Credit Union Loans
Join, Apply, and Get Funded
Loans from credit unions are among the most competitive loans available. If you need to borrow money, it’s worth including a local credit union as you shop around (be sure to include local banks and online lenders as well).
Credit unions loans typically come with low rates and fees, which means a lower overall cost of borrowing. What's more, it might be easier to get approved for a loan at a credit union.
Nobody wants to make a loan that won’t get repaid, but small credit unions are more likely to take a more personal approach to evaluating your loan (instead of taking a rigid approach to everybody who applies for a loan).
Getting Started With Credit Unions
If you’ve never used credit unions before, you may not know much about them, or you may just think they’re the same as banks. There are plenty of similarities, but a key difference is ownership: Credit unions are nonprofits 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 need 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 (don't worry, it's not as complicated as it sounds).
- 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 that you or your family members work in).
- 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, you might find that the dealership is 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 out which credit unions are available nearby, try the National Credit Union Administration's credit union search tool. If you can't find anything local, plenty of credit unions accept members from all over the United States.
- Opening deposit: Once you’ve found a credit union that you’re eligible to join, you’ll become a member by opening an account and making a small deposit (often $25 or so). 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. If you’re already a member, then you’re that much farther ahead.
Talk 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 the following 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 that you’ve been in the same job for a certain amount of time (1 year, for example).
- Income: You’ll need income to repay the loan, and you’ll need to tell the credit union how much you owe. 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 home or automobile, you’ll need to make some sort of down payment (which is just a good idea anyway). For refinances, you’ll need sufficient equity, usually measured as a loan to value ratio.
- Creditworthiness: A history of borrowing and repaying loans 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 you apply 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 or not you can qualify, and discuss any issues like a recent foreclosure.
After you apply, a loan officer will review your application to see if you qualify for the loan.
Even if you don’t have a solid history of repaying loans (or if 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 staff, who will personally review your credit reports and your personal situation. Sometimes a personal letter can help. That will never happen at a big bank — if your credit score is too low, there are no exceptions, and a computer will decide everything.
A long-term relationship with a credit union (and getting to know the staff) 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 it’ll 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.
A cosigner can also help you get approved. A cosigner is a person who signs an application with you. They should have stronger credit than you and additional income available to pay off the loan. Ideally, they’ll never make a payment — it’s your loan — but they are responsible for the loan if you stop making payments. That’s a big responsibility (and risk), and a huge favor to ask somebody.
How Long Does It Take?
Getting a loan from a credit union can be very fast. 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 can often get an answer in the same day, and funds could be made available that day or shortly after.
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.