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Credit unions can offer more borrower perks than some banks can compete with.
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Lower interest rates, community presence and a borrower-oriented business model set credit unions apart.
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Becoming a member of a credit unit is easier than most people think, and most credit unions will allow anyone to join.
If you’re considering buying a new or used car, a credit union is a great choice for an auto loan. Credit unions frequently offer lower auto loan interest rates than banks and online lenders. They also offer personalized service and various other benefits, which make them a good fit for those who want to switch to a more intimate banking experience.
As of September 2024, there are more than 4,000 federally insured credit unions in the United States with 142 million members, according to the 2024 Q3 Data Summary published by the National Credit Union Administration (NCUA). While many have rigid eligibility criteria, it is likely you will be able to qualify for an account with a local credit union by living or working within its serviced region.
Generally, credit unions offer competitive rates and terms for their borrowers, which is one of the primary benefits of financing your next car loan through a credit union. Getting a car loan from a credit union can be especially useful for those who are just starting out and may not have an established credit history. It could also be a good option if you’re in the process of building or rebuilding your credit score.
Credit unions are generally able to offer lower rates because they are member-owned and not-for-profit. In the last quarter of 2024, the average rate on a five-year new car loan from a credit union was 6.03 percent, according to data from the NCUA. At banks, it was 7.53 percent.
“Typically, the rate of lending (at credit unions) is very competitive compared to other lenders under most circumstances,” says Bill Meyer, AVP of Communications at Nuvision Federal Credit Union.
You can use an auto loan calculator to determine the difference in interest. For a $30,000 auto loan with a 60-month term, the average rate at a credit union will save you hundreds of dollars a month and thousands over the life of a loan.
| | Average interest rate | Monthly payment | Total interest paid |
|---|
| Credit unions | 6.03% | $580 | $4,824 |
| Banks | 7.53% | $602 | $6,094 |
The process for taking out a car loan isn’t that different between banks and credit unions. But if you have a lower credit score, you may still be able to qualify for an auto loan with a credit union versus a bank.
“Credit unions are likely to have more flexibility in the underwriting process,” says Mike Schenk, vice president of research and policy analysis at the Credit Union National Association (CUNA), a trade association.
Credit unions are also more likely to work with you if you hit a rough patch and need more time to make a payment.
“You have a unique story, and your story is much more likely to be heard at a credit union. At large financial institutions, you’re more likely to experience underwriting that is set in stone and done in some corporate office a few states away. Walk into a credit union, and you’re more likely to have a conversation.”
Most credit unions let you apply online, over the phone or at a branch. This makes it easier to compare rates with other lenders or at the dealership.
Applying for preapproval from a credit union before visiting the dealership can give you an advantage in negotiation and set you up to get the best rate. Not all dealerships work with credit unions, and if you can become a member, you will likely get the best deal when working directly with the credit union. Plus, you will already have a competitive loan offer when you start car shopping — and you won’t have to pay dealer markup on your rate.
Members, not shareholders, own credit unions, and any profits they make go back to the members in the form of dividends. Credit unions can also pass on earnings to their members through higher rates on deposit accounts and lower rates on loan products, including auto loans.
Most credit unions also participate in a shared branch and ATM network. Schenk says CUNA’s members have a shared ATM network with over 40,000 outlets. They are also focused on educating their members, so you can get advice on the best financial options for your situation.
“Credit unions are full-service, with the same products as banks. They’re just structured differently, and that results in significant benefits for credit union members,” Schenk says. This member focus could also mean a more nuanced dialog about your financial situation before the credit union approves or denies your loan. Credit unions may be more understanding and lenient than traditional banks in lending decisions.
Some believe credit unions are open only to people who work for a certain company, industry or government entity and that anyone not a part of a group can’t join. Meyer says this is no longer the case. “Most credit unions will allow anyone to join.”
CUNA has credit unions with community charters that allow them to serve larger geographic areas. If you are looking for a credit union near you, visit ASmarterChoice.org and type in your ZIP code. “It would be shocking to find a consumer who didn’t have access to a credit union,” Schenk says.
Don’t be surprised if an auto dealer refers you to a credit union before a bank. Credit unions play an active role in auto loans.
“Invariably, the dealer can refer you to credit union financing and a credit union you can join as a member,” Schenk says, “so it’s really an easy process.”
Credit union loan balances for used and new cars in 2024 increased by 2.6 percent, according to the NCUA Data Summary. Credit unions had $319.5 billion in loan balances for used cars in the third quarter of 2024 and $166.2 billion for new cars.
Financing a car through a credit union is similar to other lenders, except for the membership step. While you may be able to join and apply for an auto loan the same day, some credit unions may make you wait a month or two before you apply.
Once you qualify as a member, you can get preapproved for a car loan and then apply online, over the phone or at a branch, depending on the credit union.
Before you apply for a car loan through a credit union, be prepared with the following information:
If you already have a vehicle picked out, you will also need to submit its vehicle identification number (VIN) and mileage. You should also be prepared to provide proof of insurance to the credit union during the application process.
Credit unions are a major player in the auto loans space, but they aren’t your only option. If you are shopping for preapproval, compare a variety of lenders to see which will offer the most competitive rates.
When you apply for an indirect auto loan through a dealership, the loan comes from a third-party financial entity. Dealers get paid to match you with one of their financing partners and will often mark up interest rates to turn a profit. A direct loan from a credit union will likely have better terms at a lower APR. Plus, if there is an issue with the financing company, the dealer won’t help you — you will have to sort it out yourself.
The main difference between a bank and credit union auto loan is the financing terms. Some banks can offer special promotions, especially if you have a solid relationship, a good payment history and a strong credit score.
Both banks and credit unions may offer incentives like an autopay discount if you are an existing customer. Because credit unions are not-for-profit organizations and owned by the members, you can usually get better rates and reduced fees compared to for-profit banks, which shareholders own.
Online lenders tend to have higher rates than banks and credit unions, but many are able to fund auto loans within a few days of applying. They are convenient options if you prefer to shop at home — and some bigger lenders attached to banks, like SoFi and LightStream, are able to offer rate discounts.
Bankrate tip
If you currently have a low credit score and are in the process of rebuilding your credit, compare bad credit auto loans to find the best rate.
When purchasing a new or used car, you have several options to ensure you receive the best auto loan rate. If you belong to a credit union, you may have access to lower interest rates and fees compared to large banks and dealership loans. The application process is similar once you’ve gained membership, and the benefits may help you get approved, especially if you don’t have the best credit score.
