It’s crucial to find a car loan that offers favorable terms. If you settle for a car loan with a high interest rate that simply won’t fit into your personal budget, you may find yourself unable to make payments. When you default on a loan, it negatively affects your credit score for years.
The high interest rates offered through bank or dealership loans can leave you paying much more for the loan than your vehicle is actually worth. Taking on a bad loan like this makes it hard to reach your financial goals and puts you in a vicious cycle of car loan debt.
If you qualify for a credit union car loan, it may be a good opportunity to finance your vehicle purchase with satisfactory terms. Credit unions are known for offering personalized service and reasonable interest rates, especially for members with good credit. Review this guide to learn why you should consider a car loan with a credit union and how to apply for one.
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Reasons to Consider a Credit Union Auto Loan
Lower Interest Rates and Loan Minimums
Credit unions are more likely to offer auto loans with low annual percentage rates (APRs) and low loan minimums. Some credit unions don’t have minimum loan requirements, so you may be able to finance a used car purchase that’s $5,000 or less.
When you compare credit unions to banks, the former usually provide more satisfactory loan terms to borrowers. According to the S&P Global Market Intelligence 2019 data collection, the average interest rate for a 48-month new car loan with a credit union is 3.57%. The same type of loan with a bank had an average interest rate of 5.03%.
Since credit unions are nonprofit organizations that reinvest into their members and communities, they can offer lower interest rates than for-profit banks. As a borrower, you benefit from these low interest rates with lower monthly payments. You also pay less over the life of the loan because your total loan cost is lower.
Better Chances of Being Approved
When you apply for a car loan with your credit union, you may have a better chance of getting loan approval than with a bank. Even if you don’t have good credit, a credit union may be more willing to work with you on a car loan since you’re a member and have already established a relationship with the organization.
With a better chance of approval, you may not need to fill out countless applications with other banks or lenders. This also means your credit won’t be subjected to several hard credit checks as you search for lender approval with different banks.
How to Get a Car Loan From a Credit Union
If you’re ready to apply for a car loan with a credit union, it’s important to review the process so you can be prepared.
Becoming a Member of a Credit Union
To apply for a loan with a credit union, you must first be a member. There are several types of credit unions that may have different eligibility requirements for members, including the following:
- Corporate credit unions: Corporate credit unions provide funding to central credit unions. You can’t become a corporate credit union member as an individual person. As a source of funding, these credit unions are regulated by the National Credit Union Association (NCUA) or banking authorities within the state.
- Community credit unions: These credit unions are nonprofit organizations owned by their members. To apply, you must be a local member of the community and you may be required to pay a small membership fee. Community credit unions vary by location. Some examples include Fairwinds Credit Union, First Community Credit Union, Greylock Federal Credit Union, Pacific Crest Federal Credit Union, and Alliant Credit Union.
- State employees credit unions: If you’re a state government employee, you may qualify to become a member of your state employee credit union. Examples include the Nebraska State Employees Credit Union and the North Carolina State Employees’ Credit Union.
- Military service credit unions: As a member of the U.S. military, retired veteran, or a qualified relative, you may be eligible to join a military service credit union. Examples of these types of credit unions include Navy Federal Credit Union, Pentagon Federal Credit Union, Security Service Federal Credit Union, and Service Credit Union.
- Education credit unions: If you’re a teacher, you may qualify to become a member of an education credit union in your area. Examples of these credit unions include Monroe County Teachers Federal Credit Union, Cleveland Heights Teachers Credit Union, and Liberty County Teachers Federal Credit Union.
Once you’re a member, you’ll also need to provide specific information to apply for your loan. Consult with a credit union loan officer to find out what you’ll need to bring with you. Generally, you’ll need to provide proof of income, vehicle information, proof of insurance, and identification.
How to Apply
To apply for a car loan with your credit union, it’s beneficial to go to a local branch and speak with a loan officer. You can complete the process in one trip if you bring the information needed, including vehicle information, proof of income, and identification.
The loan officer will run your credit and should be able to determine the loan terms you’re eligible for during your meeting. In some cases, additional approval may be necessary, which could occur at a later date.
Managing Your Credit Union Auto Loan
Once you’ve found the best place to get a car loan, it’s important to manage your loan. Even if you obtained a loan with a good interest rate and terms, you must take certain actions to ensure you remain financially stable with this new expense, such as:
- Making payments on time.
- Paying at least the minimum payment each month.
- Reviewing your lender’s acceptable payment methods and other terms.
- Paying off your car loan early, if you’re not subject to early payoff penalty fees.
If you’re in the market for an auto loan, your credit union may be the best lending choice for you. As a member with an established relationship, you may benefit from personalized service, a lower interest rate, and other favorable loan terms.
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