Banks Vs Credit Unions: Who Offers Better Loan Rates
Though the majority of people who seek loans to purchase things like homes or cars turn to traditional banks, credit union usage has been on the rise. In fact, between 2019 and 2020, credit union membership rose in the U.S. by almost 3 percent¹.
There are many reasons for consumers to choose credit unions over banks, but we wanted to find out if one commonly cited benefit holds true do credit unions really offer lower rates on mortgages, used-auto loans, and personal loans?
To do this, we analyzed the data RateBunni gathers to compare rates for both types of lenders across the country.
Do Credit Unions Offer Better Car Loans
Are you thinking about buying a car? If so, you’ve probably started investigating the interest rates on auto loans from banks and dealerships. But there’s a third option for financing your purchase that you may not know about: credit unions.
Like banks, credit unions offer savings and checking accounts, loans and other financial services. Unlike banks, are not-for-profit organizations owned by their members. Instead of charging members fees to use its services, a credit union gives back to its members by offering them higher rates of return on savings and investmentsand lower interest rates on loans.
The Pros And Cons Of Credit Unions
Van Faassen claims that credit unions offer better rates on loans and savings products than commercial banks. Credit unions are a popular choice among consumers looking to find the best deals because they have millions of members across the country. Credit unions are a good option for people with poor credit because they provide low borrowing rates and stringent lending requirements, van Faassen says. Credit unions, on the other hand, are not a good choice for people with excellent credit because they do not provide as many products or services. A credit union loan will almost certainly appear on your credit report in the event that it is borrowed from them. A credit unions savings account will not usually be visible on your credit report if you only use it for financial reasons.
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You Might Have Better Odds Of Approval
If you have strong credit, you might have access to favorable loan terms like low APRs. But credit unions may also be willing to work with you even if youve struggled with credit in the past.
Some credit unions may give loans to borrowers who dont have much credit, or if you have no credit history at all. If youre already a member of a federal credit union and you need money right away, a payday alternative loan may be an option for tiding you over until your next paycheck.
While the interest rates for a payday alternative loan might not be as low as those of some other unsecured personal loans, federal credit unions cap payday alternative loan APRs at 28%. Compare that to traditional payday loans, which typically come with costs that equate to an APR of around 400%.
If you want to build your credit, another type of credit union loan to consider is a . Improving your credit can help your chances of getting favorable loan rates and terms in the future.
Just remember that a credit union may not be willing to give you a loan even if youre a member if it doesnt consider you a member in good standing.
Types Of Credit Unions
There are several different types of credit unions to consider for small business loans. Those include:
- Federal Credit Unions: These credit unions are regulated by the National Credit Union Administration and are insured by the National Credit Union Share Insurance Fund .
- Federally Insured State Credit Unions: The NCUSIF insures these credit unions.
Additionally, credit unions can also be categorized based on membership type. Credit unions fall into the following categories:
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The Education Of The Retiree
Perhaps the most difficult challenge facing the credit union in meeting the retirement needs of its members is educating them about pension plans. I have found that the best way to achieve this is to divide the educational process into two phases. Phase 1 is the provision of self-help materials that allow the retiree to learn how a pension plan works in general and what their own plan might look like. In Phase 2, the retiree, in consultation with a credit union advisor, develops a detailed plan tailored to the individualâs needs, abilities and preferences.
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Ready To Apply For A Loan Here’s What You’ll Need To Complete The Application:
- The amount you would like to borrow
- The number of years you want to finance your loan
- Your current employment and income information
- Your phone number and email
- Information for joint borrowers you plan to include on the mortgage loan
- An idea of the total amount you would like for your loan and monthly payments
For a list of all the documents often required to complete your purchase, download our Mortgage Application Checklist.
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Best For Applicants Without A Credit History: Golden1 Credit Union
Why Golden1 stands out: If you have no credit history or credit scores yet, qualifying for a loan can be difficult. But Golden1 offers a credit starter loan thats specifically designed for borrowers who want to establish new credit.
- Loan amounts You can borrow up to $1,500 on your own, or up to $2,500 if you have a co-signer.
- Collateral The credit starter loan is an unsecured loan, so you dont have to use your car or other property as collateral.
- Skip-a-payment feature If you get a credit starter loan from Golden1, you can skip one payment per year as long as your account is current, you have made at least one payment on the loan, and you request to skip the payment at least 10 days in advance.
- Interest rates Golden1s credit starter loan features personal loan APRs in the double digits. The Golden1 Personal Loan option offers APRs in the single digits.
- Membership To qualify for a Golden1 loan, you must be a member of the credit union. Youre eligible for membership if you live or work in California, have a family member or domestic partner that is a current Golden1 member, or work for one of the credit unions partner employee groups.
Read our full review of Golden1 Credit Unions personal loans to learn more.
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.
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Potentially Higher Overall Cost
While they often provide great rates for their members, there are occasions when credit unions simply cant compete with larger banks.
For those who are inclined to only shop at credit unions, the biggest downside is that banks will periodically offer sharply lower mortgage rates, says Arzaga. When combined with minimum deposits that will lower the interest rate, the difference can be meaningful.
That makes it important to shop at both credit unions and banks for mortgage rates.
How To Use The Credit Union Loan Calculator
- Loan Amount: The total cost including agreed upon price, tax, title, and license. Depending on where you live, sales tax can add a significant amount to your purchase price.
- Interest Rate: The annual interest rate on the loan. Shop around for the lowest rates since this will affect your monthly payment for the life of the loan. The lower your interest rate, the lower your monthly payments will be.
- Number of Years: The length of the loan is also referred to as the loan term. The number of years determines how long you will be paying on the loan until the debt is paid off. Choosing fewer number of years will increase your monthly payment, but you will pay less interest over the life of the loan. Interest rates are usually higher for longer term loans, adding to the expense of a long loan term.
Example of a loan with different Number of Years.$10,000 financed with a 6.00% interest rate. Example 5 Years
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Do Credit Unions Originate Mortgage Loans
Commercial banks are unquestionably the best option for a home mortgage, but they arent the only ones available. Mortgage brokers, online mortgage lenders, and credit unions are just a few of the companies that provide mortgage loans. Credit unions and other non-bank lenders are experiencing an increase in mortgage originations.
Why Have A Dual Chartering System
Competition between federal and non-federal chartered credit unions fuels their drive to continually improve. Individual states are spurred to be conscious of and to address the needs of their constituents. Charters are compelled to routinely update techniques to be relevant and efficient in daily operations.
Together, the dual chartering system works to:
- Counter complacency
- Prevent a concentration or abuse of power
- Respond to issues on a local and federal level
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Becoming A Credit Union Member
The unique qualities of a credit union also impact the requirements for the personal loans they offer. The first requirement is membership, which is based on certain criteria. Those criteria vary from one credit union to the next, and can include:
- Geography: Living, going to school, working, or worshiping in a particular county or other region specified by the credit union.
- Affiliation: Belonging to/being employed by certain companies, governmental agencies, or military organizations. Some credit unions offer membership to folks who contribute to specified charities. Other credit unions may offer membership to customers of affiliated organizations, such as car dealerships.
- Family: Normally, you can join a credit union if a family member is already a member or would qualify to become a member.
Typically, you must keep a nominal amount of money on deposit in the credit union to maintain your membership.
Best For Applying With A Co
Who’s this for? PenFed provides personal loan options for debt consolidation, home improvement, medical expenses, auto financing and more. Potential borrowers need to apply with good or excellent credit. But for those who have less than ideal credit, this lender allows the option to apply with a co-applicant. Applying with a co-applicant who has a higher credit score than you can help you get approved for better interest rates that you otherwise wouldn’t have qualified for.
Borrowers can apply for as little as $600. Most lenders have a $1,000 minimum for personal loans, but PenFed’s low minimum may make it attractive to those who don’t need to borrow such a large amount of money.
PenFed loan terms range from one to five years. While you don’t need to be a member to apply, you will need to sign up for a PenFed membership and keep $5 in a qualifying savings account to receive your funds.
While PenFed loans are a good option for smaller amounts, one drawback is that funds come in the form of a paper check. If there is a PenFed location near you, you can pick up your check directly from the bank. However, if you don’t live close to a branch, you have to pay for expedited shipping to get your check the next day.
Much like with any other personal loan lender, the best way to qualify for the lowest interest rate on a PenFed loan is to apply with a higher credit score.
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Cons Of Getting A Credit Union Mortgage
The benefits of credit unions arent as apparent when searching for mortgage rates, because credit unions dont have the marketing scale banks have, which is why they generally dont appear in searches for low rates, says Rich Arzaga, founder and CEO of Cornerstone Wealth Management in San Ramon, California.
The cons of getting a mortgage through a credit union include:
Best For Military Families: Navy Federal Credit Union
Why Navy Federal Credit Union stands out: Navy Federal Credit Unions products arent available to the general public. Membership is limited to U.S. military service members, Department of Defense officer candidates and reservists, Department of Defense civilian employees, veterans and immediate family of members.
If youre in one of the eligible groups, andyou need a personal loan or a home improvement loan, Navy Federals guidelines allow repayment periods of up to 180 months, depending on the loan type and other factors. This can be an advantage because a longer loan term can give you more affordable monthly payments.
- Loan amounts The minimum loan amount is just $250, and the maximum amount is $50,000, depending on the type of loan.
- Collateral Navy Federal Credit Unions home improvement loans are unsecured, but there are secured personal loan options too. You can secure a loan with your savings account, for example, to potentially get a lower rate.
- Loan terms As mentioned above, loan terms can be as long as 180 months . For home improvement loans, theres a $25,000 loan minimum for terms of 61 to 84 months, and a $30,000 loan minimum for terms of 85 to 180 months.
- Disbursement time Loans may be disbursed in as little as 24 hours.
Read our full review of Navy Federal Credit Unions personal loans to learn more.
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Navy Federal Credit Union
Navy Federal Credit Union offers personal, secured, and pledged loans to members. To join, you or a family member must have ties to the Department of Defense, the Armed Forces, or the National Guard.
This credit union offers personal loans of up to $50,000 with terms up to five years. It also offers debt consolidation loan and secured loan options.
Loan rates vary by loan type and your creditworthiness. If your credit score is too low for a personal loan, you may receive approval for a loan secured by your savings account or savings certificate. Collateral loans charge interest rates 2 to 3 percentage points higher than the rate on your savings account or certificate.
Things You Need To Know About Tri
What is a tri-merge credit bureau? A tri-merge credit bureau is one in which Transunion, Equifax, and Experian are members. If you use this type of bureau, lenders can obtain a full picture of your credit history. lenders assess your credit profile to determine if you are a suitable candidate for a personal loan. What is the minimum credit score required to get a loan? A minimum credit score of 622 is typically required for lenders after a tri-merge credit bureau has been dissolved. This score is made up of information from three credit bureaus and is based on your credit history. How easy is it to get a loan through a credit union? Credit unions, unlike banks, do not have to make a profit for their members. As a result, credit unions have a lower interest rate for personal loans than big banks. Credit unions, on the other hand, require you to be a member to apply, and it can be difficult to meet the requirements. If I am not a member of a credit union, can I get a loan? If you are not a member, you can apply for a loan through a credit union. Despite this, applying for membership via this process may be more difficult. Credit unions typically require you to have a strong credit history and to meet a number of eligibility requirements.
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Are Banks My Only Option For A Second Mortgage
Within Canada, for a variety of reasons, citizens are taking full advantage of second mortgages. Whether combining credit cards, paying for home repairs, or buying property, funds from a second mortgage improve a borrower`s situation.
The key question for many borrowers is, of course, who will lend me the money? A hundred, or even fifty, years ago the potential answers to that question were few. Banks had the majority of the loans with credit unions holding a small share of the lending business.
In 2020, there are three categorizations of lenders. The A-lenders are the traditional lending institutions, banks and credit unions. Next are the B-lenders, who despite their B status, often offer a service on a par with the A-class. B-lenders account for a smaller share of the market but can offer better rates and have a lower threshold for entry. They can work with borrowers rejected by the A-class.
Finally, there are private lenders who specialize in bespoke lending arrangements which may carry more risk. These loans can be highly specialized and are used when a different kind of thinking is needed.
Best For Flexible Terms
Who’s this for? Similar to some of the other lenders on this list, Alliant offers personal loan amounts for as much as $50,000 . But this lender also has a considerable amount of flexibility when it comes to its personal loan products. For one, the lender can usually deposit the funds into your bank account on the same day . However, if you’d rather receive your funds in the form of a check, Alliant offers to mail you one.
The APR for Alliant personal loans are tiered and depend on the timeline you choose for repaying the loan. According to the Alliant website, you may qualify for a rate close to the lowest APR if you choose a loan term of 12 months. Then the APR starts at 7.24% for a 24-month loan term, 9.24% for a 48-month loan term and 10.24% for a 60-month term. Of course, aside from the term you choose, your interest rate will also depend on your credit score. The higher your , the more likely you’ll be to get approved for interest rates on the lower end of the lender’s ranges.
This lender also doesn’t charge origination fees or a prepayment penalty.
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