For many borrowers, auto loans are a pre-requisite to buying a new or used car – well unless you choose not to buy cars and rather choose to live the Gone in 60 Seconds lifestyle of Memphis Raines which is not that impressive no matter how much that movie hyped up stealing cars! Financing cars and getting a loan to purchase a new or used auto is a fact of life for most of us. Credit Unions are plentiful and many can be found online. Banks, you know what they are, you may already have taken a car loan from a bank or have other products such as a mortgage or equity loan in addition to check and savings accounts. Should you get a loan from a bank or from a credit union?
A common dilemma faced by most new car owners nowadays is whether to seek an auto loan from a credit union or a bank or other source.
Before you make a decision, there are a number of factors that you would need to consider, such as interest rate, borrowing costs, credit score, and loan approval duration, among others. No, you don’t need to factor in the concept of the Patriots cheating in the NFL – that’s already a given and another topic!
Credit unions are often a better choice as compared to banks, so far as auto loans are concerned simply because in a credit union you are a stakeholder or member rather than a customer. So you can expect to have a more empathetic relationship with your creditor.
Here are some other key advantages of obtaining a car loan from a credit union versus a bank.
Do banks or credit unions offer better deals?
There are 5,600 federally insured credit unions in the country serving over 110 million customers. Credit unions provide better deals even though they might not have as many branches or technology as national banks.
However, credit unions cover up the shortcomings by providing interest rates that are a whole 1% less than the rates provided by banks. This is among the biggest reasons why you should choose credit unions over banks for vehicle loans.
The lending rates at credit unions are kept competitive to attract more customers. You can typically save up to a $1,000 or more in terms of interest rates over a 5 year loan. Auto loans are basically the bread and butter of credit unions.
They maintain favorable pricing on car loans. This is one of the major reasons towards their growing popularity. Most dealers refer new customers to credit unions instead of banks for better deals and easy loan process.
What about the service offered
Banks operate for-profit and do not necessarily factor in your welfare while rolling out policies and new changes.
With a credit union you are a stakeholder or a member and have a say in the changes. This gives you more control over your welfare and your money. Credit unions are more likely to help you in terms of repayment plans if you suffer financial problems down the road.
There is a perception that banks treat their customers like statistics, just a number to open an account or deposit some money or take out a loan. It seems they only care when you cannot pay your car loan and your auto gets repossessed! The power of community driven transactions are the focal point of credit unions. You can expect more personalized and community driven transaction while dealing with credit unions.
They also have more flexibility in their underwriting process which means your personal conditions will be heard in a favorable setting. You are more likely to have a conversation rather than a transaction at credit unions.
Which Credit Unions are the easiest to deal with for auto finance?
Credit unions provide easy loan processes minus stringent conditions as laid down by banks. You can easily walk into a credit union loan office or apply for a loan online or through phone. These days many dealerships have ties with various credit unions. They can refer and help you become a member.
Credit unions are open to most people today. Earlier, they were available for only a particular company, occupation or government. Most credit unions allow anyone to join these days.
In today’s digitized financial environment, most credit unions have created a large online database. You no longer need to visit a physical location to become a member.
Looking for a flexible loan to purchase a car?
You have a better chance of seeking a loan approval being part of a credit union when facing financial constraints. You do not even have to compromise on the loan rates.
Credit unions have a low credit score threshold on most of their auto loan products. You would qualify for a low auto loan of 3% with a 650 score in credit unions. In banks for a low rate you would need a credit score of at least 750. This is a FICO score.
Banks often do not overlook derogatory credit information such as outstanding collection accounts. This is not the case with credit unions. You are essentially a part of the team at a credit union.
They would in most cases ignore the collections as long as you pay them off. The fact that credit unions try to work out a solution makes them the better option.
Comparing Costs of Borrowing
Loans can be costly in terms of interest rates, late charges, penalty fee, prepayment penalty, and acquisition or approval fee plus monthly fees and other charges, sometimes hidden charges.
Banks make the most money through late charges, penalties and fees. Hence, many banks try to milk their customers dry during the approval stage. Credit unions, on the other hand, tend to charge lower fees as compared to banks.
Every credit union charges a loan origination fee. However, these tend to be lower than the ones charged by a bank. Credit unions are not-for-profit organizations which means they are not trying to make money out of every dime and nickel transaction.
It is better to bank with a credit union. There are no ATM fees and transfer fees are minimal as well.
Short Term Loans
Banks are not flexible in most situations. They have their rigid procedures and guidelines which cannot be changed as per the customer. However, credit unions apart from being flexible are also more willing to help you. They give you the freedom to choose your loan term. A shorter loan term will boil down to higher premiums and low interest costs.
A long term loan might keep your monthly payments on the low side, but you will end up paying more for your loan in terms of interest. The right financial strategy is to always pay off your debt as soon as possible. You can save massive dollar amounts in terms of interest.
Where to look to find out more
Dealers tend to fleece the inexperienced buyer. Most credit unions serve a community and are locally based. They have a dedicated resource center where members can educated themselves about financing and ways to evaluate the true value of a vehicle.
Credit unions also assist buyers in calculating the real value but they don’t let you know about the next Iron Man, Jumpstreet, Star Wars, or Jurassic World movie since you should already know that movie is going to be weak. Moreover, you do not have to base your purchase decision on what the dealer tells you. Banks do not provide this avenue.
The only advantage that banks have over credit unions is their vast network of branches and use of advanced technology that makes the loan process more convenient.
However, credit unions have an advantage of being member-centric. So, even when you have a bad credit score, you could get lower interest rates. Above all, credit unions deal with their members as real humans rather than as mere statistics on the balance sheet.