If you’re thinking about buying a new or used car, a credit union is a great choice for a loan.
“Part of the reason for that is the deals are great at credit unions,” says Mike Schenk, deputy chief advocacy officer for policy analysis and chief economist at the Credit Union National Association (CUNA), a trade association. “You’d be crazy not to include a credit union in your shopping plans.”
National banks do have some advantages over credit unions. They have more branches and are usually quicker to roll out new technology. But consumers keen on saving money owe it to themselves to explore what credit unions have to offer.
What are credit union auto loans?
Credit union car loans use money deposited by members to lend to fellow members for loan needs, including purchasing a new or used vehicle.
By using members’ money to lend, credit unions are able to charge lower interest rates, provide members with dividends and give members higher savings rates on accounts vs. getting a bank auto loan.
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 are able to offer promotions, especially if you’ve had a long relationship and a good payment history and credit score.
Both banks and credit unions may offer incentives like autopay if you’re an existing customer, which may even get you a discount on the interest rate. But because credit unions are not-for-profit and owned by the members, you can usually get better rates and reduced fees compared to for-profit banks, which are owned by shareholders.
When you get a car loan from a dealership, the loan comes from a third-party bank or financial entity. Dealers get paid to place you in a loan with one of its partners, so the deal you get financing a car through a dealership vs. a bank or credit union may not be the best option for you. Plus, if there’s an issue with the financing company, the dealer won’t help you — you’ll have to sort it out yourself.
6 reasons to get your car loan at a credit union
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
A big reason credit unions are seeing leaping growth in car loans is because their interest rates are at least 1 percent lower than banks. In the first quarter of 2021, the average rate on a five-year new car loan from a credit union was 2.98 percent, according to the National Credit Union Administration (NCUA). At banks, it was 4.77 percent. If you’re borrowing $30,000 for a car, the credit union saves you $1,451 in interest over the life of the loan.
Credit unions are able to offer lower rates because they’re not-for-profit, unlike most banks.
“Typically, the rate of lending (at credit unions) is very competitive compared to other lenders under most circumstances,” says Bill Meyer, public relations and content manager at CU Direct, which connects credit unions with auto dealers across the country.
2. Community ties, personalized service
The car-loan process isn’t that different at banks and credit unions. But credit unions, because they’re smaller and have close ties to the communities they serve, are more likely to work with you if you hit a rough patch and need more time to make a payment, for example.
If you have a lower credit score, you may be able to qualify for an auto loan with a credit union vs. a bank.
“Credit unions are likely to have more flexibility in the underwriting process,” Schenk says. “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
Members used to have to go into the credit union office and apply for a car loan face-to-face with a loan officer. Not so today, according to Meyer. Applications for a credit union loan may be available at an auto dealership, online or over the phone.
If you’re 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.”
If you plan to apply for an auto loan with a credit union, it’s best to go with them directly rather than through the dealership. Not all dealerships work with credit unions, and if you can become a member, you’ll likely get the best deal when working directly with the credit union.
4. Credit unions have many other benefits
Credit unions are owned by their members — not shareholders — and any profits they make go back to the members. Because of that, credit unions can offer lower costs on other products, too, including mortgages, home equity loans, unsecured personal loans and credit cards.
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 financial options that are best 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.
5. Becoming a member is easy
Some people are under the impression that 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’re looking for 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.