Do Credit Unions Offer Better Car Loans?

If you’re on the hunt for a new car, whether brand new or used, and need financing to help you afford your purchase, getting a car loan from a credit union can be a smart lending choice. Even if you’re not currently a credit union member, it’s worth looking into their loan terms and rates because you may be surprised by how favorable they are.

Like traditional financial institutions, credit unions offer auto loans, as well as other types of loans, checking and saving accounts, and other financial services. If you’re wondering, do credit unions offer better car loans, taking a look at their vehicle loan interest rates, requirements, approvals, and more can help give you a fuller picture of whether these loans are the better option for you.

Car Loan Vs. Personal Loan

If you’re in the market for a car, one of the most critical questions is how you will pay for it. Even when you buy used, a vehicle can be a major expense. If you don’t have enough savings on hand or a vehicle you can trade in, you’re likely going to need to be prepared to spend a significant amount on your new purchase.

While it might be tempting to opt for a personal loan to finance your new ride, an auto loan is usually a smarter choice. An auto loan is preferable to taking out a personal loan because car loans are generally easier to qualify for, offer lower interest rates, and require fewer fees than personal loans.

Benefits of Getting a Car Loan From a Credit Union

When shopping with lenders to find the best auto loan for you, checking out credit union auto loan options can help you uncover numerous benefits. Here are some upsides to getting your vehicle loan from a credit union.

Lower Interest Rates

Unlike traditional banks, credit unions are not-for-profit institutions that reinvest their profits back into their membership. As a result, these lenders can offer members lower interest rates—as much as 2% lower than most lenders. While the average interest rate for a three-year auto loan is 4.21%, you are much more likely to lock in a lower rate when you work with a credit union.

Over time, the interest saved on a low-interest loan from a credit union rather than a high-interest loan from a bank or dealership can make a big difference, saving you hundreds of dollars or more over the life of the loan.

Smaller Loan Minimums

Another perk of financing your new ride through a credit union is that they have lower minimum loan requirements than banks. If you’re buying a used vehicle, a less expensive car, or only need to take out a loan for a small portion of your vehicle purchase because you have cash on hand, this means you don’t necessarily need a high loan amount.

In this case, you want to find a lender willing to lend a smaller loan amount, so you’re not borrowing more than you need to make your purchase. If this is true of your situation, working with a credit union could be useful so that you’re not borrowing more than needed for your vehicle loan, lowering your monthly payment and interest rate.

Better Chances of Approval

If you have poor or less than ideal credit, credit unions are more likely to work with you than traditional lending institutions, increasing your loan approval odds. Because credit unions are so member-focused, they look beyond just credit scores and build strong relationships with members of their community.

This means the more rigorous credit scoring criteria used by banks to be approved for a car loan aren’t necessarily used at credit unions, giving you a better chance of approval on your vehicle loan. If your credit has taken a hit because of high credit card debt, a limited credit history, few or no credit accounts, or other reasons, you may be in luck at a consumer’s credit union.

If you’re struggling to get approved for a loan at your current bank or a dealership, becoming a member at your local credit union and applying for preapproval can help you know if and what types of vehicle loans you qualify for.

Of course, the higher your credit score, the more likely you will receive better loan rates and terms. That’s why it’s vital to boost your credit score as much as possible before applying for an auto loan. Checking your credit score before applying for a loan can help give you a better understanding of your credit situation. It also enables you to make smart moves, such as paying down debt, to raise your credit score before seeking financing for your new vehicle.

Lower Fees

Becoming a credit union member can present a number of benefits beyond just car loans with better rates and terms. Because credit unions are member-owned and structured to give back to their members, it means your membership could offer better interest rates for other member-friendly loans too. Plus, you’re likely to enjoy smaller fees on deposit products and other specials and deals.

Online Banking

Like banks, most credit unions offer online banking options that make it just as convenient to manage your loan as it would be from a bank or dealership. Most credit unions utilize online payment systems or apps that make it easy to make your monthly payments on time and manage your auto loan.

Applying For a Car Loan at a Credit Union

Before you can apply for a car loan at a credit union, you need to become a member. However, this isn’t as big of a hurdle as it may seem. Chances are, you can easily find a credit union in your area that you can join.

You may be able to become a credit union member based on your location, employer, or membership at a school or house of worship. There are even credit unions for union members, teachers, university and college employees, military members or veterans, and government employees. Additionally, if you have a family member who belongs to a credit union, most allow family members to join as well.

Once you’re a member, the auto loan application process is very similar to what you’ll find at a traditional bank. Generally, the credit union will need information about the vehicle you want to purchase, including its make, model, miles, and value, along with personal information, such as your contact information, income, employment information and history, and credit history.

Once you’ve submitted your loan application, credit unions like T&I Credit Union will get back to you with a decision in as little as 24 hours. If you opt to get preapproved for an auto loan to help you budget and get a realistic idea of what your loan amount, interest rate, and monthly payments will look like, you can hear back in roughly just 20 minutes.

Shop Around

Of course, before deciding on a loan from any lender, it’s essential that you do your due diligence and research all of your options. Taking the time to shop around for the best auto loan and comparing rates, terms, and monthly payments can help ensure that you’re choosing the right loan for you.

A smart practice is to seek loan preapproval from multiple lenders so you can see what types of loan products you qualify for without it negatively impacting your credit score. Plus, this makes it easier to compare financing options.

Credit Unions

The Bottom Line

Securing a car loan through your local credit union can offer a host of benefits. If you become a credit union member, you are more likely to enjoy an auto loan with lower interest rates, lower loan minimums, better chances of approval, and other benefits that will best fit your budget and personal circumstances.

At T&I Credit Union, we offer rates as low as 1.99% on new car loans. Contact us today at (248) 397-9471 to learn how we can help you finance the car of your dreams.

About Jeff Jacobs