# credit union loan & savings



## Pauline (30 Aug 2005)

Hi guys,
sorry to bring up this subject again as I know you have probably answered this question before but I have a credit union loan of 25k @ 8.4% with shares of 18k @ 2%.  I recently have received a gift of 7k from my parents which I thought I would use to pay off my loan (and cash in my shares) - however when I rang the credit union they seemed to think it was a bad idea to do so as then I wouldn't have any shares left - one of your earlier threads suggested paying off the loan but leaving a little in to start saving again - any advice?


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## Chris (30 Aug 2005)

I have had a similar experience with a credit unio before. They generally prefer if you have some shares and pay off your loan seperately, or even ask you to put some of you monthly payments towards the loan and some into your shares. 
I think this is nonesense, but I do realise that it might be a good moral boost to some people. In my situation I had 2k in shares which I had there to secure the loan. When my loan amount went below 2k I asked them to transfer my shares to the loan to pay it off. They tried to tell me this wasn't possible/against their policies. When I told them that I would write out a check for the 2k loan and withdraw all other funds (i.e. shares) and close the account they changed their tune. Having loans while saving doesn't make sense from a purely financial point of view.


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## asdfg (30 Aug 2005)

I must say this never made much sense to me 
Why don't you just have a loan of 7,000 @ 8% Cost over 5 years would be approx 140 per month 

25 K over 5 years will cost you 500 per month 
less                            approx 30 interest per month 
Net                                      470 
If you feel you will need a loan from the CU in the future then leave a small amount in the shares account


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## ClubMan (30 Aug 2005)

asdfg said:
			
		

> I must say this never made much sense to me
> Why don't you just have a loan of 7,000 @ 8% Cost over 5 years would be approx 140 per month


Because the _CU _generally insist that you maintain a certain level of money on deposit or in shares while also borrowing with them thus inflating the real cost of borrowing. Unfortunately they are often loath to quote an _APR _on such loans and, in particular, one that includes the cost of maintaining deposits while borrowing. There have been many discussions about this issue in the past. of course there are alternatives to the _CU _when it comes to credit and some may be even cheaper than the _CU_.


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## asdfg (30 Aug 2005)

Clubman 



> Because the CU generally insist that you maintain a certain level of money on deposit or in shares while also borrowing with them thus inflating the real cost of borrowing


 
I am aware of this. This is why I never understood why people would borrow from the CU, especially using the figures quoted. It does not make sense. 

Sorry if this was not clear in my original post 

I also realise this has been talked to death on AAM already


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## ClubMan (30 Aug 2005)

OK - apologies for any confusion caused!


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## darag (30 Aug 2005)

Pauline, don't listen to what your credit union are telling you. You are effectively paying about 25% interest on the excess of your loan over your savings. This is nothing short of usury in this day and age. Only by going to a moneylender could you do worse for yourself. As asdfg has pointed out, you are being ripped off big time.

bring in the 7k your parents gave you and tell them you want out. If they really INSIST that it's in your interest to keep shares, bring in a fifty euro note with the cheque and say you want 50 euro worth of shares AND NO LOAN.


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## sherib (30 Aug 2005)

Pauline, I agree totally with the previous posters; they are _very persuasive_ in the C.U. I used to believe that line (gullible) but not any more. There is a rule about not being allowed to use shares to pay off a loan so long as the debt exceeds the shares held. _I have a hunch you have been adding to your loan and keeping them happy?_ You have no problem now, with the gift and your shares you can clear your debt _tomorrow_. Great! Work out all the interest you will save and the C.U. will loose - is it any wonder they'd prefer you to stay in debt? 

If it makes you feel better leave €1,000 as a loan (I wouldn't). In any event, if you continue to make the same payments, you'll build up a decent share balance in no time. Work out the interest you'll save (minus miserable interest, minus DIRT) and give yourself a treat - on the Credit Union!

My yard stick is the office, furnishings etc. No longer dingy as they used to be 10+ years ago. You and me and other less savy people paid for that. Get smart and good luck.


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## Pauline (31 Aug 2005)

Brillaint - am going to sort this out today - thought this was right just needed the reassurance - thanks a million!


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