Zero Percent Auto Loans: The Catch

Is it really zero percent?

Dealerships and manufacturers love to offer zero-percent financing as a way to attract customers. This sounds like a tempting offer, but less than 10% of applicants actually qualify for this special financing. Not only do most people not qualify for this type of loan, but they are also packed with hidden fees and charges. If you are considering a loan option like this, read the fine print very carefully before proceeding with the loan. The last thing you want to do is get stuck with an expensive loan.

Hidden Fees

If a business were offering a truly zero percent financing loan, they would quickly go out of business. Many manufactures and dealerships who provide zero percent financing have hidden fees in the fine print that they might not tell you outright. Typical fees include annual membership fees that range from a few dollars to several hundred and can often make the cheap loan rate very expensive in the long run. Another common term is that the borrower will receive penalties for early repayment, which can include retroactive interest or additional charges.

Credit Trick

A common trick with zero-percent financing deals is to give you a credit limit that is barely above the loan amount. If you exceed that credit limit in the slightest, the creditor may be able to increase your interest rates. These rate increases many times can exceed 20% or more. If you do receive 0% APR and this is contingent on a specific credit limit, be sure you NEVER exceed that limit.

Time Limits

Many loans promising 0% financing require you to pay the loan back in full by a particular time. If this deadline isn't met, large interest amounts may be added based on the original loan amount, not just the remainder. If applied, these rates typically exceed 20% and can turn what seems like a great deal into a complete nightmare. When applying for a loan like this, make sure you're realistic about what you can afford and how fast you can repay the loan amount. If there is any question on whether you'll make the payments on time, find a different loan option.

Built-in Costs

If you're getting a zero percent financing car deal, you might have difficulty haggling to get the car price lowered or any other incentives. This allows the automaker to pocket a nice profit on the car's sale despite offering the 0% financing. These inflated prices can make the 0% financing deal a complete waste of money when. You need to compare the difference in cost to a zero percent financing deal and a low-interest rate with the ability to negotiate on the price.

 

More often than not, 0% financing is not what it's made out to be. There are many hidden fees, time limits, and credit restrictions. When making a large purchase such as a car, it's essential not to get tricked into thinking you're genuinely getting 0% financing. With BrightStar's FREE Auto Advisors, they will negotiate the lowest price possible, and you will receive a 0.25% rate reduction on your BrightStar auto loan.

by Spencer Hall

Understanding Credit in a Changing World

Your Credit Matters!

Understanding your credit is an incredibly vital thing to grasp. It’s what employers, lenders, and even insurance agencies can look at to determine if they will provide you with a service. Especially in today’s world, credit can be a huge lifesaver when needing a little extra help.

What is a credit score?

Your credit score can range from 300-850. Ratings 720 and above will usually give the borrower the best rates available unless it is a thin file (minimal trade lines and history) also known as a false Beacon. The following are the roles of credit scores:

  • One element of the credit decision-making process.
  • Often the key to better rates. Higher scores equal a better rate.
  • Not a money-management tool. This is purely an indicator of how risky you are to a lender.
  • Discovering fraud or credit reporting errors is essential. You want to check your credit score periodically to ensure your personal information hasn’t been compromised.

How Scores are determined

Many different factors determine your credit score. No one knows precisely how much each category is worth, but they are all significant in determining your final number. Below are the different categories with an estimated percentage of how important each is.

  • Types of Credit (10%)
  • New Credit (10%)
  • Length of Credit History (15%)
  • Amounts Owed (30%)
  • Payment History (35%)

There are many mistakes that you can make when it comes to your credit. Each error will adversely affect your credit score. Typically, if you max out your card, it will decrease your score by 10-45 points. Late payments will reduce your score by 60-110 points. A foreclosure will affect your score by 45-125 points, and bankruptcy will decrease it by 130-240 points. Make sure you are responsible with credit to avoid penalties.

How to improve your credit score

It can take time to repair your credit score, but it’s essential to do. The following are ways that you can improve your score:

  • Pay on time, every time. Even if it’s just the minimum, pay it.
  • Pay collection accounts.
  • Keep your old accounts. Don’t cancel old credit cards that aren’t costing you money. The length of your credit is important when determining your score.
  • Avoid maxing out accounts.
  • Limit balance transfers.
  • Avoid excess credit applications. Generally, you only need 3-5 credit cards.

Beware of credit repair companies. They cannot legally do anything that you cannot do yourself for free. Take steps yourself to dispute incorrect or outdated information. Members of BrightStar Credit Union can speak with a financial advisor for FREE to sort out their credit issues and develop a plan to improve their score. Our Balance Financial Advisors will also help build a household budget, understand your credit report, buy a home, protect your identity, rebuild your credit rating, and more.

COVID-19 and your credit score

While employment status isn’t included in your credit report, job loss can still affect your credit. The reason job loss can affect your credit is that you might not stay current on your payments resulting in penalties. Unemployment itself does not prevent you from applying for new credit. The likelihood of a loan denial is much higher with a loss of steady income. Hopefully, during these hard times, you have taken the right steps to ensure your credit score remains healthy.

by Spencer Hall

Holiday Budgeting

Successful Holiday Budgeting

Holiday Budgeting

Successful Holiday Budgeting Tips

With the holiday season approaching quickly, budgeting for those holiday gifts is going to be super important. Not only will you have your reoccurring monthly expenses, but now you need extra money saved to purchase gifts for your loved ones. Here are some tips on how to prepare.

 

 

Figure out your expenses and make a list

Make a list of all your normal monthly expenses and then add all the gifts you intend to buy. Obviously, the monthly expenses should be the top priority, so once you know how much that is you can estimate how much you are able to spend on gifts or events. It’s super important to stay within you budget because nothing is worse than coming out of the holiday season in debt.

 

Set a limit for how much you are going to spend

Once you have a list of all your expenses, make a limit for how much you can spend. Many people don’t make a limit and overspend on their credit cards. This is a great way to end up in debt and paying interest on those gifts. No matter how special the person might be, giving up your financial freedom isn’t worth it.

 

Sales are everywhere

Check out the sales that are happening near you! Stretching your dollar will help you get the most bang for your buck. Huge retailers typically have flash sales or holiday deals. Make sure to have a shopping plan of where you want to go so you can check to see when their deals are. The best way to stay caught up on deals is to sign up for email alerts. It will save you the hassle of looking online every day to figure out if they are having a sale.

 

Don’t use a high interest credit card

Many banks and retail stores will offer discounts if you sign up for their credit cards, but then hit you with high interest rates. Credit Unions will offer the lowest rates available and many times have 0% APR for 12 months. This could be super beneficial when it comes to spreading out the cost of the gifts. Another option would be to go cash-only shopping so you can be sure that you won’t end up in any debt.

 

The holiday season is a fun time to spend with friends and family. Budgeting will help make this holiday season affordable and stress-free if done correctly!

 

by Spencer Hall

Home Equity

What's a HELOC and how do I use it?

What’s a HELOC?

HELOCs resemble a second mortgage and also function like a credit card. You are able to draw from this fund whenever needed. Therefore, you don’t have to withdrawal it all at once. The main difference between a HELOC and mortgage loan is that a mortgage is used to buy a home. You never see the money since it’s given to the seller and you pay monthly for a certain period of time. A HELOC is a line of credit that uses your home as collateral that you can withdrawal from at any time. The interest is only paid on the amount that you use. For example, you could get a $50,000 HELOC and only use $10,000 of it. You will only pay interest on the $10,000 that you borrowed.

Six Smart Ways to Use a HELCO

Renovate rooms

This is a great way to increase your home’s value. One of the best rooms to start with is the kitchen. Many homebuyers look for a modern kitchen that is updated with current trends. Using a HELOC to pay for this renovation is a great way to get the most bang for your buck. After your kitchen, focus on bathrooms and then bedrooms.

Convert unused space into living space

Finish your basement or convert unused space into something cozy and livable. This is a great way to add more space to your current layout and will make potential homebuyers intrigued with the amount of usable area in the home. You could also consider adding a mother-in-law suite somewhere in the layout. Adding something like this has the potential of adding quite a bit of value to your home.

Give your home a makeover

Replace siding, doors, garage, etc. for a better outdoor appearance. Having a nice outside appearance will attract buyers and will allow your home to stand out in the neighborhood. It’s amazing what a fresh coat of paint or a new roof can add to a home’s appearance!

Pay off debt

You can pay off high interest debt such as those typically associated with credit cards. Be careful if you choose to do this because you are gambling your home on it. HELOCs will offer a lower interest rate but have a high level of risk associated with them. Make sure you have a great plan in place to ensure you are able to pay off the HELOC and not default.

Pay for a vacation, college, car, etc.

Along with home improvements and debt consolidation, a HELOC can be used to pay for “fun”. Although this is a very tempting option, make sure you have a solid plan on paying back the loan. REMEMBER… your collateral is your house. If something were to happen and you weren’t able to pay the loan back, you will lose your home!

HELOCs are great tools to use when used correctly. Whether it’s fixing up your home, consolidating debt, or having a little fun; BrightStar CU can get you set up with a low-rate HELOC!

by Spencer Hall

credit cards

What to Look for When Applying for Credit Cards

credit cards

What to Look at When Applying for Credit Cards

There are many different reasons to apply for a credit card. You could be a student looking to build credit, a new parent looking to spread out payments on baby gear, or a smart shopper wanting to receive cash back. It’s very important that you don’t go overboard with charging everything to your credit card. You need to remember that you eventually have to pay the money back.

There are many things to consider when picking the perfect credit card to apply for.

 

Top 4 Things to Know About Your Credit Card

  1. Annual Percentage Rate (APR) is the cost of borrowing on the card. This comes into effect if you don’t pay the full balance each month. Each card has a different APR and is calculated by your credit worthiness and other factors. Having a low APR will allow you to pay less in interest if you’re planning on keeping a balance. We recommend paying off your card in full each month so you don’t waste money on these interest payments.
  2. The minimum payment is the lowest amount that you need to pay each month to avoid a fee. If you plan on not paying off your balance each month, it’s important to understand the minimum payment amount that you are required to pay. You will need to make sure you can afford the minimum payment each month so you can budget accordingly.
  3. Rewards can come in the form of discounts, vouchers or merchandise depending on bank. These points add up after each qualifying purchase until you have enough to cash out on the reward. One important thing to look at is to make sure the card you are applying for has qualifying stores that you use. Otherwise, this rewards system isn’t very useful since you won’t be shopping where you have the potential of earning rewards.
  4. Cash back is an important thing to look at because who doesn’t like saving money? Typical card will offer around 1.5% on qualifying purchases. Again, you need to look at where you will earn cash back. Steer clear of cards that only offer cash back at certain stores. There are plenty of credit cards out there that will give you cash back on ALL purchases.

Now that you know the basic components of a credit card, you’re ready to start applying! It’s so important to start building your credit history when you’re young because it allows you to get lower rates on auto loans, mortgages, etc.

by Spencer Hall

Rear View Of Loving Couple Walking Towards House

What to Expect When Purchasing a Home

Rear View Of Loving Couple Walking Towards House

Mortgages & Home Buying 101

Owning a home is a dream for many people. It’s something they hope to accomplish at some point in their lives. Sure, it is a hard task that requires a lot of work, but with proper budgeting anyone can do it! Mortgages and home buying can be very confusing and scary but researching the steps will relieve some stress. Provided below are common questions and answers people have.

It takes how many years to save for a down payment on a home?

Unfortunately, saving for a down payment on a home can take a lot of hard work and planning. Using the following example, we can illustrate the process you can take to figure out how long you will need to budget for.

Assume you make $56,000 and save around 15% of your income each month. That’s around $8,400 a year. It would take about 5 years to build a 20% down payment for a $216,000 home.

Buying insurance on your loan will allow you to have a smaller down payment but might be offset with greater monthly payments. With proper planning and a bulletproof budget, owning a home can be easy and a great goal to look forward to!

What Should I Expect at Closing?

Once you’ve taken all of the steps in saving, getting a mortgage, and finding your dream home, it’s time to close! There are few things you should be prepared for.

  • Your lender will send you a closing disclosure that outlines the terms of your loan, final closing costs, and outstanding charges or fees.
  • Do a final walk-through of the property to make sure everything is as it should be. For example, make sure any repairs that were made are as expected and that you are happy with your future home.

What to Bring to Closing

  • You will sign many legal documents between you and your lender.
  • Pay attention to all of the costs and escrow items. A majority of the time, the buyer is required to bring funds in the form of a cashier’s check made out to the escrow company.

Present Parties

  • Closing agent
  • Attorney
  • Title company representative
  • Home seller and their real estate agent

Closing Documents

  • Loan estimate and Closing disclosure
  • Initial escrow statement
  • Mortgage note and Deed of Trust
  • Certificate of occupancy

by alex

Female holding car keys with car on background

Should I Buy a New or Used Car?

What to Consider When Buying a New or Used Car

 

Wouldn’t it be nice to just snap your fingers and have a new car show up in your driveway? Without this ability, you’re going to need to decide whether or not you want to purchase a new or used car. There are pros and cons to each, so developing a personal buying strategy is key.

 

Advantage of a New Car

It’s never been driven! You know the exact history of the car and know it will be reliable. That being said, you usually receive a warranty for the first few years. This is great because it’s less out of pocket expenses if something was to go wrong with the car. Generally, the first few years don’t see a lot of repairs other than maintenance, but it’s a great thing to have.

 

Disadvantage of a New Car

The second you drive that new car off the lot, the car will lose several thousands of dollars due to depreciation. It will be the most expensive two minutes of your life, so enjoy it. Depreciation has the biggest impact on your car during the first two to three years. This can be a little scary, especially if you’re in the hole with the auto loan. That’s why it’s very important to shop around for the best deals and rates so that you can get equity in your car fast. Buying GAP insurance is another way of protecting yourself when buying a new car.

 

Advantage of a New Car

New cars have the new car scent, fresh seating, and the latest technology. These things are important to many people, so deciding if you want to spend the extra money will be a decision you will have to make. An easy way to do this is to make a list of needs and wants. Once you figure out those two categories you can start looking for a perfect match.

 

Advantage of a Used Car

A used car has already taken the largest hit on depreciation, so you aren’t losing value right away. By not taking the large hit, you almost immediately have equity in the car. This is a huge bonus and will give you peace-of-mind. Provided below is an example of how this would be useful.

 

  • Sarah took a loan out for a new car totaling $20,000. The next week, she decides that she doesn’t like it anymore and wants to sell it. Since the car took a major depreciation hit when it left the lot, its value is now $17,000. In essence, she lost $3,000 in a week.

 

With a used car this hit is much less, and you get equity in the car much faster.

 

Disadvantage of a Used Car

Determining what condition the car is in can be a total shot in the dark. Since the car is new to you but used by someone else, the condition is unknown unless a maintenance check is done. Certified pre-owned vehicles have been tested and checked for imperfections, so you approximately know what condition the vehicle is in. With a new car, you know EXACTLY what condition it is in.

 

Unfortunately, there isn’t a one size fits all answer when it comes to car shopping. When making a decision, you need to determine what you need, want and can AFFORD!

by Spencer Hall

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by alex