1. Module 2: Loans and Credit Cards
Managing Money Curriculum
Components of Your Own Budget and Financial Plan

2. Ruby Ward, Professor, Utah State University
Project Team:
Ruby Ward, Professor, Utah State University
Trent Teegerstrom, Associate Director of Tribal Extension, University of Arizona
Karli Salisbury, Research Associate, Utah State University
Kynda Curtis, Professor, Utah State University
Staci Emm, Extension Educator and Professor, University of Nevada Reno
Carol Bishop, Extension Educator and Associate Professor, University of Nevada Reno
Acknowledgments: Vicki Hebb, reviewing content, and Russ Tronstad and Stuart Nakamoto, content.
This material is based upon work that is supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, under award number through the Western Sustainable Agriculture Research and Education program under subaward number EW USDA is an equal opportunity employer and service provider. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture.
Each university is an affirmative action/equal opportunity institutions

3. Interest Rates

4. Interest Rates The three components are
Time
Inflation
Risk
Time and inflation are the same for everyone
Risk is the only factor that varies from person to person
Time, or the “real” interest rate, is the amount of return a lender would want in exchange for letting the borrower use the money. There is no inflation or risk taken into account.
Inflation is the amount of return that would offset the devaluation of money due to inflation.
Time and inflation rates do not vary from person to person.
Risk is determined by whether or not the lender believes they will be paid back.

5. Component of Interest Rates – Risk
The bigger the risk (chance) of no repayment, the bigger the payout should be.
You need to be compensated for the risk of lending through a bigger return.
This happens through a higher interest rate.
If you are a bigger risk, the bank may charge a higher interest rate if they lend money to you.
As an example, use two members of the audience. Have them come up and pretend that one has a job and always returns stuff when they borrow it. If it is a youth, you can say they always get their homework done. The other one borrows things and never returns them, they don’t have a job, their homework is always late, etc. Have the audience choose which one they would be willing to lend their money to. After they choose the responsible one, you can ask them why they chose that person. You can also ask them what it would take to loan their money to the slacker. They should be willing to make a loan if the person gives them something really good or more money.

6. Risk A credit score is a measure of risk.
Find current interest rates for various loans at
Choose your state and the type of loan
Module 4 will go over credit scores in detail and also talk about ways to improve your score. They are introduced here as a way to show how different the rates are because of risk.

7. Department of
Ag. & Resource Economics

8. Credit Scores vs. Interest Rates
3.606%
5.008%
6.781%
9.265%
14.614%
16.978%
Example rates by credit score for Arizona
60-month new auto loan
Source: MyFico.com
This is a good place to reinforce the idea that time and inflation are the same for everyone, but the reason these rates are different is because of the perception of the risk of lending to someone with different credit scores.

9. Practical Use What does all this really mean?
Let’s put it into practice
MyFi Assist – an app for “My Financial Assistant”
Free
Available in IOS and Android
Can be personalized to your situation
MyFi Assist will be used to calculate different examples here. Information on how to use the app and other materials is available at DiverseAg.org/Money.
Screen shots and the example is here, but it would be useful to have participants download the app and use their own examples. For example, buying a horse, saddle, etc.
More information about the app and other materials are available at
DiverseAg.org/Money

10. MyFi – Financial Assistant
MyFi Assist –an app for “My Financial Assistant”
Free
Available in iOS and Android
Can be personalized to your situation
The MyFi Assist was first introduced in the Money Management modules: a guide to personal finances. MyFi Assist will be used in examples of partial budgets.

11. What Can My Business Afford?
Investing in capital is a way to further a business’s objectives and reach its goals. But is it affordable?
Example: Buying a new truck
Increase fuel efficiency, decrease truck maintenance, increase towing capacity
Helpful when managing a ranch
Will the efficiency of having a truck offset the payment?
Use MyFi Assist to figure your monthly payment and how much of product you would have to sell to make the payment.

12. Personal Preferences – Ranch Example
Input calves as the item of interest.
In this example, each calf is valued at $500.
What is the monthly payment of a truck bought for $30,000?
The interest on the loan is 6%, and there is no down payment.
Plan to pay the loan off in 4 years.
This is a very generic example. Other examples can be used. The $30,000 borrowed could also be fencing and corrals, equipment, etc.

13. Personal Preferences – Ranch Example
You would like to purchase a pickup and need to borrow $30,000 now. You will pay it off with monthly payments over 4 years. The interest rate is 6% annually.
Use MyFi Assist, “Paying for a Loan”
Calculate the monthly payment
Calculate how many calves you would have to sell to make the truck payment.
What is the total you will pay for the pickup?
The total payments each year could be used in an enterprise budget as the cost of the equipment. Being able to think about this in terms of what they are selling can help them know if they should buy something. In this example, what will the pickup provide to make it worth 17 calves? Would they rather have 17 calves or the pickup?

14. The monthly payment for the truck is $705.
17 calves per year must be sold in order to make the truck payment.
Can the business justify buying this truck?
We will look at the effects of buying this truck using a sensitivity analysis, break-even analysis, and a partial budget.
They can also think about can they justify using 17 calves each year to pay for the truck? They will now have to have that may extra to have the same profit.

15. Key Concepts What Is A FICO Score? What Is A Good Credit Score?
How Is My Credit Score Calculated?
What Is A Credit Report?
Getting and Checking My Credit Report
What To Do If You Are A Victim Of Identity Theft
Strategies To Improve Credit

16. FICO Score Components FICO scores based on these 5 categories:
35% Payment History
30% Total Debt
15% Length of Credit History
10% Credit Mix
10% New Credit
For some groups, the importance of these categories may vary; for example, people who have not been using credit long will be factored differently than those with a longer credit history. The levels of importance shown in the FICO Scores chart are for the general population, and will be different for different credit profiles.

17. Compare Costs on a New Vehicle
Why Should You Care?
Compare Costs on a New Vehicle
Credit Score of 730+
Car Cost: $30,000
Rate: 2.99%
Term: 60 Months
Total Cost: $32,335
Credit Score of 679-
Car Cost: $30,000
Rate: 7.25%
Term: 60 Months
Total Cost: $35,855
A 51 Point Difference
Will Cost You
$3,520!

18. Interest Rates for Range of Credit Scores
Department of
Ag. & Resource Economics
Interest Rates for Range of Credit Scores
Used Auto Loans for 48 months or 4 years.
Arizona
Nevada
4.64%
6.58%
8.65%
11.15%
16.98%
19.83%
4.94%
6.77%
9.33%
12.10%
18.39%
20.97%
From MyFico.com

19. Sell 25% more calves with bad credit.
Department of
Ag. & Resource Economics
How many calves do you have to sell? (500 lbs at $1.65 per cwt)
Credit Score
Interest Rate *
Monthly Payment
Paid Each Year
4.64%
$457
$5,488
6.58%
$475
$5,700
8.65%
$494
$5,933
11.15%
$518
$6,220
16.98%
$577
$6,923
19.83%
$607
$7,282
Head of Calves
7.3
7.6
7.9
8.3
9.2
9.7
Sell 25% more calves with bad credit.

20. Head of Calves for interest
Department of
Ag. & Resource Economics
What about the whole loan? (500 lbs at $1.5 per cwt)
Credit Score
Interest Rate
Total Paid
Interest Paid
Head of Calves for interest
4.64%
$21,952
$1,952
2.6
6.58%
$22,802
$2,802
3.7
8.65%
$23,730
$3,730
5.0
11.15%
$24,882
$4,882
6.5
16.98%
$27,691
$7,691
10.3
19.83%
$29,126
$9,126
12.2

22. Fixing Errors All 3 credit bureaus accept filing disputes online
Contact the bureau and the creditor
Sample letter available at:
errors-your-credit-report
Will be investigated within 30 days
Will receive the written results and a free copy of your revised report
1. Tell the credit reporting company, in writing, what information you think is inaccurate. 2. Tell the creditor or other information provider in writing that you dispute an item. When the investigation is complete, the credit reporting company must give you the written results and a free copy of your report if the dispute results in a change. (This free report does not count as your annual free report.) If an investigation doesn’t resolve your dispute with the credit reporting company, you can ask that a statement of the dispute be included in your file and in future reports

23. Identity Theft If you know there has been I.D. theft contact:
EQUIFAX: ;
EXPERIAN: ;
TRANSUNION: ;

24. Take Home Message Lower credit scores mean higher interest rates.
Higher interest rates means borrowing will cost you more.
You will have to work more hours to pay for it
If you make smaller credit card payments, it will take you longer to pay the balance off and you will end up paying more.

25. Thank you!