Sure, financing your car isn’t as fun as choosing your car, or choosing the color of your car … or even choosing the route you take to get to the dealership; but when it comes to big loans, being mindful about your financing could potentially save you thousands of dollars.
The most common ways to finance cars are through banks and dealerships; however, it might be worth looking into credit unions to finance your vehicle.
But, what is a credit union? What are their benefits? And, more importantly, how do you get a credit union car loan?
What is a credit union?
If you’ve never looked into credit unions before you may have assumed that credit unions and banks are one and the same. Sure, they have similarities, but they also have very distinct differences. Credit unions are not-for-profit organizations that are owned by their customers. That means, to take out a loan, you need to be a member (part owner) of the credit union. Membership requires fees, but it could also potentially offer significantly lower fees, unlike banks that are continuously trying to grow their profits.
Why you should get a car loan from a credit union
Before we get into how you can get a loan from a credit union, we will explore why. There are many benefits that come from getting your loan from a union vs. a more traditional financial institution.
More authority: With banks, you are just a customer, meaning that you have no say when it comes to its processes. The same can’t be said for credit unions, which are non-profit and customer-owned. That means, the moment you join, you become a shareholder. As a shareholder, you will have a say in how the organization operates through a voting process.
Lower interest rates: This is easily one of the biggest (if not the biggest) advantages to taking a loan from a credit union. On average, their interest rate can be 1%-2% lower than other loans in the market. And while, that may not seem like a significant difference, it is important to remember that car loans are for significant sums of money that could take years to pay off. That means, a single percentage point can significantly affect you in the long run.
Better chances of approval: Other lenders, like banks and car dealerships, are for-profit businesses; therefore, one of their top priorities is … well, profit! And, as we all know, one of the more influential factors when it comes to loan approval is your credit score. For this reason, people who may have had theirs affected in the past can have a hard time getting approved for loans. Credit unions work differently. Since they are a non-profit organization, they try to help their members as much as possible. This can mean that they may be willing to look past a not-so-perfect credit score. Remember, credit unions will still calculate their risk and reject your membership or loan application if they think you will be unable to pay back your loan.
Lower loan minimums: Many financial institutions have loan minimums. Meaning, they only take on loans that they know will make them a worthwhile amount of profit. This can pose a problem if you’re looking to take out a loan for a smaller sum that doesn’t meet the minimum requirements. Credit unions often offer lower loan minimums than banks, so, if you only need a little help buying your car, you won’t be forced into a long-term, high-value loan that requires years of payments.
How to get a loan from a credit union
If you’re interested in getting a car loan from a credit union, first, you’ll have to become a member. The application requirements to join each credit union vary. Usually, you have to meet some form of criteria that makes you similar to other members, for example, where you live, your industry, etc.
Once you’ve determined you meet the criteria, you need to make an opening deposit. This step consists of opening an account and making a small deposit (which can be as little as $5).
After you’ve made your opening deposit, you’re free to apply for a car loan. The process after this looks very similar to the process you would go through at a bank or a dealership. They will require documents to confirm your identity, income, employment, and credit history. Afterwards, they will present you with loan options.
If you are interested in joining a credit union to secure a car loan, pick one in your area and research their application and membership requirements.