What are credit union loans?
Credit unions offer lower rates for members
Credit union loans work like other types of loans but are offered by credit unions instead of traditional banks and lenders. The big difference is that, unlike banks that exist to turn a profit, credit unions are nonprofit institutions that are owned by their members.
Because credit unions offer loans and other financial services without the typical profit motive, they can usually offer lower interest rates, better loan terms and easier requirements to qualify.
- Credit unions are owned and serviced by their members, and they are run by a volunteer board of directors that is elected by members.
- Since credit unions exist to benefit members, profits earned through financial products are ultimately returned to members in the form of lower interest rates on loans, higher savings rates and fewer fees.
- While many credit unions let anyone join, others have specific requirements for membership, like employer affiliation, a family connection or membership in a specific group. Some credit unions also operate in only one geographic location.
How do credit union loans work?
David Tuyo, who is president and CEO of University Credit Union in Los Angeles, says credit unions are fundamentally different from other banking institutions in several ways, including the fact that they exist to promote the financial well-being of their members.
"This ideology extends to lending policies where, instead of trying to maximize profits through high interest rates, not-for-profit credit unions work to keep interest rates low and savings rates high," he said.
Credit unions typically provide the same types of loans as other financial institutions. For example, common credit union loans include mortgages, auto loans, credit cards, investment and commercial real estate loans, lines of credit and personal loans.
How credit union loans work depends on the type of loan. Credit union loans can have fixed or variable interest rates.
Tuyo adds that credit unions have no interest in predatory lending tactics or in benefiting from locking you into sky-high rates. And because credit unions are member-owned, the profits they would normally earn can be "turned into savings" that are passed to members in the form of better rates.
Advantages of credit union loans
Because credit unions are member-owned, they can offer several important advantages to consumers:
- Lower interest rates: Credit unions may be able to offer lower interest rates on various banking products, since they do not have the typical motive for profit.
- Higher savings rates: Credit unions may be able to offer higher rates on savings accounts, certificates of deposit (CDs) and money market accounts.
- Reduced fees for financial products: Some financial products from credit unions may come with lower fees compared with options from other lenders.
- Additional loan options: Credit unions may offer more loan options than you can get from a bank down the street, including small-dollar payday alternative loans (PALs).
- Security: While traditional banks offer Federal Deposit Insurance Corporation (FDIC) insurance on deposits, credit unions offer similar protection via the National Credit Union Administration (NCUA). Similar to FDIC insurance, NCUA insurance insures up to $250,000 per member per credit union account for each account ownership category.
How to get a credit union loan
Before you can get a loan through a credit union, you need to know which institutions you are eligible to join. Unlike banks, credit unions typically limit membership to specific groups.
For example, Navy Federal Credit Union is only open to eligible military members, veterans and their families. Oregon Community Credit Union limits its membership to residents of specific Oregon and Washington state counties, members of groups with local ties and eligible family members.
Joining a credit union requires you to fill out an application and share some personal information, including:
- Your full name and address
- Date of birth
- Phone number and other contact information
- Proof of eligibility requirements (if applicable)
- Social Security number (SSN)
- Proof of identity (U.S. passport or other government-issued ID)
- Banking information required to fund your new account
What credit score do you need to get a credit union loan?
Just like with traditional banks and online lenders, the minimum requirements to get a credit union loan vary. Make sure to compare rates from credit unions you belong to with rates you can get from other lenders each time you borrow money.
What is the average credit union loan rate?
The average credit union loan rate depends on the type of funding, your credit score and other factors. According to the NCUA, as of December 2022, the average credit union loan rate for a 36-month personal loan was 9.66%.
What are the best credit unions for loans?
The best banks and credit unions depend on your goals and the type of funding you need. Make sure to compare all your banking options before you move forward with a loan.
- National Credit Union Administration, " What Is a Credit Union? " Accessed Feb. 6, 2023.
- National Credit Union Administration, " Payday Loan Alternatives ." Accessed Feb. 7, 2023.
- National Credit Union Administration, " Deposits Are Safe in Federally Insured Credit Unions ." Accessed Feb. 7, 2023.
- Navy Federal Credit Union, " Am I Eligible for Membership? " Accessed Feb. 7, 2023.
- Oregon Community Credit Union, " Membership Criteria ." Accessed Feb. 7, 2023.
- Consumer Financial Protection Bureau, " Checklist for opening a bank or credit union account ." Accessed Feb. 7, 2023.
- National Credit Union Administration, " Credit Union and Bank Rates 2022 Q4 ." Accessed Feb. 7, 2023.
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