Credit Union Loans
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 in evaluating your loan instead of taking the same rigid approach with 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 between banks and credit unions, 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.
- 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, you might find that the dealership is able to make you a member—without your 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 time. If you’re already a member, then you’re that much further 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 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 tell the credit union how much you owe on other debts. 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 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 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 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. That will seldom 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. He or she 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 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.
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 on the same day, and funds could be made available that day or shortly thereafter.
Some credit unions even provide so-called Payday Alternative Loans (PALs) that help you 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.
Alternatives to Getting a Loan From a Credit Union
Before you make the decision to apply for a loan from your credit union, review and compare available options to get the best deal for your situation.
Credit unions versus 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.
Credit unions versus online lenders: There are a couple the benefits of 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 or general operating expenses, you can often get a lower interest rate if your credit score is high. If not, expect to pay more 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 and check the complaint database of the Consumer Financial Protection Bureau 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 till your new job starts in a couple of 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 start charging interest on any balance that remains.