How to Find the Best Credit Union Car Loan

Your car is your connection to your job, errands, and family obligations, and when it’s old or no longer safe to drive, you need to replace it as soon as possible. A car loan makes it possible to get the new car you need without waiting months to save up enough money. Car loans often have lower interest rates than other types of loans because they’re secured by the value of the car.

A credit union can pre-approve you for a car loan, making it easier for you to shop for a new car. You’ll have a realistic idea of how much of a loan you can afford, and how much it will take to pay it off.

Why Choose a Credit Union?

Credit unions’ non-profit structure makes them a unique option for financial services. Credit unions typically offer more generous and flexible financing options than for-profit banks and lenders, who usually charge higher interest rates for most services.

Credit unions offer highly personalized service and can walk you through each step of the loan application process if you have any questions. If you have special financial circumstances, a loan officer can provide a list of possible options or steps you can take to improve your eligibility for loans.

How the Process Works

Credit unions only provide products and services to members, but most memberships are free and have minimal restrictions. Membership at T&I Credit Union is open to anyone who works, lives or worships in a seven-county area around Detroit, Michigan.

Once you’ve become a member, fill out an application for car loan pre-approval based on an approximate loan amount, your income, your current credit score, and a few other factors. Most credit unions can pre-approve you instantly for a set loan amount and repayment term.

When buying a car, bring your pre-approval letter from the credit union and have the car dealer contact the credit union for final processing and paperwork. In some cases, you may need to make last-minute adjustments to the loan term and amount, but a credit union loan officer will work to make this as smooth as possible.

Although most car dealerships can find and arrange a car loan for you, many of them will tack on additional interest or fees in exchange for the service. These fees may keep you from getting the best deal and lowest monthly payments possible. Working directly with your credit union can help you understand all the fees and interest rates, and help you avoid surcharges from the dealer.

The Impact of Your Credit Score

Your credit score plays a huge role in your ability to get a car loan from any financial institution. Your FICO score can reach a maximum of 850, but most people with a credit score of 600 or higher can get a car loan with no problem. Credit unions may also be able to provide loans for people with lower scores.

However, your current income and employment may also have an impact on your ability to get a loan. If your income has recently decreased or if you haven’t been at your current job very long, you may not be as eligible for as large of a loan.

If your credit score and other eligibility criteria make it hard for you to qualify for a large loan, you can also try to make a larger down payment on the car. Reducing the overall amount of the loan may also help you qualify for lower interest rates, saving you money over time.

Factors Affecting Your Credit Score

There are multiple factors that affect your credit score, but your overall credit history and track record of repaying debts are the biggest. Car loan lenders are looking for reassurance that you can repay your debts on time and in full. Even if you have a high income, you may find that your credit score is low if you haven’t opened many accounts or used much of your credit during your life.

Missing one or two payments isn’t enough to ruin your credit score, but multiple missed payments will add up. Negative marks on your credit score, including missed payments, will remain on your credit report for up to seven years. Even once the missed payment is fully repaid, the fact that you missed payments will continue to keep your score lower than it could have been.

Your current debt-to-income ratio also makes a huge impact on your score. If your current debts are more than 25% of the total amount of credit available to you, your credit score may be reduced. Long-term debts like mortgages and student loans have much less of an impact than credit card debt, so you can still get a good car loan rate if you’re consistently paying off your long-term loans.

Fortunately, you can still bring up your credit score enough to get a good car loan. Paying down existing debts, asking current lenders to increase your line of credit, and making sure to pay bills on time can all improve your credit score in a matter of months.

Credit unions are generally more willing to work with lenders with imperfect credit. Since they’re focused on serving members instead of making a profit, credit unions will be more flexible and try to find a way to give you a better rate.

Length of Loan Term

The length of the loan term has multiple effects on your car loan. The most obvious factor is the amount of money you’ll have to pay each month. A shorter loan term means that you’ll have to make larger monthly payments in order to pay it off on-time.

However, a shorter loan term also usually means lower interest rates. This is because the credit union gets its money back sooner and because there will be fewer life changes and other variables affecting your ability to repay.

The right option for you will mostly depend on your monthly budget. If you can afford to pay more per month and get the car paid up, then it’s smart to do so. If you need a little more time, then your credit union will work with you to draft loan terms and conditions that work for your budget while keeping the interest rate as low as possible.

Getting the Best Car You Can Afford

As you go through the loan approval process and shop for cars, you may find a car that is perfect for your needs, but its sticker price is more than you expected. Since a car is a long-term investment, you shouldn’t give up on that car just because it’s a little more expensive than you planned.

Car dealerships are often willing to negotiate on price, but your credit union may also be able to offer you an updated loan deal that still works for your budget. Your credit union may be able to extend the term of the loan to make the monthly payments slightly lower.

Co-Signing a Car Loan

If your teenager or young adult is working on getting their first car, then you’ll likely need to co-sign on a loan for them as well. Without adequate credit history, even college graduates may struggle to get a good loan interest rate.

Fortunately, your credit union can work with you to set up a new membership for your adult child and allow you to co-sign their loan. This also provides a good chance for your child to increase their credit score and future financial independence.

Finding a Lender You Trust

A car loan is a major investment, and searching through auto loan ratings typically leaves buyers with more questions than answers. No matter what kind of banking and credit questions you have, your hometown credit union can walk you through them and provide the personalized advice you deserve.

T&I Credit Union is committed to serving the Detroit Metro area with professionalism and the best rates possible. Our nonprofit structure makes it easier for us to focus on the community and our members.

We’d love to help you reach your financial goals. Give us a call at (800) 338-3908 to talk about membership and loan options.

About Marsha Smith

Marsha Smith was born and raised in Ohio, where she obtained her Bachelor of Arts in Public Affairs. She is passionate about financial literacy and helping other young people navigate student loans, car payments, and buying a home.

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