Question

1. Name one lesson shared by Leighton or guest speakers during the semester on career advancement. [5 pts]

2. A(n) ______________ is a written contract signed by a borrower and states the principal amount of the loan, the interest rate on the loan, and the terms under which repayment must take place. [5 pts]
   
   

3. Credit unions play an important role in the financial services markets today. Yet, there disagreement between credit unions and banks about their role in the market place. Explain BOTH from a credit union and a bank perspective the nature of this disagreement.    [10 pts]

• [Credit union perspective]

• [Bank perspective]

Answer 1

Solutions :

A(n) LOAN AGREEMENT is a written contract signed by a borrower & states the principal amount of the loan, the interest rate on the loan, & the terms under which repayment must take place.

Loan agreements are binding contracts between 2 or more parties to formalize a loan process. There are many types of loan agreements, ranging from simple promissory notes between friends and family members to more detailed contracts like mortgages, auto loans, home loans etc. Simple loan agreements can be just short letters spelling out how long a borrower has to pay back money and what interest to be paid with the principal. Others, like mortgages, are elaborate documents that are filed as public records and allow lenders to claim the borrower’s property kept as collateral if the loan isn’t repaid as agreed.

Each type of loan agreement and its conditions for repayment are governed by both state and federal guidelines to prevent any wrongdoing. Loan agreements include covenants, value of collateral involved, guarantees, interest rate terms and the duration over which the principal must be repaid. Default terms should be clearly defined to avoid any confusion or potential legal action. In case of default,the terms of collection of the outstanding debt should clearly specify the costs involved in collecting the debt.

A loan agreement contains the following information:

1. Loan Amount and Duration
2. Repayment Clause
3. Prepayment Clause
4. Loan security   

A loan agreement must be signed by both the parties to avoid any confusion in the future. A simple example of loan agreement is promissory note.

Credit Union

Definition - A credit union is a type of not-for-profit financial institution controlled by its members, the people who deposit money into it. While traditional banks are run by shareholders whose goal is to maximize profits, credit unions return all profits to its members in the form of more favorable interest rates. Credit unions run considerably smaller operations and serve more limited needs than traditional banks. Like banks credit unions allow people to to deposit & withdraw money, open credit card account.
It means much higher interest rates on investment instruments like certificates of deposits or savings accounts, much lower interest rates on loans and mortgages, and fewer banking and penalty fees. Members who maintain a minimum balance also have voting privileges that can help to elect a board of directors and influence the credit union’s policy. As in a bank, a credit union’s loans are sourced from its deposits, but only members can make deposits or borrow money. That means banking at a credit union means pooling the money for the benefit of all its members.
Credit unions have fewer assets than banks, they don't offer much financial products like banks, also they may not have ATM.

Credit Union vs. Banks

Ever since the financial crisis that led to taxpayer-paid multi-billion dollar bailouts of big banks, people have been seeking alternatives, with more and more consumers choosing credit unions.
When choosing between a bank & financial institution one should identify what works best for one's financial needs.
While both banks and credit unions operate under similar laws and agencies regarding loans, mortgages and safety, the customer experience one get can be rather different.

There are two essential distinctions between a bank and a credit union. First, a credit union is a not-for-profit organization. Second major difference between credit unions and big banks is that banks are giant corporations controlled by board members & can be either publicly or privately held, while credit unions are member-owned.

Credit unions claims better customer service and lower fees, but have higher interest rates. On the contrary, banks generally have lower interest rates and higher fees. Banks, have more convenience regarding location, technological efficiency, mobile access, and rewards programs.

Credit Union vs. Bank: (In terms of Services and Fees)

• Interest-yielding accounts – Because of their not-for-profit business model, credit unions generally pay a higher interest rate on savings and Certificate of deposits than banks since they have to earn their profit margins.
• Checking account fees – Credit unions return profits to owner-members, which means account fees can minimum. Credit Unions dont charge high fees for things like direct deposit, transfers, wires, and balance transfers as banks do.
• ATM accessibility and fees – Big national banks have more ATM and branch locations & that is a convenience and helps avoid fees associated with using another bank’s ATM. But just like banks, credit unions are connected to national ATM networks for easy member access anywhere – and many credit unions reimburse the ATM fees you may be charged.
  Customer service – Giant banks may make you navigate through complicated and endless voice calls, automated email responses and foreign customer service call centers, but because credit unions are small businesses, it’s often easier to get person-to-person service.
• Online manageability – For the past several years, big banks have excelled in this category – we can now complete just about any transaction online. Large banks have massive IT departments, and would prefer their customer to do their banking online: it helps them to reduce headcount and overhead. Credit unions are a bit more old fashioned and people-centric, in this regard. Credit Unions are however having some basics like  account balances checking, transfer capabilities and loan payments done online.
• Insured deposits – Bank deposits are insured up to $250,000 by the Federal Deposit Insurance Corporation. All federal and most state-chartered credit unions offer equivalent deposit insurance through the National Credit Union Share Insurance Fund.
• Loans – This is perhaps the biggest benefit of a credit union membership. Because of its unique ownership structure, a credit union doesn’t have to abide by loan restrictions and qualifications mandated by its corporate head office. And being a not-for-profit organization means a credit union doesn’t have to charge exorbitant interest rates, either. So generally speaking credit union loans are cheaper.

Credit unions certainly offer some financial perks at the end of the day, with better interest on savings and fewer fees, but it has fewer online services and branch locations, which may not be seem to be efficient or convenient enough for everybody. Hence. its ultimately customer's choice as how he wold like to do business. The benefit of being a owner - member of any credit union is suppose a customer needs home loan or auto loan but his credit history is not so good, then credit union can a better option for him, since it is more flexible in offering loans. For them the loan interview is like a conversation and not “check off the box” interview as in case of a large bank.

Credit unions are non-profits, which mean they are customer-owned. However, one must qualify for a membership. Many companies provide access to credit unions, and even churches, communities, schools or employee groups can help to earn someone a membership. However, if a person is'nt a part of a specific group, membership is still attainable in most cases.

Pros & Cons of Banks

Many small or community banks have very good customer service. And, even if the customer service at larger corporate banks seems cold, it is often consistent due to uniform training practices,whereas the credit unions don't have uniform training practices. Fees may be higher for banks, but there are no membership requirements.
Banks generally have more branches,both national & international, easier access, and better technological developments (such as apps, etc.) than credit unions. This has become increasingly important for users who often depend on mobile banking services.
Interest rates vary depending on the size of the banks but are generally lower than the credit unions. Banking fees are also higher as compared to credit unions. But in terms of convenience & technological advancement, banks are the best.
Also banks provide much better security features in order to protect the depositor's money. They provide cyber security features against online hacking and frauds.

Credit Unions vs. Banks : Which is best for investing

Credit unions have the potential to give you better deals due to the restriction of entry to the outside investors with motives to increase profits without any concern for customers. This customer-driven approach of credit unions translates to better loan deals, free checking accounts for all members, and higher rate of interest paid on CD's or savings a/c. Hence the customer can feel the tangible benefits in his pocket.

Banks have better rewards programs, which is often a key factor for customers in deciding where to invest their money and get credit cards. Most banks such as Bank of America have rewards programs with their credit cards that award customers points or sign-up bonuses for use. But, while banks offer a variety of credit card reward services and cash-back deals, hardly any credit unions offer the same perks. Hence, those customers who enjoy the benefits of credit card rewards may find banks a better option.

However while thinking of making an investment or borrowing money, researching on interest rates, CD rates and loan rates is perhaps the best way to choose the right option in a given financial situation.

Credit Unions or Banks : which is safer

A big concern when choosing between a bank and a credit union is safety. Credit unions, if federally insured, are backed by the National Credit Union Share Insurance Fund (NCUSIF), created by the U.S. government, whereas bank funds are insured by the Federal Deposit Insurance Corporation (FDUC) (another government-backed agency).

Both the FDIC and the NCUSIF are able to protect up to $250,000 per depositor under current laws. With funds exceeding said amount, additional accounts at the same institution or at different institutions may be necessary. Hence, one's money will be safe at either banks or credit unions.

Certificate of deposit rates, Loans & Mortgages for Credit Unions

When it comes to CD (certificate of deposit) rates, loans and mortgages, credit unions have the advantage of providing with lower fees. Credit unions tend to have lower fees due to their non-profit, customer-owned nature. Without investors to interfere into their business and revenue to generate, credit unions can often offer lower fees on standard loans and mortgages.

However, credit unions frequently sell mortgages to third parties after they close, potentially leaving your mortgage in the hands of someone other than your credit union. This means you will be communicating with your mortgage servicer, not your credit union. Yet, mortgage closing fees for credit unions are less than that of banks on an average, which may compensate for third-party interaction.

Still, in a survey done last year of the nation's 50 biggest credit unions, it has been found that 84% of credit union checking accounts come with no monthly maintenance fee.

While one may want to save the extra money in mortgages or fees, direct servicing by a reputed bank may be a more comfortable option if a customer prefer direct communication and brand value.

How to Decide if a Credit Union or Bank Works Best for You

Prioritize aspects that are the most important to your banking and investment experience - is great customer service a priority, or easy-to-use banking apps and technology are more important? Is branch location and convenience higher on your list, or better interest rates? These choices will ultimately lead you to the best alternative decision.