A credit union may look like a bank and offer the same services as a bank. But at the same time, a credit union has a completely different mission. For this reason, credit unions can offer better terms and lower interest rates than a bank on your next car buying loan. Here’s how.
A credit union is owned by its customers
A bank is owned by its shareholders. They are represented by a board of directors. The board of directors then hires executives who run the company. The corporation’s entire goal is to make a profit and pay dividends to the shareholders. For this reason, an effective bank will charge the highest interest rate that you are willing to pay. The bank’s first priority must be making money for its shareholders.
A credit union, on the other hand, is owned by its customers. You pay a small fee to become a member of a credit union. Then, you essentially become a shareholder. You can vote on how your credit union conducts business. When you need a financial service, your credit union will offer you the best deal it can. This is because you are both customer and owner.
A car loan from a credit union can save you money
The primary way a credit union can save you money is with a low interest rate. An auto loan at a credit union can have an interest rate 1% or even 2% lower than the average bank. A lower rate could save you a lot of money over the life of your car loan–according to Credit Karma.
In addition, a Credit Union may charge lower fees. Many banks use hidden fees to get more money out of their customers, and pay more to their shareholders. Because credit unions are designed to give back to their customer-members, such fees are rarer. As a member-owner, you can even vote to do away with fees you don’t like.
Finally, a credit union will often offer smaller car loans than a bank will. A bank needs a loan to be a certain size for its profit to be worth the hassle. But a credit union’s mission is to serve its customers. Therefore, if its customers need a smaller loan, it will provide. What does this mean for you? You can shop for a cheaper car, or you can drop a huge down payment and minimize the amount of interest you will pay.
Can you join a credit union?
You might think credit unions’ exclusivity are one of their downsides. But the truth is that there are credit unions for people from all walks of life. There may be a credit union for residents of your state. There may be a credit union for workers in your industry.
In addition, many credit unions have discovered a clever workaround to adding any interested customers. Several of the larger credit unions open their doors to all members of a given nonprofit. Any applicant interested in joining needs only donate $5 or so to said nonprofit. They then are in the clear to join the credit union.
And though credit unions may seem more selective than banks, in some ways they are less selective. For example, a bank will automatically reject a loan if the applicant has a bad credit rating. But many credit unions are willing to ask a member about any financial struggles that have caused that credit rating. Then they will accept all applicants they can and offer the lowest rate they can.
If you are considering an auto loan, you might want to check out your local credit union. Or, read about more unexpected ways to get an auto loan.