Credit Union Loans

Image by Theresa Chiechi © The Balance 2019 

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 unions 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 most likely to take a personal approach to evaluating your loan, instead of taking the same rigid approach with every single loan application.

Getting Started With Credit Unions

If you’ve never worked with credit unions before, you may not know much about them or 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 often come out a little bit lower (compared to big banks that strive to continually 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.
  • Easy ways in: 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. For example, when buying a car, the dealership may be able to make you a member—without you ever having to visit one of the branches. By buying from that dealer, you meet one of the credit union’s eligibility requirements.
  • 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 process varies from place to place, but most credit unions (and every other lender) 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.
  • Equity or down payment: If you’re buying a house or automobile, you’ll need to make some sort of down payment. For refinances, you’ll need sufficient equity, usually measured as a loan-to-value ratio.
  • 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 you (and them) 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.

Getting Approved

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. The experience is different at big banks—if your credit score is too low, there are no exceptions, and a computer decides everything.

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.

Secured Loans

A secured loan can also help you get approved and help you build up 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. He or she 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. Again, the process of joining a credit union and getting a loan funded can happen while you’re sitting in a car dealership. 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 much 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.

In some cases, it’ll take longer. Credit union employees have a lot of customers and tasks, 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.

Alternatives to Getting a Loan From a Credit Union

Before you decide on getting a loan from your credit union, review and compare other options.

Traditional Banks

Whereas credit unions work with their members who have bad or average credit to help them qualify for personal loans, banks usually require good credit as a prerequisite. Some of the larger banks don’t offer unsecured personal loans, although you can get other types of loans, such as home equity loans and credit cards, from these lenders. Your chances of getting personal loan terms from a bank that are comparable to those of your credit union are better if the bank is locally owned and you’re an established customer.

Online Lenders

There are a couple of benefits to getting a personal loan from an online lender. The lender typically doesn’t run an in-depth credit check and, because of the lender’s lower overhead, you can often get a relatively low interest rate if your credit score is high. If not, expect to pay more in interest to compensate the lender for the potential risk that a low credit score represents.

Before you commit to an online loan, read and understand the loan agreement. Also, check the Consumer Financial Protection Bureau’s complaint database to find out if any complaints have been filed against the lender you’re considering.

Zero-Interest Credit Cards

If you have good or excellent credit and only need loan funds for a short time—say, to tide you over until you start a new job in a few months—a zero-interest credit card may be your best bet.

An issuer of a zero-interest card charges no interest on purchases or balance transfers during a promotional period that usually ranges from 12 to 21 months. This amounts to a short-term, interest-free loan. The trick is to pay off the balance before the promotional period ends. If you don’t, the card issuer will begin charging interest on any balance that remains.

Article Sources

  1. National Credit Union Administration. "How Is a Credit Union Different Than a Bank?" Accessed July 7, 2020.

  2. First Alliance CU. "Credit Unions: Nonprofit or Not-for-Profit, What's the Difference?" Accessed July 7, 2020.

  3. Alliant Credit Union. "Credit Union Benefits of Membership." Accessed July 7, 2020.

  4. NCUA. "Credit Union Locator." Accessed July 7, 2020.

  5. Federal Trade Commission. "Credit Scores." Accessed July 7, 2020.

  6. CreditUnion1. "Secured Loans." Accessed July 7, 2020.

  7. Consumer Financial Protection Bureau. "What Is A Co-Signer?" Accessed July 7, 2020.