A-Musings – A Particularly Soft Spot

Musings are thoughts, the thoughtful kind. For the purpose of these articles, a-musings are thoughts that might amuse, entertain and even enlighten.

I’m sorry if I misled you with the heading of this piece. It sounds kinda sexy, don’t you think? Or maybe it’s just an age thing – you know, fond memories of days long ago.

But I do have a particularly soft spot for The St Lucia Workers’ Credit Union which is not surprising given my working class background and childhood in the backstreets of steel-working and mining towns in the north of England after the Second World War. Credit Unions are there for the benefit of their members. Yes, they do make a return on their investments in loans to their members, but these returns are not to finance the high salaries of their Heads or the perks of their employees, they are the fuel that drives the Credit Union to the benefit of its members. The more you put into it, the more you get out of it; the greater the effort, the greater the rewards.

Let’s look at a typical loan situation and compare The Saint Lucia Workers’ Credit Union’s treatment of a loan to what might happen in other institutions. We’ll ‘borrow’ the same amount, $120,000, as we borrowed from the other place and see what happens. These are the conditions that apply:

Name: Michael Walker
Start Date: 2015/01/27
Principal Amount: 120,000.00
Interest Rate: 8%
Number of Months: 240
Monthly Payment: 1,003.73

As you see, I have borrowed from the St Lucia Workers’ Credit Union the sum of $120,000 to be repaid at the rate of $1,003.73 a month. The interest is 8%. Now look at this printout of my payments.

Month Payment Interest Principal Balance
January 1003.73 800.00 203.73 119,796.27

In the first month, $800 of the monthly amount of $1,003.73 goes towards the interest, but $203.73 is paid off the principal, leaving a balance of $119,796.27. The debt goes down immediately.

In the case of the loan from a different financial and mortgage institution, also for $120,000, the total interest for the whole year was added to the loan the minute the agreement was signed making the initial debt not $120,000 but $131,013.70 within seconds.

Now what does my loan look like after two months? As you can see below, I am still paying the same amount, but the portion of that amount that goes to interest has already begun to decrease while the amount that is paid off from the principal rises, not by much – only 2 dollars – but it is a start.

Month Payment Interest Principal Balance
Feb 1,003.73 798.64 205.09 119,591.18

By the end of the first year, after 12 payments of 1,003.73, my loan would look like this:

Payment Interest Principal Balance
12,044.76 9,508.33 2,536.43 117,463.57

Of the $12,044 paid, $9,508 has gone towards the cost of interest, which feels a lot, but the balance of my debt has been reduced by $2,536.

After the second year my loan looks like this:

Payment Interest Principal Balance
12,044.76 9,297.82 2,746.94 114,716.63

After the fifth year my loan looks like this:

Payment Interest Principal Balance
12,044.76 8,555.49 3,489.27 105,030.55

Clearly, if you want a loan on fair terms, Credit Union Membership is the way to go!