Should I get a car loan from a credit union?

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When looking for a car loan, there’s a good chance you’ve seen credit unions interested in your business. Your city probably has its own credit union, like most colleges and even some large businesses. There are credit unions for people who work in hospitals, credit unions for people who work in various government agencies, and credit unions for teachers. There are over 5,600 federally insured credit unions in the United States looking to get your business.

Considering that there is a credit union for every Tom, Dick, Harry, and Harriet, you’re probably wondering if it makes sense to get a car loan for a credit union. With the right credit union car loan, you could end up saving a significant amount of money on your auto financing, but you’ll want to make sure you get your car loan from the right credit union for you.

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What is a Union credit?

At the most basic level, a credit union is a financial institution that provides banking services, such as deposit accounts, loans, and investment accounts. However, what differentiates credit unions from traditional banks is that they are non-profit institutions, and when you join a credit union, you become a part owner.

It is this non-profit status that makes obtaining a car loan from a credit union attractive. Because credit unions are not profit-driven, they don’t need to charge high interest rates to improve their bottom line, and they are taxed at a lower rate than banks, which allows them to save money. They pass those savings on to their members in the form of reduced loan rates and fees, and sometimes dividends. Lower loan rates and lower fees save you money, and saving money is a big reason to get a car loan from a credit union.

Another reason some people have a soft spot for credit unions is that they report to members, not investors, and because members of a credit union share certain characteristics. This means that some credit unions can look at your auto loan application more holistically than a bank would. Think about the difference between the Bailey Building and Loan and the Old Man Potter bank in “It’s a Wonderful Life”. The bank only considered a few factors when deciding which auto loans to approve, but the Bailey Building and Loan took other factors, such as the applicant’s degree of work, into account when making its decision. While credit unions today may not be able to grant you a loan due to your work ethic, they may be able to look beyond your credit score to assess your application.

How Do Auto Loans From Credit Unions Work?

Credit unions operate by pooling members’ money. Many credit unions started out on a small scale, with a few related individuals pooling their money to invest and help each other. Rather than simply opening an account with a credit union, you become a member. Any assets deposited by members in the credit union can be used to make investments or loans, with the benefits accruing to the members.

Auto loans from credit unions take money deposited by its members and lend it to other members who need a car loan. They charge interest on money, which is a percentage of the amount borrowed that serves as a kind of rental fee on the money (read more on how to finance a car and get a car loan). When borrowers pay off the loan, they pay back the original loan amount plus interest. This interest allows the credit union to earn money, which it then shares with its members in the form of lower fees, higher savings rates, or dividends.

Auto credit rate of credit unions in August 2021

The interest rates for individual auto loans are going to vary depending on your credit score, but a quick glance at some of the annual percentage rates offered by the largest credit unions in the country shows that they tend to go downhill. be low enough. The advertised rates shown here are current at the time of writing this article and your rate will vary based on your financial situation. For ease of comparison, we only looked at the advertised rates for new auto loans for 36-month loans.

While these auto loan rates are not as good as the few zero-rate car deals offered by some new car manufacturers, they are better than the current average new car loan rate, which is currently 6.18%.

To see how much a car loan from a credit union could save you, let’s do a comparison using our car loan payment calculator. We will assume a 36-month new car loan rate of 6.18% from a bank. If you borrow $ 25,000 for a new car, your total loan cost will be $ 27,453, which means you will pay $ 2,453 in interest. If you take out a car loan from a credit union for 36 months at 0.99% (the lowest credit union rate we found this month), you’ll pay $ 25,383 in total, saving you over $ 2,070 over the life of the loan – and that doesn’t take into account the lower fees offered by some credit unions over other lenders.

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How do I join a credit union and get a car loan?

Joining a credit union and getting a car loan is not difficult. All you need to do is find a credit union that you would like to work with and see if you qualify for membership. Individual credit union membership is generally open to people who share characteristics with credit union members, such as living in the same area, working in the same business, or having family members who are already members. from the credit union. In most cases, you can apply for a credit union membership online and then apply for a car loan right away.

When looking for a credit union to join, it’s easy to start with a cooperative that’s in your community. Community credit unions will have a finger on the financial pulse of your area, so they will have products and services tailored to the area. You may also be able to look at credit unions based on your job. For example, many school systems have credit unions for their employees that offer financial products specifically designed for educators. Some credit unions also work with local auto dealers, so you can get a small discount or apply for financing through the credit union at the dealership – another benefit of a credit union auto loan.

What is the difference between a credit union and a bank?

The main difference between credit unions and banks is ownership and profits. Banks are owned by their shareholders – people who buy bank shares. Credit unions are owned by their members – people who actually use the services offered by the credit union. Banks are for-profit institutions and these profits go to shareholders. Credit unions are non-profit, so any money they earn above their costs is returned to members in the form of higher savings rates, lower loan rates, and lower fees, or even dividends, in some cases. Because they are not-for-profit entities, credit unions are taxed differently from banks, which saves them more money, and those savings are passed on to members as well.

When it comes to borrowing money to buy a car, the main difference between a car loan from a credit union and a bank car loan is that the credit union rates tend to be higher and higher. fees may vary). Credit unions may also have a broader view of your financial situation than a bank or other lender, so you may have an easier time getting your car loan approved.

Differences Between Auto Loans From Credit Unions And Other Auto Loans

Auto loan

Auto Bank Loan

Other Auto Loan

Non-profit

For profit

For profit

Tend to have lower average rates and fees

Tendency to have higher rates and fees

Tendency to have higher rates and fees

Open to members

Open to everyone

Open to everyone

May have flexible approval requirements

Strict approval requirements

Strict approval requirements

Other auto loan options

Banks and credit unions aren’t your only options for getting a car loan. You can also work with lenders who only offer loans, as opposed to banks and credit unions, which offer other financial services. Some of these lenders do not have a physical branch and take other steps to keep their costs low so that they may be able to offer you better terms than a bank or credit union. Before committing to any type of auto lender, you should shop around for the best deal, regardless of the type of lending institution.

Auto loan and leasing center

How to finance a car and get a loan

Average auto loan rates


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