What Factors Make Up a Credit Score
  • And How to Build Good Credit

Let’s start by discussing the basics of credit.

Credit is the ability to borrow money and access goods or services with the understanding that you'll pay later.

Lenders, merchants and service providers grant credit based on the confidence that you can be trusted to pay back what you borrowed, along with any finance charges that may apply.

So What Factors Make Up a Credit Score?

Most people believe if they make all of their credit card and car loan payments on time, they can expect their credit score to be great. However, focusing on your payment history alone will not give you a complete breakdown of what actually goes into your credit score. There are numerous factors involved in determining a single credit score, including:

Payment History:35%

Amount Owed:30%

Length of Established Credit:15%

Types of Credit:10%

And New Credit:10%

But why is a good score important?

Good credit is necessary if you plan to borrow money for major purchases, such as a car. A higher credit score can mean better interest rates and terms on loans and credit cards. It’s important to note that lenders aren't the only ones who concern themselves with your credit reports and credit scores:

  • Landlords may check your credit when deciding if they'll rent you an apartment or determining how large a security deposit to require.
  • Insurance companies may use your credit scores as factors in determining your rates and,
  • Prospective employers may use information found in credit reports to make a hiring decision.

We want you to understand that a good credit score matters in very real ways. The following example will help illustrate the difference your credit score makes when paying for loans.

Meet Amy, Barry and Chris.

Amy has excellent credit. [FICO: 850]

Barry has fair credit. [FICO: 670]

Chris has poor credit. [FICO: 630]

Let’s say they each finance the same car for $26,500. Amy pays $5,300 for her car. Barry pays $5,800. And Chris has to pay $6,300 a year to drive around.

Each of them has the same driving record. Amy gets her insurance for $1,240 a year. Barry pays $1,700 a year for his, and Chris has to pay $2,160.

Each carries a $3,000 credit card balance. Every year, Amy pays $327 in interest. Barry pays $594, and Chris pays $649.

So, in a year, Amy saves $4,242. Amy can buy lunch everyday. Barry saves $2,515. He can buy 4 new video games a month.

Don’t let the first warning of your credit be a giant bill. The team at Genisys Credit Union is available to help build your financial future today.

Now that we know the basics of credit and how your credit score can impact future loans, lets see how we can build good credit.

Start with a credit card limit between $500-$1,000 so it’s easy to manage. Take into consideration the tips we’ve already learned on how to use your credit card responsibly and you’ll be on your way to building a solid credit score.

Consider a Credit Starter Loan to help build your credit if you have no credit history. When it’s time for your first auto loan you will have proven that you are a responsible borrower. This will help ensure you receive the best rates available.

A Genisys Credit Starter Loan is offered to 18-21 year olds with no credit history and includes a maximum loan amount and term.

Not only should you make sure you are making your payments on time, but you should also be aware of all factors that are impacting your credit score. Obtain your Free Credit Report at www.AnnualCreditReport.com to review your history and correct any mistakes.

Now that you’re familiar with credit, what steps will you take to improve your score or begin building credit?

You can view this video and all past videos on the Genisys website.

See you next time!

Setting Up a Successful Budget

Learning to set a budget as a young adult is more important than you think! It will help you develop good financial skills, like being more frugal, saving money and potentially staying out of debt. At Genisys Credit Union we’re here to set you up for success and make it as easy as possible. Here are our 3 steps to help you set up a successful budget.

Hello and welcome to this week’s edition of The Genisys Money Fit Series

Today we are learning 3 steps to help you set up a successful budget.

We know what you’re thinking, why is a budget important?

Well, learning to set a budget as a young adult is more important than you think! It will help you develop good financial skills, like being more frugal, saving money and potentially staying out of debt.

Starting these habits early can also help with future expenses you may have down the road, like:

  • Saving for college
  • Planning for large expenses, like your first car or laptop
  • And Spending Less Overall

At Genisys Credit Union we’re here to set you up for success and make it as easy as possible. Here are our 3 steps to help you set up a successful budget.

1. Set Financial Goals

What are your short-term goals? Do you want the latest pair of shoes? Or maybe you’ve had your eye on Apple AirPods? Starting with a short term goal helps alleviate pressure to save for big ticket items - which we’ll discuss in a few minutes. You can set a plan to purchase those shoes or electronics in a few months, rather than years.

So, once you’ve accomplished your short term goals, we can think of long-term goals. Though it’d be nice, you can’t be chauffeured around for the rest of your life, so purchasing a car might be a long-term goal. Don’t worry, saving for a car is a goal that you’d want to focus on achieving over the course of a year or longer.

Take a few minutes to think about all the financial goals you have and how long you think it will take to reach these goals.

2. Understand Your Income, if any!

We know many young adults might be consumed with extracurricular activities and unable to hold a part-time job where they’ll have steady income. For those who don’t have a job, you might be wondering, “How can I budget?” Well, saving any money you make for helping out around the house or the money you received from grandma and grandpa on your birthday are perfect for budgeting.

If you have a steady income, layout whatever potential expenses you have coming your way for the month in question. Include car-related payments like gas and insurance, cell phone costs, food and drink, haircuts or makeup purchases. We understand that some young adults might not have a ton of expenses while living at home, but the key to creating a successful budget is to think about anything you spend your money on.

And if you’re uncertain on your goals, consult with your parents. They can help guide you in the right direction and even provide an idea of how they budget.

3. Monitor and adjust when necessary

There you have it, you now have your first budget as a young adult! How does it feel? Great? Well, unfortunately, you aren’t completely done just yet. You’re still going to have to monitor and adjust your budget when things aren’t working or when you want to change your goals. And don’t be discouraged, life is unpredictable so don’t get discouraged when plans change!

Start by adjusting when necessary and know that the more time you spend working hard on your budget, the easier it will be to make changes and the better you’ll be with your money.

And here’s a bonus Money Tip for You Guys

Your credit score is important!

One of the best things you can do for your future self, is to understand your credit score before beginning to establish credit. This is very important when deciding on your first loan or credit card.

So, what steps will you take to create your first budget?

Want to learn more? Check out our Credit Basics video and all past videos on our website.

See you next time!

Buying Your First Car - Part 1

Buying a vehicle - whether it’s a car, truck, or SUV - can be a complicated undertaking. This video will help you demystify some common car-buying concepts by walking you through the choices step-by-step. By the end, you should feel confident about how to handle the car-buying process and ultimately walk away with the car of your dreams at a price you can afford.

Welcome to our video series about how to buy your first car. Buying a vehicle - whether it’s a car, truck, or SUV - can be a complicated undertaking. This video will help you demystify some common car-buying concepts by walking you through the choices step-by-step. By the end, you should feel confident about how to handle the car-buying process and ultimately walk away with the car of your dreams at a price you can afford.

First Steps: New vs. Used?

To get started you need to decide whether a new or used car is best for you.

First, there’s the case of the warranty. Almost all new cars come with a built-in manufacturer’s warranty that’s usually good for at least three years or 36,000 miles. In addition to major repairs, some warranties cover routine maintenance, such as oil changes. If you have someone else covering the expenses for the first few years that is money you’re saving.

Repairs are another factor to consider. They come with the territory of car ownership, whether you’re buying new or used. While you can expect to pay more to maintain a used car than a new one, no one gets away completely free. Given the possible expenses involved in repairs, buying a pre-owned vehicle can be a bit of a gamble. Typically, a dealership that also sells new cars will spend the time and money to ensure their used inventory is also up to snuff. Buying from a used car specialist or looking for a vehicle on a site like Craigslist can be a bit more risky.

Depreciation is a big concern when buying a vehicle. Depreciation is an asset’s loss of value over time. A car is worth less the older it is. Any new car depreciates by approximately 11% of its original value as soon as it leaves the lot for the first time. For example, let’s say you purchase a brand new car that costs $26,675. It would depreciate by $2,934 as soon as it rolls off the lot. That’s $2,900 bucks you’ll never see again, and that’s only on the first day. Within the first two years, provided you’ve kept the car in near-perfect shape, the car will be worth just 74% of its initial purchase price. So that same vehicle would now be worth only $19,739 - meaning you’ve lost $6,936 in the value.

Before buying new, be sure you’re ready to make that hefty commitment. If you’re buying used, the loss that new car buyers experience is your gain. For starters, all that money now gone to the depreciation is money you save. Not to mention that after the 26% a car loses in the first two years, the amount lost in depreciation drops significantly every year. After the third year, you’d typically lose only 7% of the original value. After that, the value lost to depreciation is just about negligible. That means that not only do you save more than 25% when you first buy that used car, you also don’t need to worry as much about losing money to depreciation. The money’s already been lost by someone else.

Thanks to a large number of lease returns, used cars that are about three years old are plentiful on the market. You’ll be able to get the most car for your money if you buy used, but you’ll pay a higher interest rate on a loan, have a shorter warranty period and won’t know the car’s full history. Everyone has a different reason to decide whether to buy new or used. If your goal going in is to save as much money as possible, there are some things you’ll want to keep in mind. Are you willing to take the risk on a car surpassing its warranty? Are you willing to pay extra for maintenance and repairs? Do you want to take a chance that the past owner treated the car poorly? Is it really worth losing so much money to depreciation? The more questions you ask, the more confident you can be in your decision to buy new or used.

Choosing a Car: What to Consider

Once you’ve decided on new or used, you’ve only just begun making decisions. Your biggest choice comes in deciding what kind of car to get. This is probably the biggest purchase you’ll make other than your home, so you’ll want to be confident in your decision. Start by researching the cars that have caught your eye to see if they fit your budget. Visit automaker websites and independent automotive information sites to assess the features that are important to you. Check local inventory listings to see what is available in your area. Choose cars that would cost at least 5 percent less than your monthly budget to give yourself some room to cover operating costs, including gasoline, insurance, repairs and maintenance.

Is Resale value important to you? Do you plan to drive it until the wheels fall off, or do you see yourself wanting to upgrade in a few years? If this is a car you plan to own for less than five years, you need to look at the potential resale value. Cars from luxury brands, such as Lexus and BMW, tend to hold their value fairly well. Cars with a reputation for longevity and dependability, like Toyota and Subaru, also tend to depreciate slower than other brands.

Gas Mileage can be an important factor to consider. Too many buyers fall in love with the styling and handling of a vehicle without taking into consideration the cost of keeping that gas tank full. Suppose you are choosing between two cars. One model gets 20 miles to the gallon and the second is more economical at 30 mpg. Assuming you drive 15,000 miles per year, the annual cost of gas for the first model is $1,875 at a pump price of $2.50 per gallon. The more efficient car will cost you just $1,250 to refuel. That’s a difference of $625 or just a little more than $50 per month.

Look at what you use your car for on a daily basis. For most people, this is a commute to work and back. For this, you need a comfortable car that gets good gas mileage and is easy to park. For special occasions, you can always rent a car or truck. How many times a year do you see yourself picking up furniture or hauling a trailer? If it’s less than five, remember that you can still rent a truck or van for such occasions.

Another choice you have is whether to buy or lease. Buying means you’ll take out a loan for the purchase price. When the loan is paid off, the car is yours, free and clear. You can also lease a car, which is essentially a long-term rental. At the end of the lease term, you may have the option to buy the car, depending on the terms of the lease. If you choose not to purchase it, you turn it in and having nothing to show for it. Generally speaking, leasing a car isn’t as good a deal as buying.

Leasing might be attractive to you if you want to be able to drive a newer car and you drive a minimal number of miles annually. Take a look at our lease vs. buy calculator to help you decide what the best choice is for you but also consider these points.

Mileage restrictions. Many low payment leases have low mileage allowances and you could pay penalties if you drive more miles than allowed. Consider the chances that the number of miles you now drive could change in the future.

Possible wear and tear fees. Leases usually have “excess wear and tear” provisions. These could cause you to have unexpected charges at the end of the lease if there has been any damage to your car.

Continuous Payments. In a lease situation, you will have to turn in your vehicle and likely have another payment to replace it.

Insurance. If you wreck your lease car rather than one you own, your reimbursement may be less than what you owe on the lease. You may want to get “gap” insurance to cover the difference. The price of “gap” coverage for your lease vehicle could wipe out a chunk of the monthly price advantage of leasing rather than buying.

A new car for the same amount of money would have fewer features, but you’ll also have a full warranty and pay a lower interest rate, and often you’ll get free maintenance and roadside assistance. For many, a certified pre-owned car is the ideal compromise. These vehicles are cheaper than new cars, and they often have some warranty left and must meet certain criteria to help ensure their reliability and condition.

See you next time!

Buying Your First Car - Part 2

Buying a vehicle - whether it’s a car, truck, or SUV - can be a complicated undertaking. This video will help you demystify some common car-buying concepts by walking you through the choices step-by-step. By the end, you should feel confident about how to handle the car-buying process and ultimately walk away with the car of your dreams at a price you can afford.

Welcome back to our video series about how to buy your first car. After you’ve picked out your car, your next step will be determining financing and insurance.

Financial Tips and Tricks

This is the last opportunity dealers use to make more money off their sale to you. Typically dealerships do not do their own financing. Finance & Insurance people (also known as F&I) take the estimated price of the car, the actual value of the car and your credit history to shop the deal to a number of different lenders. These may include, local banks and credit unions, as well as national lenders and manufacturer finance departments. These vendors each quote an interest rate and relevant fee information to the salesperson or sales manager. Car dealers usually have long-standing business relationships with these lenders, which may include incentives for selling a loan from a specific lender. In addition, dealers may have the option of marking up the interest rate to earn additional incentives. The lenders are competing for the dealer’s business, not necessarily for yours.

Make no mistake, financing is profitable for dealerships in many ways. Unless you come in armed with a pre-approval, you’re almost always better off if you make financing the last part of your transaction with the dealership. This doesn’t mean, though, that you don’t want to think about financing until that point. The dealer is trying to sell your business to a lending organization while making as much profit as possible on the transaction. Come talk with us at the credit union before you reach that point. We can help you identify price ranges and terms that are best suited to your budget while also getting you pre-approved. It will shorten the process for you, give you buying leverage and minimize your susceptibility to aggressive sales tactics.

Is 0% Financing Worth It?

If you’re shopping for a car because you’ve seen an advertisement for 0% financing, you’re not alone. If it were honestly a losing proposition for the manufacturer, they likely wouldn’t keep doing it. How, then, could they possibly make money on the financing? The answer is two-fold: volume and selectivity. The volume part of the money-making strategy is simple. Zero percent 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 some 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 the 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. These loans are usually short-term and if your history with credit is anything less than perfect, don’t expect to qualify for 0%.

Choosing 0% financing will often prevent you from taking advantage of other discount options like manufacturer rebates and other discounts. This last hiccup can mean 0% financing is actually more expensive than a loan that’s obtained through a private lender like the credit union. To see this effect, let’s take a look at two options.

  • Option 1:
    Option 1 at 0% financing gives you a monthly payment of $555. Assuming no other fees or problems, you’ll pay $20,000 over the life of the loan.
  • Option 2:
    Option 2 is a 4% interest rate on a five-year loan from the credit union, plus a $2,000 manufacturer’s rebate. Your monthly payment will be $331.47 - a much more reasonable amount. Over the life of the loan, you’ll pay a total of $19,890. That means you will save $110 and have a lower car payment, too.

Arranging outside funding before you go to the dealership can be a tremendous negotiating advantage. By continually postponing questions of financing, you can let the dealer think there’s still money to be made. This position might lead them to give you more on your trade-in, lower the price of the car or offer you more options. The loan you get to pay for your car may be the biggest financial decision you make besides your home. You owe it to yourself to do your research and treat this decision with diligence.

Let's Talk Insurance

Although most people are well aware of how their driving record affects their insurance costs, many don’t realize just how much their choice of car affects the rates. The age of your car has a lot to do with your insurance premiums. That is because the older your car gets, the more value it loses.

The make of your car has a big impact on rates too. High-end luxury cars usually cost more to insure because the cost of parts, repairs, or even replacement in the event of a total loss can be very expensive for the insurance company. The model also has an effect on insurance rates. Two different models from the same manufacturer can have different rates. In fact, even the difference between two cars with different trim levels and options can make a difference.

The risk of theft also impacts insurance rates. Generally, due to higher rates of vandalism, theft, and crashes, urban drivers pay more for car insurance than do those in small towns or rural areas. Insurance companies use statistics to determine how high the odds are that your car will be stolen and set rates accordingly.

Other factors you may not realize affect insurance rates too. People who use their car for business and long-distance commuting normally pay more than those who drive less. Crash rates are higher for all drivers under age 25, especially single males. Insurance prices in most states reflect these differences. However, the silver lining is some car insurers provide discounts to student-drivers who maintain good grades. Also, many insurance companies use credit history to help determine the cost of car insurance. So before you head down to the dealership, do some research. Does the vehicle that has caught your eye have a high cost for repairs or parts? Is this specific model often stolen? Knowing the answers to a few simple questions can go a long way in keeping your rates low.

Discuss your plans with a representative at the credit union, including the type of vehicle you’re thinking of buying. Figure out what kind of rates they can offer. By doing your research ahead of time and knowing what financing options are available, 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.

The Last Decision: Extended Warranty & Add Ons

You’ve finally done it! You’ve gone through the test drives, the sales talk, the self doubt and the sleepless nights - plus the mountains of paperwork. The car of your dreams is yours. But what if something terrible happens to it? You don’t want to be the one to pay for that, do you?” You don’t, so you fork over another thousand dollars or more for an extended warranty.

Extended Warranty

What is an extended warranty? You pay an insurance agency for a policy and they’ll cover the cost of repairs after your manufacturer’s warranty expires. In reality, more than 55% of participants in a recent consumer report said that they never used the extended warranty they had bought.

There are a few legitimate reasons to invest in an extended warranty. For one, if you’re buying a used car, you might want to use the money you save on the actual car to pay for some extra repair coverage. Used cars are twice as likely to malfunction as new ones, especially since you don’t know how well the past owner treated them. But almost all brand new cars come with three years of manufacturer’s warranty. Don’t pay for something you’re already getting.

GAP Insurance (Guaranteed Asset Protection)

Another popular add on is GAP or Guaranteed Asset Protection insurance. GAP covers the difference between the total amount of the loan and the value of the car. It’s protection against the worst-case scenario, that your car is totaled and you owe more than it is worth. Dealerships maintain institutional arrangements with insurance agencies, expecting you to purchase it without much thought. It’s one of the last chances they have to seek profit on the sale, and they rely on you not to notice.

Be prepared to say “no” to all the extras you may be offered at the dealership. While you might not think so at first, the credit union offers these types of coverages and has a strong track record of protecting members’ purchases. Members have saved thousands of dollars on their claims and helped keep debt scenarios from turning into nightmares. You can always contact the dealership at a later date to negotiate prices with them if you choose.

Final Thoughts

As you start your search be sure to use our auto loan payment calculator to see how your down payment, trade-in, and auto loan interest rates and terms affect the amount of car you can afford. Once you arrive at final numbers with the dealer, bring a signed document with the price of the car to the credit union, and let us get you financed.

See you next time!

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