Why Credit Unions Are a Smart Choice for Auto Loans
With the average price of a new car hovering around $45,000, finding an affordable auto loan is critical. If you’ve been searching for the best interest rates and terms, chances are good you’ve come across auto loans from credit unions. Credit unions are not-for-profit financial institutions that function very much like banks. According to the Credit Union National Association (CUNA), about a third of all car loans originate with credit unions. Credit union car loans often give bank and dealer loans a run for their money, with low interest rates and money-saving options for people with low credit scores.
If you’re in the market for an auto loan, here are four reasons to consider choosing one from a credit union.
Lower Rates
Credit unions are member-owned, not-for-profit financial institutions. Their core mission is to improve the financial well-being of their members. Among the key benefits they offer are higher rates on savings, minimal fees on loans and accounts, and lower rates on loans and credit.
Compared to banks and finance companies (including dealer financing), credit unions typically offer lower average interest rates across a range of credit scores. Here’s how median interest rates stacked up for 72-month car loans based on April 2023 data from CUNA:
- Credit unions: 6.58% to 10.86%
- Banks: 7.51% to 17.11%
- Finance companies: 6.23% to 17.94%
For all lenders in the survey, interest rates go up as credit scores drop. Median credit union rates compared favorably (or at least competitively) across all credit profiles, but were substantially lower for deep subprime and subprime borrowers, who generally pay the highest rates on loans.
The survey defines deep subprime borrowers as having VantageScore® credit scores below 580; subprime borrowers range from 580 to 619. On a 72-month, $40,000 loan, a deep subprime borrower saved $9,633 over the life of the loan on an average credit union loan versus an average bank loan, according to CUNA data. For a subprime borrower, the life-of-loan savings was $7,384.
Of course, average rates are not as important as individual rates when you’re shopping for a loan. You may, in fact, find your best deal at a bank or dealership. But if you’re investigating all of your options, you may not want to overlook credit unions. They sometimes have the rates to beat.
More Flexible Requirements
Even though credit unions check your credit and debt-to-income ratio when you apply for a loan, many will also take your larger financial history into account when considering your application. They may also offer specific loans and credit-builder programs that can help you secure a loan, even if you’re just starting to establish credit.
Here’s an example: Many credit unions offer loans for first-time auto buyers who don’t have extensive credit histories. Rates and terms vary from one credit union to the next, but in general these loans are designed to get new borrowers off to a good start.
Lower Loan Minimums
Say you’re buying your aunt’s mint condition 2009 hatchback for $4,500. Many auto lenders won’t offer you a loan that small; it’s not worth their while. Some credit unions offer low (or no) loan minimums, so you can finance a car you’re buying at a great low price or minimize your loan amount when you only need to finance a small portion of your car purchase.
Local, Personalized Service
Credit unions pride themselves on friendly, in-person service. Their members-first philosophy also shows through in their loan terms and features. For example, many credit unions let you skip a loan payment if you’re going through a difficult month (provided you contact them first). You’ll make up your missed payment and pay interest on it at the end of your loan, but you won’t suffer late-payment consequences to your credit.
As an additional perk, some credit unions offer car-buying services that make locating a vehicle and negotiating a price easier on you.
Frequently Asked Questions
How Do Credit Unions Work?
Credit unions are member-owned financial cooperatives that provide traditional banking services. They are created, owned, and operated by their participants and profits are shared among the owners. This structure allows credit unions to offer lower fees and better interest rates than many for-profit banks.
How to Apply for a Car Loan at a Credit Union
Applying for a car loan at a credit union is similar to applying at a bank. You’ll need to provide personal information, financial details, and information about the vehicle you wish to purchase. The credit union will review your credit score and financial history to determine your eligibility and interest rate.
Alternatives to an Auto Loan From a Credit Union
If a credit union loan isn’t right for you, consider other options such as bank loans, dealer financing, or online lenders. Each option has its own set of benefits and drawbacks, so it’s important to compare rates, terms, and conditions to find the best fit for your financial situation.
The Bottom Line
Financing a car is a big deal. Whether you’re purchasing a new vehicle or a used one, your car loan will likely be one of the largest loans you’ll ever take out. A lower interest rate can save you thousands of dollars over the life of a loan. In addition, having a lender you can work with may make it easier to get approved for financing and pay off your loan successfully while building or maintaining good credit.
If you’re in the market for a car loan, now may be a good time to check up on your credit report and credit score. Knowing your credit profile can help you identify which auto loans will work for you. If you need to improve your credit score, consider taking a few months to pay down debt and continue making on-time payments. When you’re ready to move, explore all your loan options to get the best deal.
For any mortgage service needs, call O1ne Mortgage at 213-732-3074. Our team is ready to assist you with personalized service and competitive rates. Let us help you find the best loan options tailored to your financial situation.
