How do credit union loans and dividends vs interest work?
"A credit Union makes loans exactly the same ways a bank does. A portion of the money deposited in  checking, savings, money market, Certificate of Deposit, or IRA is then used to make loans for cars, boats, school, mortgages, 2nd mortgages, lines of credit... The government dictates the percentage of each type of deposit that must be held in reserve for non-loan transactions. The Credit Union members are the share holders of the ""company"". There are no investors in the ""company"" because the goal is not to make money. In general the entire package is better because there is no pressure to increase profits.  Fees are generally lower because they are there to discourage bad behavior, not as a way to make a profit off of the bad behavior.  Dividends/interest are treated the same way as bank interest. The IRS forms are the same, and it is reported the same way. Some of bizarre rules they have to follow: maximum number of transactions between accounts, membership rules, are there because banks want to make it harder to be a member of a credit union."
"Allen, welcome to Money.SE. You've stumbled into the issue of Debt Snowball, which is the ""low balance"" method of paying off debt. The other being ""high interest."" I absolutely agree that when one has a pile of cards, say a dozen, there is a psychological benefit to paying off the low balances and knocking off card after card. I am not dismissive of that motivation. Personal Finance has that first word, personal, and one size rarely fits all. For those who are numbers-oriented, it's worth doing the math, a simple spreadsheet showing the cost of the DS vs paying by rate.  If that cost is even a couple hundred dollars, I'll still concede that one less payment, envelope, stamp, etc, favors the DS method. On the other hand, there's the debt so large that the best payoff is 2 or 3 years away. During that time, $10000 paid toward the 24% card is saving you $2400/yr vs the $500 if paid toward 5% debt. Hard core DSers don't even want to discuss the numbers, strangely enough.  In your case, you don't have a pile of anything. The mortgage isn't even up for discussion. You have just 2 car loans. Send the $11,000 to the $19K loan carrying the 2.5%. This will save you $500 over the next 2 years vs paying the zero loan down. Once you've done that, the remaining $8000 will become your lowest balance, and you should flip to the Debt Snowball method, which will keep you paying that debt off.  DS is a tool that should be pulled out for the masses, the radio audience that The David (Dave Ramsey, radio show host) appeals to. They may comprise the majority of those with high credit card debt, and have greatest success using this method. But, you exhibit none of their symptoms, and are best served by the math. By bringing up the topic here, you've found yourself in the same situation as the guy who happens to order a white wine at a wedding, and finds his Mormon cousin offering to take him to an AA meeting the next day.  In past articles on this decision, I've referenced a spreadsheet one can download. It offers an easy way to see your choice without writing your own excel doc. For the situation described here, the low balance total interest is $546 vs $192 for the higher interest. Not quite the $500 difference I estimated. The $350 difference is low due to the small rate difference and relatively short payoffs. In my opinion, knowledge is power, and you can decide either way. What's important is that if you pay off the zero interest first, you can say ""I knew it was a $350 difference, but I'd rather have just one outstanding loan for the remain time."" My issue with DS is when it's preached like a religion, and followers are told to not even run the numbers. I wrote an article, Thinking about Dave Ramsey a number of years back, but the topic never gets old." I have gotten a letter of credit from my credit union stating the maximum amount I can finance. Of course I don't show  the dealer the letter until after we have finalized the deal. I Then return in 3 business days with a cashiers check for the purchase price.  In one case since the letter was for an amount greater then the purchase price I was able drive the car off the lot without having to make a deposit. In another case they insisted on a $100 deposit before I drove the car off the lot. I have also had them insist on me applying for their in-house loan, which was cancelled when I returned with the cashiers check.  The procedure was similar regardless If I was getting a loan from the credit union, or paying for the car without the use of a loan. The letter didn't say how much was loan, and how much was my money.  Unless you know the exact amount, including all taxes and fees,in advance you can't get a check in advance. If you are using a loan the bank/credit Union will want the car title in their name. "I too am a full-monthly-statement-balance payer and I received a balance transfer offer from my credit-card company. This one was quite different from many others that I have read about on this forum. I could do a balance transfer for any amount up to $X from another credit card, or use the enclosed ""checks"" to pay  some other (non-credit-card) bills, and I would not have to pay any interest for 12 months on the amount thus borrowed.  But, There would be a 2% service charge on the amount I was borrowing. This amount would be billed on the next monthly statement, and it would have to be paid in full by the due date of that month's payment, that is, within the 25-day grace period allowed for payment of monthly statements. Else, interest would start being charged on the unpaid part of the service charge at the usual humongous rate of H% per month. If I had not paid the previous month's balance in full, I would be charged interest at H% per month on the service charge starting from Day One; no free ride till the due date of the next month's statement. Of course, the balance carried over from last month would also be charged interest at H%. If I had paid last month's bill in full, but there were any other charges (purchases) during the current month, then  unless the entire amount due, this month's purchases plus service charge and that ""interest-free-for-twelve-months loan""  balance was paid off within the 25-day grace period, my purchases would be deemed unpaid and would start being charged interest. In short, the only way to avoid paying interest on the amount borrowed was to start with a card showing a $0 balance due on the previous month's statement, not make any charges on that card for a whole year, and pay off that 2% service charge within the grace period. It might also have required that one-twelfth of that interest-free loan be repaid each month, but  I had stopped reading the offer at this point and filed it in the round circular file. In short, while @JoeTaxpayer's tale of how ""As a pay-in-full user, I've used the zero rate to throw $20K at the 5.25% mortgage"" is undoubtedly how things worked once, it is not at all clear that they still work that way. At least, they don't work that way for me.  Heck, once upon a time, for a period of about 3 months, you could earn 1.5% interest per month from the credit card company by overpaying your credit card bill considerably. Their computers then just ""added on"" 1.5% interest by multiplying your credit balance -$X by 1.015 and so you got 1.5% per month interest from the credit card company. The credit card agreements (and the software!) got changed in a hurry, and nowdays all credit-card agreements state in the fine print that if you overpay your bill, you don't earn any interest on the overpayment." I concur with the other answers about not mixing family and money: the one whose loans are paid off second will be taking the credit risk of the other not paying/being able to pay. There may also be tax implications. That said, if you do still want to do this, I think there's a fairly straightforward way to account for the payments. With your scenario, your brother should make you a personal loan at some interest rate inbetween 5% and 10%. That loan would be tracked independently of the actual student loans. Any money that your brother transfers to you to pay off your loans, add to that personal loan, and later on once your loans are paid off you start repaying the loan to him and he uses the proceeds for his own loans. The interest rate will determine how the benefit of paying off the 10% loans is shared: if the rate is set at 10% then your brother will get all the benefit, if 5% you will get all the benefit, and 7.5% would roughly share it out. This means that you can still manage your own student loans separately. Your brother can choose how little or much to commit to the snowball rather than his own loans (of course he should first make the minimum payments on his own loans). Anything he does loan you benefits you both if we ignore the credit and tax issues - he gets more than the 5% interest on his own loans, and you pay less than the 10% interest on your loans. You'll need to track the payments each way on this personal loan and apply interest to it every so often, I'd suggest monthly (beware that the monthly equivalent of 5% annual interest is not 5%/12, because of compounding). All that it is saying is that if you withdraw money from your account it doesn't matter whether it has come from dividends or capital gains, it is still a withdrawal. Of course you can only withdraw a capital gain if you sell part of the assets. You would only do this if it was the right time for you to sell the asset. There is a strange puzzle today where savings account interest rates are not rising in-line with the Federal Funds rate. Either customers are apathetic to their alternative uses of cash, or banks have some-how formed a cartel to keep their cost of funding low. I'm leaning towards the former since bank customers today likely value readily accessible cash more than the interest rate they could earn by investing in money market mutual funds. "There are many flaws with your idea. Say I want to borrow $225,000.00 to accrue interest on a 1.20% APY   account. I promise ... that I cannot withdraw nor touch the   account by legal contract. If you break the contract and lose the money, the lender is out the money. They can take you to court and will win, but if you don't have the money, then they don't get paid. (You can't squeeze water out of a rock even if a judge orders you to.) By sharing the interest with me on a loan, they keep a percentage that they'd normally get... If you're ""investing"" the money at 1.2%, and the lender gets some amount less than that, then they are getting much less than they ""normally"" get. Lenders typically get somewhere from 5-15% on loans. The money can also be used to fund a stock/trading account. Regardless of whether I profit, I pay interest on the loan and split the profit shares 24/7. How can the lender lose with legal enforcing? Again, if you lose the money, no amount of legal enforcing can force you to pay money that you don't have. Even if you go to jail for fraud the lender still doesn't get paid. Simply, no bank would ever agree to this." When individuals take on a loan, it's often in the form of a mortgage, right? And companies take out business loans all the time, only they might be a regular bank loan and not in the form of buying bonds, more similar to when an individual takes a loan.  I was seeing through what process a firm would have to go through in order to get funding via the bond process.