You can borrow money from banks, credit unions, online lenders, and finance companies. As you shop around, it’s smart to include credit unions in your search. Loans from credit unions are among the most competitive loans available and it’s easy to find great credit unions nationwide.
Credit union loans often come with low rates and fees, which results in a lower overall cost of borrowing. As an additional benefit, it can be easier to get approval for a loan through a credit union.
Consider small credit unions. Those institutions are the most likely to take a personal approach to evaluating your loan rather than taking the same rigid approach with every application.
Use our loan calculator to get an idea of what your monthly payments will be like:
Getting Started With Credit Unions
If you’ve never worked with credit unions before, you may not know much about them, or you may think they’re exactly the same as banks. It’s true that there are plenty of similarities between banks and credit unions, but a key difference is ownership. Credit unions are not-for-profit organizations owned by their customers. Most credit unions operate with the goal of providing financial services to their member-owners. As a result, credit union loan rates are often a little bit lower than big banks that continually strive to grow profits.
Becoming a Member
Before applying for a loan, you have to become a member or a partial owner of the credit union.
- Membership criteria: To become a member, you'll have to qualify by meeting certain criteria. That usually means you share some characteristics with other members, such as where you live or the industry in which you or your family members work. No matter who you are, there's a good chance that you can join a credit union, and you may be surprised at how easy it is to qualify.
- Finding a credit union: To find credit unions nearby, try the National Credit Union Administration's credit union search tool. If you can't find anything local, don’t worry. Plenty of credit unions accept members from all over the U.S.
- Opening deposit: Once you choose a credit union, you can become a member by opening an account and making a small deposit (sometimes as little as $5). After that, you’re ready to apply for a loan.
Applying for a Loan
In many cases, you can join a credit union and apply for a loan at the same time. If you’re already a member, then you’re that much further ahead in the loan process.
Speak with a loan officer at your credit union to understand the types of loans available and ask about the basic requirements for getting your loan approved. The credit union loan process varies from place to place, but most have similar requirements:
- Application: You’ll need to fill out an application, either online or on paper.
- Identification: On the application, you’ll need to provide identifying information about yourself, such as a Social Security number.
- Employment: Some credit unions require you to have been in the same job for a certain amount of time (one year, for example).
- Income: You’ll need income to repay the loan, and you’ll need to disclose any debts to the credit union. Your monthly payments on all debts will need to be below a certain debt-to-income ratio. Your debt-to-income ratio compares your total monthly debt payments to your monthly income.
- Equity or down payment: If you’re buying a house or vehicle, you’ll typically need to make some sort of down payment. For refinances, you’ll need sufficient equity, usually measured as a loan-to-value ratio. Your loan-to-value ratio compares your home's value to your remaining loan balance.
- Creditworthiness: A history of borrowing and repaying loans responsibly will help you get approved. Your credit score is often used to judge creditworthiness.
There’s nothing wrong with asking somebody at the credit union about these requirements before applying for a loan. A quick conversation can save everyone time. For example, if you know your credit score, get an informal opinion about whether you can qualify and discuss any issues, such as a recent foreclosure.
After you apply, a loan officer will review your application to determine whether you qualify for the loan. Even if you don’t have a solid history of loan repayment or you’ve had a few problems in the past, you still might get approved for a loan. Especially at small community institutions, there’s a decent chance that you can speak with a staff member, who will personally review your credit report and your personal situation. Sometimes a personal letter can help.
Getting to know the staff and building a long-term relationship with a credit union can improve your chances even more. If they see that you’re managing your accounts well, they’re more likely to overlook a blemish in your past.
A secured loan can also help you get approved and help you improve your credit scores for the next time you need a loan. To get a secured loan, you’ll pledge some sort of collateral, which the credit union can take if you fail to make your payments. You don’t need to pledge your house, car, or jewelry—cash secured loans use money in your account to help you get approved.
Cosigners Can Help
A cosigner can also help you get approved. A cosigner is a person who signs an application with you. They should have better credit than you and plenty of income available to pay off the loan. Ideally, they’ll never make a payment—it’s your loan—but this person is responsible for the loan if you stop making payments. That’s a big responsibility and risk, and a huge favor to ask of someone.
How Long Does it Take to Borrow?
Getting a loan from a credit union can happen quickly. At a credit union branch, you often receive an answer on the same day and funds could be made available that day or shortly after that.
Some credit unions offer so-called Payday Alternative Loans (PALs) that enable you to avoid predatory lenders and payday loans when you need a relatively small amount of money fast. They have lower fees than payday loans and can still be processed quickly.
In some cases, it’ll take longer. Credit union employees have a lot to do, and they can’t hand out money until they’ve had a chance to evaluate every loan. Plan ahead and ask your lender how long you should expect to wait.