Opting for a car loan through a credit union can help you secure lower interest rates and minimum loan prerequisites. The World Council of Credit Unions’ 2019 report notes that over 121 million individuals in the U.S. are active credit union members. If you have not joined this group, you might disregard credit unions as a viable lending option. Yet, this could be an oversight, as credit unions offer accessible membership and a range of advantages that alternative lenders may lack. However, is a credit union car loan the right choice for you? Let’s delve into these benefits.
Attainable Low-Interest Rates
Operated as nonprofit entities, credit unions channel profits back to their members. This structure translates into credit unions extending lower interest rates on loans than other lenders. Remarkably, credit unions can offer auto loan rates that are 1% to 2% below the average rates proposed by banks. Let’s examine the potential impact on your finances.
As of September 2020, data from the National Credit Union Administration reveals that the average bank APR for a five-year term new-car loan stands at 4.96%. By contrast, the mean credit union APR amounts to 3.18%.
Consider financing a new $25,000 car through a five-year loan at 4.96% APR. This arrangement would lead to a monthly payment of $283. Opt for a five-year loan at 3.18% APR from a credit union, and your monthly commitment drops to $271. While this disparity might appear modest, if all other loan terms remain constant, the difference in interest rates could accumulate to a saving of $724 throughout the loan’s duration.
It’s improbable to discover superior rates at car dealerships, primarily due to their involvement with multiple lenders who review loan applications and determine financing approval and interest rates.
Emphasis on More than Credit Scores
Membership in a credit union brings the advantage of potential leniency toward individuals with less-than-perfect credit.
For instance, Ryan Keene, Vice President of Lending at Ardent Credit Union, elaborates that his company looks beyond just credit scores. If the relationship is strong with the client, they try to find ways to help their members, even if there are a couple of issues with their credit.
While Ardent’s approach may deviate from other credit unions, it’s possible to find members benefiting from enhanced chances of approval despite less-than-ideal credit histories.
Reduced Minimum Loan Amounts
Credit unions might also extend lower minimum loan thresholds compared to conventional banks. This flexibility is particularly advantageous if you’re purchasing an economical vehicle or have a substantial down payment. This means you will finance a fraction of the total purchase price.
Diminished Fees
Enrolling as a credit union member affords you an array of perks beyond your auto loan. Given credit unions’ commitment to their members’ welfare, you will likely access reduced interest rates on different loan categories. Additionally, deposit products often entail fewer fees and higher interest rates.
Furthermore, membership offers the privilege of influencing credit union decisions. As member-owned entities, credit unions empower you to vote on issues that impact the institution, including board appointments.
