If you’ve been thinking about buying a new car, you may have already decided that financing is the best way to go about it. Once you’ve made that decision, it’s time to decide who you want to get financing from. While many people prefer to get an auto loan from a bank, you might decide that you prefer car loans from a credit union.
Credit unions are more popular today than in the past, but many Americans are still not members of one. Credit union membership can be a great way to get affordable auto loan financing. Members typically have something in common, whether it’s where they live or where they work. You may even find that you’re eligible to join credit unions you’ve never heard of. This could help you get a great rate on an auto loan.
If you’re looking for an excellent rate on a car loan, consider one from a credit union. In fact, your credit union may offer even better rates than your bank or the car dealership. Before you get a loan for a new car, it’s worth your time to check out the deals your local credit union has to offer.
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What Is a Credit Union?
A credit union is an organization that offers banking services. You can do many of the same transactions at a credit union as you would at a bank, like make a deposit, apply for a loan, or withdrawal cash. A credit union is a not-for-profit organization. Every member of the credit union is actually a part-owner and member, not just a customer.
When you deposit money at a credit union, they pool the money with money from other credit union members. When the credit union makes money with investments and interest on loans, the money comes back to the credit union members.
This is good news for car shoppers because it means that the credit union isn’t trying to make a profit. You can typically get a lower interest rate on your auto loan as a result. Additionally, it means that you might be able to qualify for a loan you wouldn’t qualify for through your bank.
How Is a Credit Union Different from a Bank?
The main difference between a credit union and a bank is that a bank is owned by shareholders rather than members. Banks make a profit from their transactions, and the shareholders receive these profits.
Banks make a profit from customers, which is why auto loans you get from banks may come with higher fees. Checking your options with a bank isn’t a bad idea, especially if you already have a checking or savings account, but you might not get the best rates.
What Are the Benefits of Auto Loans from a Credit Union?
A credit union is a great place for members to find affordable car loans. If you’re trying to figure out where you should get your car loan, a credit union is a great place to begin your search. These are some of the benefits of using a credit union for your next car loan:
Low Interest Rates
The most popular reason to get your car loan from a credit union is so you can pay a lower interest rate. You can pay a lower interest rate than you would through your bank or with the financing you’d get at the dealership. Some credit unions offer rates that are 2 percent lower than some other lenders. This means you could save hundreds of dollars on your vehicle financing.
You can easily see the advantage of getting a car loan from a credit union when you consider interest rates. For example, you may apply for a traditional auto loan and receive approval with an interest rate of 6.5 percent. You can use the same information to apply for an auto loan through a credit union and receive an interest rate of 3.88 percent. Of course, this doesn’t even consider the other reduced fees you can get thanks to a credit union.
Lower Minimum Amount
When you get a loan from a credit union, you could receive a lower minimum loan amount than you would from a bank or dealership. For example, the bank might require that you take a loan out for at least $7000, but your credit union might allow you to loan just $4000. As a result, you’ll save some money on loan interest.
When you apply for a loan with your credit union, you can trust that they look at more than your credit score when they make a decision. If you have a long-standing relationship with your credit union, they might do more than look at the bare facts.
You may not need to have perfect credit if you’ve built a strong relationship with your credit union. Additionally, you’ll benefit from personalized service because you’re a part-owner of the organization. You can ask questions about your specific situation and get some feedback or advice about your loan options.
If you aren’t a member of a credit union, you may be able to join one easily. You don’t necessarily need to work for a specific company or government office to apply for membership. Many credit unions are open for membership with broad requirements to join. You can initiate this relationship by looking for credit unions in your area.
The process of applying for an auto loan is often simple when you apply with a credit union. You don’t have to visit a branch to apply, as you can usually complete all the steps online. Apply before you visit the dealership so that you already have a great loan offer in your hand when you shop for a car.
How Do You Apply for an Auto Loan at a Credit Union?
Applying for an auto loan through a credit union is pretty similar to applying through any other institution. If you’ve applied for a loan through a bank, the main difference you’ll notice is that you have to apply for membership.
Of course, you can skip the process of signing up for membership if you’ve already built a relationship with the credit union. If you haven’t applied for membership yet, there may be a waiting period between the day you apply for membership and the day you can apply for an auto loan.
If you’re already a member of the credit union, the application is simple. Apply for the loan online or call or visit your branch if you’d like somebody to walk you through the process. You’ll fill out a form that requires information about your personal details and income.
You might have to answer some questions about your expenses, particularly housing. The credit union will also consider your credit score and the type of car you want to purchase. Proof of insurance is a requirement as well.
Once you’re approved, you’ll start car shopping. If you haven’t selected a car already, now is a good time to visit a car dealership and see which cars you can afford. Your loan works the same way it would if you got it through a bank. You can buy a new or used car with your credit union loan.
Is a Credit Union Car Loan the Right Option?
One of the biggest challenges you may face is deciding if a credit union car loan is the right option for you. If you meet the membership requirements, there’s no catch to joining a credit union.
The savings you can get from joining a credit union can make your membership worthwhile, even for benefits beyond your auto loan. Plus, the loan application process is pretty basic and requires just a few pieces of personal information, so there’s no reason not to get preapproved.
What Are Your Other Auto Loan Options?
While credit union car loans may be a good option, you might want to compare rates to loans from other organizations, including businesses beyond banks. For example, some lenders only offer loans, rather than checking and savings accounts.
These finance companies often don’t have a physical branch you can visit, but rather you can apply for an auto loan online. These lenders are often for-profit institutions, so you may have more flexibility in your terms.
You can also get a loan when you shop for a car at the dealership. Dealerships will submit your information and help you find the best financing options. This is a convenient option because you don’t have to visit the credit union or submit paperwork ahead of time, but you may not necessarily get the best interest rate.
How Can You Choose the Right Car Loan?
If you’re trying to choose between auto loans from a credit union or a car loan from another institution, it’s a good idea to know your options. You may be eligible for a variety of auto loans, but it’s important that you compare each one. This is why a lot of buyers get preapproved by several lenders.
Great Interest Rate
One of the first signs that you’ve found a truly great credit union car loan is a low interest rate. Of course, your credit score has a lot to do with how low your interest rate can be. You’ll have a better chance of a lower interest rate when you apply through the credit union, even if you have stellar credit.
Next, you can take a look at your monthly payment amount. You can use these figures to determine if the monthly payments seem reasonable. If the monthly payment is unreasonable, you can change the loan term or put more money down to see a difference in your monthly costs.
Total Cost of Vehicle Ownership
Finally, you’ll need to consider the total cost of owning a vehicle, whether you choose a car loan from a bank or credit union. By the time you pay off your car loan, how much money will you have actually spent? If you do the math with each approval option, you’ll be able to see the total amount you’ll pay by the end of your loan term.
Getting a car loan from a credit union has its perks, including small loan minimums and lenders who are willing to work with you to help you get a car you love to drive. While a loan from a credit union may not be optimal for every shopper, it’s an option that offers a lot of perks.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.