Why Credit Unions maybe better than Traditional Banks for Personal Loans
If you’re in the market for a personal loan, it’s likely you’ve considered a traditional bank or online lender. But for some borrowers, a credit union personal loan may be a more affordable or accessible option. This is particularly true if you’re an existing credit union member, though you can often become one at the time of application.
Though banks and credit unions provide similar financial products, including personal loans, auto loans, and mortgages, there are a few key differences:
Credit unions are not-for-profit organizations, while banks are for-profit.
Typically, you must be a credit union member to access lending products.
Banks generally do not limit membership to specific individuals based on location, organizational membership, employer, or other factors.
Credit unions are typically known for providing a more personal customer experience.
Banks are frequently known to have more branches and ATMs.
Benefits of Credit Union Loans
One of the primary benefits of working with a credit union is the individualized nature of the loan application process. Since credit unions only work with members, you’ll be more than just another account in their system. The institution will be more familiar with your financial situation and may be able to work with you more closely to meet your needs.
Credit union personal loans also often come with one-on-one customer service throughout the life of the loan. However, perhaps the biggest benefit of credit union loans is the often relaxed requirements it takes to get a personal loan.
Credit Union Personal Loan Requirements
Many credit unions avoid setting specific requirements when it comes to credit scores and income. Instead, credit unions typically consider the big picture of your overall financial situation wealth and the risk associated with lending. As such, borrowers who aren’t eligible for loans with other banks or online lenders may be able to secure a loan with their credit union.
In some cases, borrowers may be able to secure low rates compared to what they’d receive with other lenders. This is particularly true when it comes to borrowers with average or below-average credit, as many credit unions cap their annual percentage rates at about 18%. Credit unions also are less likely to charge origination fees or prepayment penalties.
Risks of Credit Union Loans
Though it’s not necessarily considered a “risk,” most credit unions will only do business with current members or those who plan to become members at the time of application. Since this typically means you’ll need to open a checking or savings account and keep it active, this may be problematic, especially if you don’t meet membership requirements.
Because credit unions are usually smaller organization compared to national or regional banks, they often take more measures to protect themselves in the case of default. This includes lower loan limits and, sometimes, required collateral in the form of a car, home equity, or other types of property. That’s what’s known as a secured loan.
Although many banks and online lenders use soft credit pulls to provide rate quotes, this is not always the case with credit unions, so it’s important to keep this in mind before submitting an application. Too many hard credit inquiries can negatively impact your score.
Alternatives to Credit Union Personal Loans
If you’re looking for a personal loan but don’t want to go through a credit union, you can obviously turn to a traditional bank. Other options include:
Many of the best personal loan companies offer quick funding — in some cases, as soon as the same business day —and flexible repayment plans. In addition, there are online installment loans for borrowers who have poor credit or are otherwise unable to secure a loan through a credit union or bank. However, keep in mind many online lenders charge higher rates and additional fees, particularly for sub-prime borrowers.
In some cases, the right credit card can replace a personal loan. This is particularly true for borrowers with good or excellent credit who can take advantage of a 0% introductory APR offer.
For some borrowers, a personal loan through a credit union may be a good choice thanks to competitive rates and personalized customer service. However, to determine the best personal loan product for your unique financial situation, it’s important to analyze the difference between the rates, terms, and requirements as they pertain to all loan options.
Author: Jennifer Lobb
Jennifer Lobb is a small business and personal finance writer. She has a passion for writing and her work has been featured in a number of online publications and media outlets, including MSN, Inc., and more. Jennifer is a graduate of University of Denver and received a MA with a focus in Literature, Culture, and Arts Management. When she’s not writing, she can be found with a good book in hand or whipping up something creative in the kitchen.