Financing your dream car

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Excited to drive the hottest ride in the city but do not have the money for it? Consider the following to finally get your dream car:

Do your homework. Checking the Internet and newspapers, contacting car dealerships, credit unions, and local banks will help you to see what kind of deals you can get. Knowing also offers from a car dealer’s competition will help you during negotiations.

Plot your budget. A good rule of thumb is roughly 20% of your net monthly income can be used for car amortizations. Once you have the figure, stick with it. Apart from down payment, estimate early on expenses for licensing, registration, insurance costs, gas, maintenance, etc. Through this, you should have a ballpark figure of the budgeted amount you need for car payments. Seguir leyendo Financing your dream car…

10 ways to save on your mortgage

Often, you end up paying more in interest that the amount of the loan, or principal, itself. So if keeping your total costs down is more important to you, here are tips to cut down on your mortgage expenses.

1. Everything else equal, pick the bank that has a lower spread in its interest formula, resulting in lower interest expenses.

2. Choose a fixed rate for the duration of your loan at a rate you’re already comfortable with. There will be no ugly shocks down the road.

3. If you choose an adjustable-rate loan, reprice quarterly, but only if you think rates will go down in the short term and only if the bank offers a rate cap.

4. Increase your equity or down payment, so you borrow as little as possible. But if you can invest your money at a higher rate, then put down as little equity as possible. Seguir leyendo 10 ways to save on your mortgage…

Top 3 credit card sins

Credit cards can be a great friend and your worst enemy. Don’t commit these grave mistakes.

1. Not knowing the interest rate

Most consumers are attracted by credit cards that have rewards like free miles or cash rebates. That’s fine as long as you pay off monthly balances. But if you’re what industry insiders call a revolver—paying off the minimum—you’ll be easily hurt by interest charges. So, shop around for the best rates.

Also, check the annual percentage rate (APR) and not just the nominal rate. Figure out how interest is computed. Is it a straight computation based on your outstanding balance? Or is it based on your average daily balance? The formula can also be based on a shorter number of days, instead of a full 30 days.

2. Paying only the minimum

The best thing to do is to pay in full. If you find yourself paying just the minimum every month, it can mean you’re spending more than you can afford. You’ll be slapped with hefty finance charges. If you have a balance of, say P100,000, with a 3.5% monthly rate and a 5% minimum payment, it will take you an entire year and nine months to pay it off.

Now, if you have no choice but to pay the minimum, stagger your payments weekly and not pay the lump sum on the due date. This is because for many credit cards, finance charges are computed on an average daily balance. So with declining balances over the credit cycle, the average daily balance—and the interest charge—gets lower.

More importantly, cut back on your expenses. Manuel “Chut” Santiago, Jr., General Manager of UnionBank Card Center, says, “Credit card spending should be part of an overall spending plan. Cardholders should not spend more that what they can quickly repay.”

If your spending gets out of control, ask for a lower credit limit, or if things get worse, cut your card and pay in cash. Remember Seguir leyendo Top 3 credit card sins…

ARE BANK INVESTMENTS THE BEST FOR YOU?

There are several reasons why banks are the first alternative that people choose for the deposit of their savings.  To begin with, banks provide many people with their earliest experience with any form of savings account.  In addition, on the basis of a personal relationship with a pleasant teller or a friendly manager, some people develop a loyalty to their bank that discourages a cold, objective comparison of interest rates and investment options.  Moreover, because they are reluctant to deal with strangers and mistrustful of the U.S. mail, many people prefer a relationship with a local bank they can visit at any time.  And, finally, banks tend to emphasize the safety that FDIC or FSLIC insurance offers their depositors.

All of these factors predispose many depositors toward banks and cause them to overlook some attractive alternatives instead of considering them carefully and objectively.  Before assuming that bank offers you the best all possible vehicles for your savings, you ought to consider the alternatives discussed in chapter 5 and in chapter 17 through 22.

CLOSE-UP:
LEGAL PROTECTION FOR DEPOSITORS

Deposit Insurance

Federal insurance coverage for bank deposits-through the federal Deposit Insurance Corporation for commercial banks and many savings bank and the Federal Savings & Loan Insurance Corporation for savings bank and savings-and-loan association—protects depositors to a maximum of $100,000 at any one bank.  All federally chartered banks are required to be members of the FDIC; state chartered banks need not belong, but most do.  Seguir leyendo ARE BANK INVESTMENTS THE BEST FOR YOU?…

CERTIFICATE OF DEPOSIT

A certificate of deposit (CD) is a promissory note that you receive from the bank.  In return for your loan, the bank promises to pay you a fixed rate of interest (or, sometimes, a variable rate) for the term of the loan and to return your principal and interest at the end of that period.  While CDs pay higher interest rates than do regular  savings accounts and provide the security of FDIC protection, they tie up your money for the term of the certificate.

Interest vs. Liquidity
The fact that the interest rate on a certificate of deposit is fixed and unchangeable may turn out to be either an advantage or a disadvantage.  When interest rates are at a peak, a bank will have to offer certificate at a fairly high interest rate to attract buyers.  If you buy a long term certificate at that time, you will lock in a high rate, and continue to receive that the rate even if interest rates drop precipitately.  Conversely, if interest rates are low at the time of your purchase, you will lock in a low rate for the entire term of the certificate. Seguir leyendo CERTIFICATE OF DEPOSIT…

MONEY MARKET ACCOUNTS

The money market accounts offered by banks can be confusing for three reasons.  First, the same basic account is given a wide variety of names by different banks.  Money Management Account, Market Plus Account, Investor’s Choice Account, and so forth.  Second, the money market account is easily confused with the Super NOW accounts, an interest-paying checking account.  Third, the money market account is also easily confused with the money market mutual fund, which is similar in some respects but is not offered by banks.  Regardless of its name, however, the  money market account available from banks has the following characteristics.

Like a regular savings account, a money market account  typically earns interest at 5.25 percent up to a specified balance—usually  $1,000 to $2,500.  Beyond that level, the interest rate rises to what banks call the “market interest rate”—a rate that fluctuates but normally is about one percentage point higher than the rate paid on Super NOW.

Like a savings account, the money market account is federally insured, and there is no limit to the size or the number of deposits or withdrawals that you can make.  But while you are entitled to write three checks per month on the account, exceeding this limit can cost you a penalty of $5 to $10 per check.  And, because its interest rate is higher than that of a regular savings account, some people use the money market account as a temporary parking place for funds awaiting other kinds of investments.  Keeping such funds in a regular savings account or Super NOW account would earn them less, and depositing them in a non interest paying checking account would earn them nothing. Seguir leyendo MONEY MARKET ACCOUNTS…

PASSBOOK AND STATEMENT SAVINGS ACCOUNTS

The traditional savings account—whether its activity is recorded in a passbook or a monthly statement—is safe and liquid. As a result, it pays the lowest rate of interest offered by banks. Prior to the changes brought about by the Depository Institutions Deregulation Act of 1982, the interest payable on such accounts was limited to 5.25 percent for commercial banks and 5.5 percent savings banks. Although banks are now free to offer whatever rates they choose, these rates have not much. Instead, banks offer their customers higher rates for larger or less liquid forms of deposit, as discussed below.

With passbook accounts, all deposits, withdrawals, and other transactions are recorded in a book that the depositor holds and presents with each transactions. (Passbook account transactions are, of course, also recorded by the bank’s computers). Before the advent of computers, this was the standard type of savings account. Some consumers still prefer the passbook account—perhaps because it represents tangible evidence of their savings balance—even though the passbook are easily lost or misplaced and passbook depositors do not have access to automated teller machines. (Some banks no longer even offer passbook accounts.) Seguir leyendo PASSBOOK AND STATEMENT SAVINGS ACCOUNTS…

SAVINGS ACCOUNT

Savings may be defined as the money that you set aside from your disposable income for future use instead of spending it immediately. The future use you anticipate may occur at the end of the month, when your mortgage payment falls due, at the end of the year, when your need to buy a new car, or 10 years from now on, when your child’s first college tuition bill. You may intend part of your savings to protect you against an unspecified rainy day –to pay for unforeseen emergencies like medical expenses or the loss of your job or to allow to take a vacation or redecorate your home.

Whether you are saving for the short term or the long, however, you should be concerned with three factors. You want your savings to be protected against total or partial loss; you want them to grow by earning interest; and you want them to be readily available.

Unfortunately, there is no investment that will simultaneously satisfy your concerns for safety, yield, and liquidity. Whether you invest your money in a savings account, stocks, or real state, the higher the safety, the lower the yield, typically—and the higher the yield, the lower the liquidity. This is why bank savings account, for example, which are both safe and liquid, Seguir leyendo SAVINGS ACCOUNT…

CLOSE-UP: WHATS IN THE FINE PRINT?

Most ordinary checking accounts do not have the kind of contractual fine print associated with the loan agreements.  These are few regulations governing checking accounts, so most of the details of the account are found in promotional brochures, pamphlets, and advertisements.

However, checking accounts with a debt card attached to them often have a page or two of fine print.  Debit cards, also known as bank cards, fall under the regulations contained in the federal Electronic Funds Transfer Act.  Look for several items in your bank-card agreement:

Your Liability for Unauthorized Transfers   
The agreement should outline your liability.  By law, if you inform your bank about a lost or stolen card within two business days of your discovering its loss or theft—not two days from when it was actually lost or stolen—your liability is limited to $50.  (Many banks have 24-hour phone numbers for reporting lost cards, making it even easier for you to meet the two-day deadline.)  If you do not tell the bank within two days, your liability could be as high as $500.  Seguir leyendo CLOSE-UP: WHATS IN THE FINE PRINT?…

CLOSE-UP:SPECIAL SITUATIONS IN CHECKING

While you are scrutinizing a bank, the bank is often doing the same to you.  Banks clearly prefer certain groups to others.  No group can be barred from a bank, but the favored ones can be attracted with such incentives as better services and higher interest rates for higher balances.  The less favored groups can be provided with dis-incentives: high minimum-balance requirements before interest can be earned, and poor-quality service.  Following are the four major groups most bank either love or hate. 

The Wealthy   
As one might expect, people with plenty of money are favorites of a bank—and for good reason.  The wealthy individual has an abundance of what a bank needs—money.  In recent years, banks have moved to provide wealthy customers—often defined as high-balance customers—with so-called priority services.  For checking accounts, that has meant special, shorter teller lines, highly personalized service, and fee waivers.  In some cases, banks will go to extremes in personal service to please a wealthy depositors.  One New York banker helped a customer get a car into and out of the country; another intervened to rescue lost luggage from the clutches of an airline’s bureaucracy. Seguir leyendo CLOSE-UP:SPECIAL SITUATIONS IN CHECKING…