The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
If you’re thinking about buying a new or used car, a credit union is a great choice for a loan. There are more than 4,900 federally insured credit unions in the United States with over 128 million members, according to the National Credit Union Administration (NCUA). National banks 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.
Not only do credit unions frequently have lower interest rates than banks and online lenders, but they also offer personalized service and a variety of other benefits.
6 reasons to get a credit union car loan
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
Credit unions can offer lower rates because they’re not for profit, unlike most banks. 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, public relations and content manager at CU Direct, which connects credit unions with auto dealers across the country.
In the first quarter of 2022, the average rate on a five-year new car loan from a credit union was 2.78 percent, according to the NCUA. At banks, it was 4.69 percent. If you’re borrowing $30,000 for a car, the credit union saves you $1,545 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, deputy chief advocacy officer for policy analysis and chief economist 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
Long gone are the days of having to visit a branch to apply for a car loan. 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.”
Still, you should apply with the credit union first before visiting the dealership. 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 in hand when you start car shopping — and won’t have to pay dealer markup on your rate.
4. Credit unions have many other benefits
Credit unions are owned by members — not shareholders — 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 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 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 are 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.
Credit union loan originations for new cars fell 0.1 percent in the fourth quarter of 2021, but used-car loans rocketed up 10.3 percent, for an overall increase of 6.4 percent, according to NCUA data. Credit unions had $142 billion in loan balances for new cars at the end of the fourth quarter of 2021, and $262.5 billion in loan balances for used cars.