A Par­tic­u­larly Soft Spot

The Star (St. Lucia) - - LOCAL - By Michael Walker

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!

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