Auto loans from credit unions can offer lower interest rates and loan minimums. You also have a higher chance of being approved for a loan from a credit union rather than a traditional bank.
Financing any new vehicle purchase is hard, but credit unions can make it easier to get a car loan
with their user-friendly financial services. If your credit is less than perfect or if you’re buying a less expensive car and want a smaller loan, a credit union might be the ideal place to find your loan. While you’re choosing the right place to get an auto loan, make the car buying process easier by shopping for car insurance
with Jerry
. Jerry is a car insurance comparison shopping app and a licensed insurance broker—and just like a credit union, Jerry is designed to save you money. Still not sure if a credit union auto loan is right for you? Let’s take a look at credit union auto loans, how they work, and what makes them a good option for auto financing.
What are credit union auto loans?
Credit unions are not-for-profit institutions that offer the same financial services as a traditional bank, including deposit accounts and loans. All credit union members become part owners, which means that the institution is naturally geared towards saving money for its members.
When you apply for an auto loan from a credit union, the loan amount is drawn from the members’ pooled funds. Credit unions usually charge lower interest rates because of their not-for-profit status, and the interest goes back to the institution to keep rates low and savings high for all members.
MORE: Does financing a car affect insurance rates?
What’s the difference between a credit union auto loan and a bank auto loan?
An auto loan from a credit union will follow the same basic rules as a loan from a bank—you’ll pay back the loan principal along with interest in monthly payments over a set loan term.
The differences show up when you look at interest rates, approval requirements, and availability of loans at credit unions vs banks.
Credit union vs bank auto loan
Be sure to keep the following in mind when deciding on a credit union or bank auto loan.
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Lower average interest rates | Higher average interest rates |
Approval requirements may be flexible | Strict approval requirements |
Loans available only to members | Loans available to anyone |
One additional way to get an auto loan is to go through a dealership. If you get a loan through a dealership, your dealer is working with a third-party bank or other financial entity and you’re probably not getting the best deal.
Going through the dealership also makes it harder to communicate directly with your lender if there’s an issue with the loan, such as if you need to arrange a new payment plan.
Key Takeaway: While a credit union can offer lower interest rates and flexible approval requirements, the big advantage of getting a loan from a bank is that you don’t need to be a member.
MORE: How to calculate total interest paid on a car loan
5 reasons to get an auto loan from a credit union
Ready to take a closer look at the advantages of getting an auto loan from a credit union? Let’s break down the reasons for choosing this route to auto financing.
Lower interest rates
The biggest advantage of getting an auto loan from a credit union is your chance of getting a lower interest rate. According to the National Credit Union Administration, the average bank APR on a five-year auto loan is about 4.8%, compared to an average of 3% for loans from credit unions.
A single percentage point might not seem like a big deal, but let’s do the math. If you were to take out a five-year loan on your car for $20,000 at a 4.8% interest rate, your monthly payment would be $376 and you’d pay $2,536 in interest over the life of the loan. Knock that interest rate down to 3%, and you’re paying $359 a month, and just $1,562 in interest.
In other words, getting a loan from a credit union could save you as much as $974 in interest alone!
Personalized service and community investment
When you’re crunching numbers on your car loan, customer service might not be your first concern. But don’t discount this benefit! Because credit unions are smaller than banks and have close ties to the communities they serve, you’ll be working with fellow members who understand your situation better than a huge bank.
If you have a lower credit score or if you end up struggling to make payments down the road, the personalized service you’ll get from a credit union could be the difference between financial success and a serious crisis.
Lower loan minimums
Because they’re more responsive to members’ needs, credit unions often offer lower loan minimums than banks. If you’re buying a less expensive car, or if you’re able to make a large down payment to offset your loan amount, a credit union is more likely to work with you to loan the smaller amount.
User-friendly loan process
While the basic steps of the loan process aren’t any different at a credit union, you can likely complete them online or over the phone with less annoying paperwork and time-consuming meetings.
You’ll also get the advantages of lower fees and better financial counseling for your other banking needs!
Easy membership and better approval odds
Having to join the credit union might seem to be the biggest drawback of getting an auto loan through a credit union—but it’s actually an advantage! Most credit unions will allow anyone to join, and the process is simple and quick. Look for credit unions that serve your area and you’re sure to find a few to choose from.
Being a member of the credit union increases your odds of approval for a car loan. Unlike banks, which have strict requirements for approval, credit unions can afford to be more flexible when it comes to lending to members. If your credit is less than perfect, you may have better approval odds at a credit union.
MORE: The best car insurance for bad credit drivers
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How to apply for a credit union auto loan
The only difference in the auto loan application process if you’re going through a credit union is the added step of joining the credit union. Find a credit union in your area to join, or look for a credit union based on your job—for instance, many school systems have credit unions that work specifically with educators.
Whether you choose a credit union based on your location or your profession, they will walk you through the loan application process. In many cases, you can apply for a loan the same day you join!
The bottom line
Credit unions are a good option for auto financing, but you should still take into account your own needs.
Credit unions’ connections to communities and their interest in saving money for members make them a great option for auto loans. However, getting an auto loan from a credit union requires you to become a member.
Research your local credit unions to determine if they’re the right choice for you.
How to find affordable new car insurance
No matter how you choose to finance your new or used car purchase, you’ll need to buy car insurance. Jerry
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