6 Reasons why you should get your car loan at a credit union

If you’re considering buying a new or used car, a credit union is a great choice for a loan. There are more than 4,604 federally insured credit unions in the United States, with over 139.3 million members, according to the National Credit Union Administration (NCUA). National banks have more branches and are usually quicker to roll out new technology. Still, consumers keen on saving money owe it to themselves to explore what credit unions have to offer.

Credit unions frequently have lower interest rates than banks and online lenders, and they also offer personalized service and a variety of other benefits.

6 reasons to get a credit union car loan

A credit union auto loan is a strong option for those who are just starting out and may not have an established history of credit. It could also be a good option if you’re in the process of building or rebuilding your credit score.

If you’re shopping for your next car, consider these six benefits of getting an auto loan at a credit union.

1. Lower interest rates

Unlike most banks, credit unions can offer lower rates because they’re not for profit. Consequently, they are experiencing exponential growth in car loan originations.

“Typically, the rate of lending (at credit unions) is very competitive compared to other lenders under most circumstances,” says Bill Meyer, former public relations and content manager at CU Direct, which connects credit unions with auto dealers nationwide.

In the last quarter of 2023, the average rate on a five-year new car loan from a credit union was 6.39 percent, according to the NCUA. At banks, it was 6.90 percent. If you’re borrowing $30,000 for a car, the credit union saves you $431 in interest over the life of the loan.

2. Community ties, personalized service

The process for taking out a car loan isn’t that different between banks and credit unions. But if you have a lower credit score, you may still be able to qualify for an auto loan with a credit union versus a bank.

“Credit unions are likely to have more flexibility in the underwriting process,” says Mike Schenk, vice president of research and policy analysis at the Credit Union National Association (CUNA), a trade association.

Credit unions are also more likely to work with you if you hit a rough patch and need more time to make a payment.

“You have a unique story and your story is much more likely to be heard at a credit union. At large financial institutions, you’re more likely to experience underwriting that is set in stone and done in some corporate office a few states away. Walk into a credit union, and you’re more likely to have a conversation.”

3. User-friendly loan process

Applying for a car loan is now easier than ever and it is no longer necessary to visit a branch to submit an application. Most credit unions now let you apply online, over the phone or at the dealership.

If you are applying for financing at a dealership, “invariably, the dealer can refer you to credit union financing and a credit union you can join as a member,” Schenk says, “so it’s really an easy process.”

Applying with the credit union even before visiting the dealership can give you an advantage and set you up in a position to get the best rate. Not all dealerships work with credit unions, and if you can become a member, you will likely get the best deal when working directly with the credit union. Plus, you will already have a competitive loan offer when you start car shopping — and you won’t have to pay dealer markup on your rate.

4. Credit unions have many other benefits

Members, not shareholders, own credit unions, and any profits they make go back to the members in the form of dividends. Credit unions can also pass on earnings to their members through higher rates on deposit accounts and lower rates on loan products, including auto loans.

Most credit unions also participate in a shared branch and ATM network. Schenk says CUNA’s members have a shared ATM network with over 40,000 outlets.

Credit unions are focused on educating their members, too, so you can get advice on the best financial options for your situation.

“Credit unions are full-service, with the same products as banks. They’re just structured differently, and that results in significant benefits for credit union members,” Schenk says.

This member focus could also mean a more nuanced dialog about your financial situation before the credit union approves or denies your loan. Credit unions may be more understanding and lenient than traditional banks in lending decisions.

5. Becoming a member is easy

Some believe credit unions are open only to people who work for a certain company, industry or government entity and that anyone not a part of a group can’t join. Meyer says this is no longer the case. “Most credit unions will allow anyone to join.”

CUNA has credit unions with community charters that allow them to serve larger geographic areas. If you seek a credit union near you, visit ASmarterChoice.org and type in your ZIP code. “It would be shocking to find a consumer who didn’t have access to a credit union,” Schenk says.

6. Car loans are a huge part of what credit unions do

Don’t be surprised if an auto dealer refers you to a credit union before a bank. Credit unions play an active role in auto loans as well so could help you finance your vehicle.

Credit union loan balances for used and new cars alike increased year-over-year by 3.4 percent and 1.1 percent, respectively, according to 2023 NCUA data. Credit unions had $322.8 billion in loan balances for used cars in the fourth quarter of 2023 and $175.4 billion for new cars.

How do I apply for a credit union auto loan?

Financing a car through a credit union is similar to other lenders, except for the membership step. Once you qualify as a member, you can apply for a car loan online, over the phone or at a branch, depending on the credit union.

Most credit unions will review the following to determine your eligibility for an auto loan:

• Your personal information.
• Your employment and income information.
• Your credit score.
• The vehicle identification number (VIN) and mileage for the vehicle you want to purchase.

Be prepared to provide proof of insurance to the credit union during the application process. And note that while you may be able to join and apply for an auto loan the same day, some credit unions will make you wait a month or two before you apply.

What are the differences between a dealership, bank and credit union car loan?

The main difference between a bank and credit union auto loan is the financing terms. Some banks can offer promotions, especially if you have a solid relationship, good payment history and a strong credit score.

Both banks and credit unions may offer incentives like an autopay discount if you are an existing customer. But because credit unions are not-for-profit organizations and owned by the members, you can usually get better rates and reduced fees compared to for-profit banks, which shareholders own.

When you apply for an indirect auto loan through a dealership, the loan comes from a third-party financial entity. Dealers get paid to match you with one of their financing partners. Because of this, there may be better options than the interest rate you get through the dealership versus a bank or credit union. Plus, if there is an issue with the financing company, the dealer won’t help you — you will have to sort it out yourself.

The bottom line

When purchasing a new or used car, you have several options to choose from to ensure you receive the best auto loan rate. If you belong to a credit union, you may have access to lower interest rates and fees compared to large banks and dealership loans. The application process is similar once you’ve gained membership, and the benefits may help you get approved, especially if you don’t have the best credit score.