US Federal Credit Union
  • find uscontact usabout uswork for us

Borrowing Basics


Taking out a Loan?

Whether you are looking for a home loan, car loan, school loan or credit card, it is important to understand the basic principles of borrowing.

Credit Reports + Scores

Review your credit reports at least once per year - it's free to do so every 12 months. These reports, available through three different bureaus, evaluate any open loans you may have and the associated payment history. Compiled, these three reports create your credit score, a number which determines your "credit worthiness", ranging from 300-850. Financials use your credit score to understand how you manage loans and other finances in general, determining the risk level you are to them. Generally, the better you manage your loans and finances, the higher your score will be. Missing payments, opening and closing numerous credit cards, or carrying higher balances on credit cards can affect your score and therefore the likelihood of getting a loan or a lower rate. Reviewing these reports can help you better understand how your financial habits affect your score, and can also help alert you of potential identity theft or credit fraud scams when loans show up that you haven't taken out yourself. You'd be surprised by who can review your credit score - including landlords and employers. 

Credit Cards are Tempting

Credit cards can be a tricky thing, and dangerous if not thought of carefully. Special, limited-time offers to open new credit cards may seem tempting, however, they may carry higher rates and fees after the promotion expires. Be sure to review all the details of the card before you apply for one. Even retail store cards affect your credit, so open and close them with caution.

Secured or Unsecured

You may hear loans referred to as a "secured" or "unsecured" loan. Secured loans are loans that are backed (or secured) by an asset, like a house in the case of a mortgage loan or a car with an auto loan. This piece of property is collateral. When you agree to a secured loan, you agree that the lender can repossess or take ownership of the collateral if you don't repay the loan as agreed to. The lender adds something called a "lien" to this collateral which allows them to legally repossess it if necessary. An unsecured loan is not backed by an asset since the lender believes that you can repay the loan with your own financial resources, usually because it is a lower risk or loan amount or both.

Terms and Interest Rates

The term of a loan is the length of time that the borrower has to pay it back. Interest rates, usually shown in Annual Percentage Rates (APRs), is the amount the financial charges you for loaning you the funds. This percentage is based on the amount owed on the loan and is added to the total amount you need to pay by your given due date. Typically, the longer the term of the loan, the more you may pay in interest.

Fixed Rate vs. Variable Rate

Depending on the loan you're looking to take out, it may have a fixed or variable rate. Fixed rate loans are loans in which the interest rate will remain fixed for that life of the loan (entire term), no matter what market interest rates do. This means your payment won't increase while you have the loan. In contrast, variable interest rates change as the market interest rates change which can cause your payment amount to increase or decrease depending on the current rate. If you have the option between a fixed or variable rate, be sure to explore your options and the state of the market. One may be more beneficial than the other. 

The Balanc(e)ing Act

Although it acts much like a debit card, using a credit card is the equivalent of taking a loan. When you spend money using a credit card, you are drawing on a line of credit. This line of credit allows you to spend up to a certain amount. Just like any other loan, you are charged interest on your balance borrowed. With a credit card, though, you may choose to pay back the balance of what you have borrowed in full by your payment due date and avoid interest charges or you can choose to pay the minimum payment amount, carry the remaining balance forward, and be charged.


Things to Consider

Set yourself up for success – now and in the future.

  • The old adage still rings true; a penny saved is a penny earned. Although you may not always be able to pay for everything upfront in cash, look for ways to save on the loans you already have. Check periodically to see if you qualify to refinance a loan to a lower rate or transfer your credit card debt to obtain a lower interest rate.
  • Budget. Budget. Budget. Make sure your monthly budget allows for a new loan or credit card payment so you can set yourself up for success. Ask for help in reviewing what you can afford prior to taking the loan to avoid any issue in making your payments. 
  • Protect your investment and your payment. Check out insurance options that offer to help protect you and your loan in case of an emergency. 

Go-To Calculators

 

All loans are subject to credit approval.

 

next steps

Open Account

  • give us a call:
    (952) 736-5000 or 1 800 345-2733
     
  • email us
      

 

US FEDERAL CREDIT UNION | 1400 Riverwood Drive, Burnsville MN 55337 | 1 800-345-2733 | (952) 736-5000 | All Content © 2012 | privacy & disclosures
Federally Insured by NCUA EHL