Conference 7.286::dcu

The 9.5% rate from AAA requires 0% down and years are flexable.

    
    How about if others check around at some local credit unions (and a
    bank or two) and post what they find?  To keep the comparison fair,
    also include % down, length of term, the name and location of the 
    institution.
    

    I'm not currently in the market for an auto (or any other) loan, but
    I'd suggest to those who ARE that they do the following:
    
    1.	Talk to at least two commercial banks (don't just pick up rate
    	sheets) to find out what terms they would REALLY be willing to offer.
    
    2.	Take the best terms to the DCU and ask YOUR (nonprofit) CREDIT
    	UNION to beat the commercial bank rate by a tenth.  (For example,
    	if the bank offers 9% financing on a car loan, ask DCU to give you
    	8.1% financing or better for the same down payment, number of
    	payments, and method of interest calculation.)
    
    3.	If DCU is willing to work with you, then you should work with them.
    	You may find that DCU's rates aren't really comparable because of the 
    	difference between "simple" interest and loans calculated on the
    	"rule of 78s" (avoid the latter, if possible) or other differences.
    	That's okay -- the test is whether DCU is willing to work with you to
    	meet/beat commercial bank rates.  If not, go back to the better bank.
    
    4.	Post your findings here (after you close on the loan).
    
    I believe this approach would have been 100% UNsuccessful before the
    arrival of Chuck Cockburn.  Things seem to have improved, but this
    approach should confirm (or refute) any fundamental shift in the way
    the DCU is doing business with its members.

    Just a note for information sake regard DCU car loans.   I recently
    paid-off my DCU used-car loan which carried a 13.75% variable rate
    because I couldn't get any satisfaction for why the rate was never 
    reviewed or changed in light of interest rates decline.   It is 
    frustrating when current rates for used-car loans are 11.75% at DCU,
    they're paying me around 4 1/5% on my savings account, and I'm paying
    13.75% for an auto loan.   Something is definitely out of whack here
    and I wrote Chuck Cockburn about my displeasure.   If I am just one
    unhappy DCU member, I'm sure there are many more out there.  
    
    The same problem exists with CDs.   I've had to rollover many CDs
    from DCU to other banks because their rates were not competitive.
    We just don't have much choice but to go with the highest bidder.
    
    Would be interested in comments.
    
    

    Re: .5:
    
    Your point is very valid.
    
    In a way, DCU's business posture is much like Digital (the
    corporation).
    
    I can speak from storage's perspective, and I'm sure the same is
    true in many other areas as well.  DEC spends much of it's time and
    resources selling to repeat customers.  We call it "churning the
    captive market".  We like the repeat business - it's a cost effective
    sell.  Furthermore, we get to set our prices to what that market will
    bear.
    
    Well, that used to be the case.  It isn't like that any more.  "Open
    systems", commodity workstations, commodity disk drives, commodity
    everything is causing us to become competitive in ways that we haven't
    been before.  We can no longer bank on the loyalty of our existing
    customer base because open systems says they can leap from vendor to
    vendor to solve the problem at hand, and lo and behold, the pieces will
    plug and play together (at least at the network level.)
    
    DCU has got to figure this out too.  They've gotten lazy and
    complacent.  They can't afford to assume that the DEC employee base is
    that loyal any more.  In today's economy, higher rates on savings and
    lower rates on loans are what people are looking for.
    
    "Churning the installed base" is no longer a viable business strategy,
    neither for DEC nor for the DCU.  DEC is learning that we have to find
    new customers in addition to keeping the old ones.  DCU hasn't even
    recognized it, let alone figured out how to react to it.  I hope to be
    able to change that.
    
    
    

    
    RE: .5
    
    Your variable car loan rate never went down?  What exactly is it tied
    to?  Has DCU violated the contract?  Hard to believe with a prime so
    low that they can still be charging over 13% on the loan.
    
    I'd suggest reading the documentation thoroughly and getting a valid
    response from DCU (in writing).  If they owe you money, they should
    refund the overpayment to you as well as any others.
    

    I've been getting car loans from DCU since the day they opened.  (Yes,
    they're churning me.  It was convenient.)
    
    The loan contract has always been written as variable.  In practice, it
    has never been.  The contract allows them to change the rate, and if
    they do, you get more (or less) payments, but your payment doesn't
    change.   Note the key word is allows:  It does not require them to
    change the rate.  If they did, it would go up as well as down.
    
    The only truly variable rate loan offering that the DCU has is the
    second mortgage line of credit.  The rates do change (both up and down)
    when the prime fluctuates wildly.  It doesn't follow the prime, but if
    the trend is there over a quarter or two, it will move.  It does
    move up quicker than it moves down, however.

    Re .8:                                                              
    
>   The loan contract has always been written as variable.  In practice, it
>   has never been.  The contract allows them to change the rate, and if
>   they do, you get more (or less) payments, but your payment doesn't
>   change.   Note the key word is allows:  It does not require them to
>   change the rate.  If they did, it would go up as well as down.
                                                            
    What BIZARRE terms!  It looks as though they were written to meet the
    needs of DCU's automatic payment system rather than reality.  If the
    cost of funds increases (according to some metric, which really MUST be
    written into any "variable-rate" agreement), then it's reasonable that
    DCU could raise the interest rate (or in this case, lengthen the term).
    
    There's a disconnect here, though.  Cars depreciate (rapidly). 
    Lengthening the term of a car loan can lead to a "negative-equity"
    situation, where the amount still owed is greater than the value of the
    security.  That's when borrowers simply "walk away" from the debt and
    lenders get stuck writing down their loans.
    
    To compound the problem, increasing the number of payments in the face
    of higher costs of funds has the effect of locking the lender into the
    lower return for a longer time.  As I said at the outset, "Bizarre!"

    Bizarre terms yes, set up in bizarre times.  The language of the
    contract originates in the late 70's/early 80's when, as I recall,
    consumer interest rates on loans was in some instances approaching 20%
    (and when rates on savings/CDs were equally high).  Their wording of
    the contract allows them to change the rate should the rates go from
    10-11% to 20% overnight, like it did back then.
    
    Like I said, as far as I know, no loan rates for any fixed short term
    contract has ever been changed.  Certainly, I've never had one of mine
    change (except for the second mortgage).
    
    In practice, the interest rates fluctuate up and down, so that the
    number of contracts outstanding will have some number above  and
    some number below the current costs of funds.  Hopefully, the average
    is high enough to show a profit.  If not, then I would expect the rates
    to go up (like it would should the raging inflation of the early 80's
    return).
    
    If your rates are exorbitantly high, consider refinancing.  You'd do it
    with a house, and should consider it if the term of the contract
    allows.  In the case of cars, though, it usually means turning a new
    car contract (at a rate of X%) into a used car contract (at a rate that
    is n% above the current new car contract rate of Y%) and so the net
    result given the short term of the balance isn't generally attractive. 
    Fortunately, refinancing cars doesn't involve points.

    CD rates:
    	I was just over at Middlesex Savings Bank on Nason St. (Maynard,
    	all you out-of-towners).  Their rate for a 6 month CD is 5.50%.
    	I'm not sure if that is "annual yield" or the straight percentage;
    	I rather expect the latter, as it would be unusual for the annual
    	yield to come out that evenly.
    
    	I just picked up a brochure showing the DCU rates as of 12/9/91.
    	DCU is paying 4.80%, 4.92% annual yield, for a 6 month CD.  
    
    	Once again, DCU comes out second best.

    
    Re: .11
    
    I was at the Merrimack County Savings Bank in Concord, NH
    on Saturday.  They are offering over 5% before the APR on
    both 90 day and 6 month CDs with a $2500 minimum.  Again
    DCU loses.
    
    Steve
    

DCU is 9.9% for NEW car loans
DCU is 11.7% for USED car loans.

There are a number of banks in Colorado Springs that are currently offering
8.5% loans for NEW or USED car loans...

I'm not sure of the names and locations... sorry. I believe that one is
Central Bank... and that you do need to put some $ down. I belive for USED
cars it has to be 3 years or less, but maybe 4 years.

Also, I think it is Western bank that says they will finance any amount 
(requiring no down?) and for any length of time.

My wife told me about these, as we are currently looking at buying a used
car. That is why I'm not sure about the locations, etc.

Someone suggested that people go into DCU and ask for a loan at one tenth of
what they could get it from a bank... I can't see me going into DCU and saying,
"I know that you are offering a loan at 11.7%, but I can get one for 8.5%,
so I think you should give it to me for 7.65%" I really don't think they'd
drop their rate by 4%!

	James.

    Re .13:

>   Someone suggested that people go into DCU and ask for a loan at one
>   tenth [less than] what they could get it from a bank... I can't see me
>   going into DCU and saying, "I know that you are offering a loan at 11.7%,
>   but I can get one for 8.5%, so I think you should give it to me for 7.65%"
>   I really don't think they'd drop their rate by 4%!
    
    That was I.  I don't really expect they'll drop the rate by 4% either,
    but it's necessary for the DCU to know EVERY TIME they lose business. 
    The carping back and forth over whether or not DCU has competitive
    rates doesn't mean much until there's a track record of (for example)
    "12 new car loans totalling $96,000 that went to commercial banks
    because DCU's rates were too high and/or its application process was
    too cumbersome".
    
    DCU *should* be our lender of choice.  At the least, it is in our own
    best interest to give the DCU the opportunity to match (and beat) the
    best deal available among local commercial banks.  That's the reason
    behind my earlier comment and this reply.

RE: .14

	Your point is well taken.

	James.

    
    Re: .14
    
    Absolutely!  As many have said, the primary purpose of a credit
    union is to make loans to members.  If we didn't have an interest
    or a need for better rates on loans, then we wouldn't need or want
    the DCU to begin with.
    
    Steve
    

    
    From the back of the "Rate Information" brochure:
    
    "DCU's consumer loan interest rates are set by our Investment
    Committee, and currently hold a statutory cap of 18% A.P.R."
    
    This is only the second reference I have ever seen to the "Investment
    Committee".  The first was in DCU's lawsuit against Mangone.  The
    "Investment Committee" was involved in some way with the participation
    loans also.  I currently have a call into DCU to find our who is on the
    Investment Committee.
    

I just picked up the latest (green) "Rate Information" pamphlet. Revised Dec 9th.

All the Savings/Club/Checking Accounts, Regular Certificats, and the smaller
length (less than 48 months) Mini-Jumbo and Jumbo Certificats have had their
rates dropped by .05%, i.e, Primary Savings went from 4.50% to 4.45% Rate, and
4.60% to 4.55% annual Yield.

	James.

Yabut - I have 2 car loans, and a couple of credit cards - I'd *love* to 
refinance all this at a lower rate, but it just isn't economical to do so. If
they really have this much cash and want to lend, why not make it practical
for lots of people to shift their loans to DCU?

I must be missing something..

Bryan

	I recently (within the last month) refinanced my house.

	I had a mortgage @ 11 1/4 with a local bank, and a 2nd 
	mort Line-of-Credit with DCU @ current rate ~ 10.75

	The BANK was offering 8 3/4 with 2 points.

	Because my wife works for the BANK, all employees got
	a 1/2 perc. off.   The rate became   8 1/4

	Because the BANK had a Redevelopment policy in certain
	areas of my city, they deducted another 1 percent.

	As long as my wife remains an employee, we got our
	mortgage @ 7 1/4 percent.

	If DCU wants to increase loans..  Why not do some
	insentives like this. ???

    Hmmm.  How many people can go to work for the DCU?

    
    The DCU Investment Committee consists of:
    
    Chairman of the Board:	Mark Steinkrauss	(elected representative)
    Treasurer:			Susan Shapiro		(elected representative)
    DCU President:		Chuck Cockburn		(DCU employee)
    Director of Lending:	Claire Beaudoin		(DCU employee)
    Director of Finance:	Harry Goralnick		(DCU employee)
    

Rates for deposits have been falling all over, so I don't think DCU's out
of line in lowering theirs.  DCU's mortgage rates were competitive when
I was looking to refinance a couple of months ago.  I can't comment on
other types of loans.

    I just got a notice from another credit union I deal with, the Hamilton
    Standard FCU.
    
    The interest on their Visa cards will be increasing to 15%.  They
    recently announced they will be instituting a monthly charge and fees
    for late payment.
    
    ATM transactions at non-CU machines will be $0.80.
    
    Increasing interest on Credit Cards may be the way the industry is
    heading to make up for fewer big ticket loans being made.  No wonder
    there was such a stink when Bush suggested that credit card interest
    rates drop when all other interest rates were also dropping.

re: .25

>    The interest on their Visa cards will be increasing to 15%.  They
>    recently announced they will be instituting a monthly charge and fees
>    for late payment.

I understand fees for late payment, but what is a monthly charge?  Do they
charge your account 1/12 of the annual credit card fee each month?

Bob

�I understand fees for late payment, but what is a monthly charge?  
    
    My mistake.  I meant annual charge ($20).

I set up a spreadsheet for auto loans and was surprized by how little the
monthly payment changes as the interest rate drops.  Dropping from 10%
to 9.5% or from 9.5% to 9% reduces the monthly payment by only about 1%
-- a bit more than 1% for a 5 year term and a trifle less than 1%
for a 4 year term.  

I was thinking about trying to refinance my auto loan to a lower rate
-- it would still qualify as a new car loan.  But given that my car
payment is only a few hundred per month, it hardly seems worth the
aggravation unless I can get a couple of points lower interest rate.
I haven't seen a loan rate than much lower than DCU's among the places
I have access to, from which I conclude that the DCU's rate, though not
the lowest, is a lot more competitive than I had thought.

For a home mortgage, small differences in the interest rate do make a big
difference in the payment, but of course that's because the term is much 
longer and the amount loaned is much bigger.  Mortgage rate differences of
as little as 1/8% make a significant difference in monthly payment for me.

	Enjoy,
	Larry

Rates are falling even more. They just went down .1%, whereas the last
drop they went down only .05%. Just an FYI.

I would just like to point out one of the benefits of this conference, and
how "open and honest" communications work.

Seeing that the rates were dropping, I then put a note in here, basically
saying, "Boy, the rates are dropping again, DCU is ripping us off." This
was note .18. After that there were several replies by what appear to be
informed people (I'm not very informed on why rates drop, etc.) that go
on to explain why the rates are probably dropping, .19, .24, etc. And then a
note that explains how a few 10ths of a percent may not be that big of a
difference overall, and that for a few dollars a year, we may want to go ahead
and keep our money in OUR credit union.

These notes shed light on why things are happening, etc. Allowing me to make
a better 'informed' decision about putting my money in DCU CDs or taking my
money elsewhere. 

Just an observation,

	James.

    
    Re: .28
    
>I set up a spreadsheet for auto loans and was surprized by how little the
>monthly payment changes as the interest rate drops.  Dropping from 10%
>to 9.5% or from 9.5% to 9% reduces the monthly payment by only about 1%
>-- a bit more than 1% for a 5 year term and a trifle less than 1%
>for a 4 year term.  
    
    You can say that again.  Turning yourself inside out to save a half
    percent on a four year car loan is simply not worth the trouble.
    I figured out long ago that on car financing the wisest thing is to
    put down as much as you can and pay it off as quickly as you can.
    You'll probably spend more in phone calls, gas, and your time running
    around to various banks, etc.
    
    Now saving a half percent on a home mortgage, there you're talking
    serious money.
    
    Steve
    

    When you check on interest rates, you may want to check what the lender
    says the actual monthly payment is also.  The last time I borrowed
    money (1987), DCU quoted me a lower interest *rate* than my bank.  But
    DCU's monthly payment was *higher*. At that time, DCU was not quoting
    the Annual Percentage Rate; they insisted they were, though.  I
    certainly hope that's changed, but it sure soured me on DCU.
    
    Steve

Comparing APRs can still be comparing apples to oranges.

"APR" is Annualized Percentage Rate:  The percentage rate used at each 
compounding interval times the number of compounding intervals per year.

Take two four year $10,000 loans, both claiming to be 12% APR, both with
monthly payments.

Loan A is 12%, compounded monthly (when you make the payment): $263.34/month
Loan B is 12%, compounded daily (even though you make monthly payments):
$263.62/month.

Ok, not a huge difference, but a difference just the same.

Well, at least that's one way two banks claiming the same interest rate can
end up with different payments.  Another is for the bank to "defer" your
first payment for an extra half month or three.  All that does is compound
the principal between the time you take out the loan and start the first 
payment.

Loan A, starting payments 30 days after the loan starts: $263.34/month
Loan A, starting payments 45 days after the loan starts: $264.66/month

While playing with a calculator one day, looking at the DCU rate sheet, I
noticed that their effective interest rates (on savings) could only be 
derived from their APRs (quoted next to the effective rates) by continual
compounding.  Perhaps they do the same for their loans.  (For purposes of
car loans, that doesn't work out to be much different from daily compounding.)

Still, I agree with the others who say that shopping around to save .5% on
a car loan is a waste of time (money).  It's easily worth DCU's convenience to
me to pay the extra .5%.

re .32:

I thought compound interest on loans was illegal.

    How do you think interest is calculated on a mortgage?

    Re .34:
    
>   How do you think interest is calculated on a mortgage?
    
    Mortgages and (most) credit union auto loans calculate interest monthly
    on the declining unpaid balance.  For all intents and purposes, this is
    "simple" interest, since the borrower is ONLY paying interest on the
    remaining principal.
    
    Many consumer loans (and non-credit union auto loans) pre-calculate the
    finance charge on the WHOLE amount, add it to the principal, and divide
    the total by the number of payments.  Doing it this way (especially on
    multi-year notes) gives an APPARENTLY lower percentage than the "simple"
    rate, above.
    
    In order to make it unattractive to pay off such loans early, the
    finance charge is often allocated according to the "Rule of 78s".  On a
    one-year note, the first month's payment would include 12/78 of the
    total finance charge and the twelfth month the final 1/78 (hence the
    name -- 1+2+...+12=78).  For longer terms, the same method applies to
    "front load" finance charges.
    
    Because of BLATANT abuses by lenders advertising interest rates that
    weren't comparable from one type of loan to another, the Federal Trade
    Commission stepped in to define the proper method for calculating any
    advertised "APR" (annual percentage rate).  Loan origination fees
    (including "points" on home loans) must be included, which is why the
    APR on one's mortgage is often �% higher than the simple interest rate.

Actually, Simple Interest on a loan works as follows:

You borrow 10,000 for 4 years at 6% simple interest.

With no compounding, 4*.06*10,000=$2,400 in interest.  Thus, they take the
principal ($10,000) plus the simple interest ($2,400), giving a total of $12,400
divided by 48 payments, giving $285.33/month payments (or higher payments than
a 12% compound interest loan as in my previous note).

What you describe is what I was calling compound interest, which I believe to
be the correct term for that sort of loan, although if I'm wrong, I'm wrong.

"Discount interest" (where they'd compute the simple interest, subtract that
from the principal, and give you a check for what's left over) is even more
insidious.

It was because a 12% compound rate was so much better than a 6% simple rate,
which in turn was better than a 6% discount rate that they invented the
concept of APR in the first place.

The fly in the ointment is that APR does not reflect the number of compounding
periods, which is where we get into these things called "effective" interest
rates.

In the example you give (at the end of each month, computing the interest due
over the last month for the remaining principal), we're talking about a monthly
compounding, which is exactly the same as when you make the payments.

They could, however, compound the interest against your principal daily or
weekly, and still subtract your monthly payment out at the end.

Is this legal?  Beats the crap out of me, but it'd sure explain why two banks
advertising the same "APR" on a loan would come up with different payment
amounts (as would delayed first payment and rounding errors).

And, as I said, at one time DCU's savings rates listed effective rates that
could only be explained by continuous compounding, so maybe they did that for
their loans, too.

For those interested in the difference between compounding periods for savings

For an APR of 8%:

Compounding	Effective
Interval	Rate
===========	=========
Yearly		8.0000%
Semi-annual	8.1600%
Quarterly	8.2432%
Monthly		8.3000%
Weekly		8.3220%
Daily		8.3278%
Continuously	8.3287%

(Note: the compounding period on savings doesn't have to have anything to do
with how often they actually pay you interest.)

	I can offer exactly how BancBoston Mortgage Corp calculates their
interest.  Well, at least the interest my mortgage generates...

	I have a rather detailed spreadsheet that lists all of our assets,
loans, future liabilities (college bills starting in 14 years, etc., etc.)
so to keep the loans section correct, I had to figure out how BancBoston
calculates it so I could avoid calling them every month.  The way they do
it is rediculously simple:

	1) Carry over the ending balance of the previous month to be the
	   starting balance for this month.

	2) At the end of this month, subtract all additional payments to
	   principle that arrived during the month from the starting balance
	   figure.  Call this figure the new starting balance.

	3) Multiply the new starting balance by the stated yearly interest
	   rate, divide that figure by 12 and declare that to be the interest
	   owed for this month.

	4) Add the interest owed to the new starting balance, subtract the
	   amount paid and you get the ending balance for the month.

	Now, if you ponder this, you'll discover a little way of earning some
extra money.  We do periodically make substantial extra payments to our
principle.  I always time these checks so that they get to BancBoston towards
the end of the month.  They credit the money against the starting balance for
that month and, viola, that amount of the mortgage was interest-free for the
entire month (even if they got the check on the 30th) since they subtract it
from the opening balance prior to calculating the interest.  Tracking the
balances after making these large payments, it works out this way down to the
penny.  (Well, virtual "penny" - sometimes we round off slightly differently.)

							-craig

Last week I received a notice informing me that the home equity loan
rate from the DCU was going down to 9.5%.

The current BayBank rate is 8.0%. 

Gim