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Getting a car loan from a credit union could potentially yield lower interest rates, smaller minimum-loan requirements and better chances of loan approval than some other lenders offer.
More than 121 million people in the U.S. are credit union members, according to the World Council of Credit Unions’ 2019 Statistical Report. If you’re not one of them, it can be easy to overlook credit unions as a lending option. But that could be a mistake, because they can be easy to join and they offer benefits that other lenders may not.
But is a car loan from a credit union right for you? Let’s explore some of those benefits to find out.
- 4 benefits of a car loan from a credit union
- Is a credit union car loan right for you?
- How to find the right car loan
4 benefits of a car loan from a credit union
If you’re in the market for a new car, you can look for an auto loan from a variety of lenders. Here are four reasons you may want to check out a credit union for your car loan.
1. Low interest rates
Credit unions are not-for-profit organizations that reinvest profits into their members. Because of this, credit unions are often able to offer their members lower interest rates on loans than other types of lenders. In fact, auto loan rates at credit unions can be as much as 1% to 2% lower than the average rates offered by banks. Let’s see what that could mean for your bottom line.
As of September 2020, the average bank APR for a new-car loan on a five-year term is 4.96% while the average credit union APR is 3.18%, according to the National Credit Union Administration.
If you were to finance a new $25,000 car at 4.96% APR on a five-year loan, your monthly payment would be $283. But if you get a five-year loan for the same new car at 3.18% APR, that purchase would cost you $271 a month. That may not seem like a big difference, but if all other loan terms were the same, that difference in interest rate could save you $724 over the life of the loan.
You’re unlikely to find a better rate at a car dealership. That’s because dealers may work with multiple lenders who review loan applications and determine whether to finance a loan, as well as what interest rate they’ll offer.
2. Potential for better approval odds
One of the perks of credit union membership is that credit unions may be more willing to work with members with less-than-perfect credit.
For example, Ryan Keene, vice president of lending at Ardent Credit Union, explains Ardent’s own approach.
“We do look a little bit beyond just the credit score[s],” he says. “If the relationship is strong, we try to find ways to help our members, even if there are a couple of issues with their credit.”
Though this is how Ardent approaches creditworthiness, it’s not necessarily how all credit unions will. Still, you may find that as a member of a credit union, you could have better odds for approval without perfect credit.
3. Lower loan minimums
Credit unions may also offer lower minimum-loan amounts than banks. If you’re not buying an expensive car, or you have a large down payment and only need to finance a small portion of your purchase, a low loan minimum could be useful.
4. Lower fees
When you become a credit union member, you can enjoy a variety of benefits beyond your auto loan. Since credit unions are set up to give back to their members, you may be able to get lower interest rates on other types of loans. You can typically receive reduced fees and higher interest rates on deposit products, too.
And you’ll have an opportunity to have a say in how the credit union operates. Since credit unions are member-owned, you have the opportunity to vote on things that can impact the credit union, like who sits on the board.
Is a credit union car loan right for you?
Here’s what you can expect if you decide to apply for a car loan from a credit union.
You need to be a member to get a loan from a credit union. Not a member? That’s OK.
Many eligibility requirements are based on where you live or work, or the types of organizations you belong to. If you want to get a loan through a credit union, you’ll likely be able to find one where you’re eligible for membership.
Similar loan process
The loan application process at credit unions is similar to the process with any other lender. Typically, your identity, income, employment information and credit history will be reviewed before your application can be approved. You’ll likely need to provide information about the car you’re purchasing, and you might need to provide proof of insurance.
After your application is complete, you might receive a decision quickly.
Sometimes you may need to provide additional information to the credit union before a decision can be made about your loan approval. In those situations, it could take longer for you to receive a decision.
How to find the right car loan
Before getting a loan from any lender, it’s important to do your homework. Eligibility requirements and loan details that could impact your monthly payment vary from lender to lender, so it’s worth taking the time to shop around.
Consider getting preapproved from multiple lenders so you can compare your options and choose the one that’s right for you. But remember that preapproval is not a guarantee of financing, so you’ll have to actually apply and get approved before you can count on the funds.
It’s also important to make sure you’re working with a reputable lender. Check out the Better Business Bureau, Consumer Financial Protection Bureau and online reviews for scams and consumer complaints.
Getting a car loan through a credit union can come with a variety of benefits depending on the individual credit union’s practices. As a member, you may find lower interest rates, smaller loan minimums, and maybe even a lender more willing to work with you even if your credit has taken some hits.
To determine if working with a credit union is right for you, research credit unions in your area, compare offers from different lenders, and choose the one that’s right for your budget and financial situation.