Credit Union Car Loan Requirements

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, - November 19, 2018

Using a credit union auto loan can save you a lot of money in interest charges and fees on your next new or used car purchase. Credit unions generally offer much lower interest rates than either banks or other finance companies. In addition, credit union members generally pay reduced fees or costs associated with a loan application or loan documentation.

Credit Union Auto Loan Requirements

If you're already a member of a credit union, you probably already know your local credit union's requirements for applying for a new or used car loan. However, if you're not a member of a credit union, and you're thinking of becoming one, you should probably be aware of some general requirements for getting a credit union car loan.

Membership Required

Credit unions only make car loans to members. Credit unions are member-owned cooperatives that cater to a specific group or cross section of individuals. While membership requirements for credit unions vary, all credit unions do have specific criteria for membership.

Common criteria for membership in credit unions might include: working for a specific company or government agency, membership of a specific group or organization, or being a member of a certain ethnic group or residing in a certain location or municipality.

Although requirements for credit union membership can be confusing, almost everyone is eligible for membership in one credit union or another. You will simply need to do some research and inquire as to your local credit union's membership requirements.

Good Credit

Although credit unions offer fantastic interest rates and terms on their new and used car loans, they don't make them available to everyone – not even to all of their members.

Credit unions are generally much smaller and have far fewer financial resources than do most commercial banks. Therefore, they must invest their members' deposits and savings wisely.

Credit unions usually require that members demonstrate considerable creditworthiness before they'll approve a car loan application. This is the trade-off for the very low interest rates they offer in their automobile loan packages.

In addition to the credit union's specific requirements outlined above, credit unions require basically the same types of assurances and documentation that commercial banks do. This is in regard to the approval of auto loan applications.

There isn't a lot of difference between the two in the loan application process. Just as commercial banks do, credit unions require certain level credit scores and credit histories, an acceptable debt to income ratio, and evidence of the ability to repay the debt.

Certain credit unions may have even more stringent criteria and requirements for the approval of auto loan applications. You should visit your local credit union and speak with a credit union loan officer to get more details concerning their specific requirements for a new or used car loan.

Credit union auto loans can help you save a lot of money versus loans from a conventional bank or finance company. However, they're not for everyone. Dependent on the criteria submitted will determine whether or not one is approved.

Advantages of Credit Union Car Loans

There are many advantages to getting an auto loan through a credit union. Besides the low interest rates offered, credit unions offer maximum convenience and instantaneous response to various credit needs. There are no steep organizational levels that require approval from each office or branch, such as in banks and large financial institutions. Service is also more straightforward and loan status could easily be inquired.

Be mindful that not all services offered by banks are made available by credit unions. Determine the type of loans granted by a particular union before seeking membership. A quick look at online sites will give you an idea on a particular credit union in your area. This will save you time in searching the financial services you seek.

In this day and age of convergence, financial assistance isn't limited to large banks and giant financial companies. An affordable loan could be made available to a local credit union near you.

Bank vs. Credit Union Auto Loans

If you're in the market for a new or used vehicle and need help with your financing, be sure to examine credit union car loans before going straight to your bank for assistance.

With so many loan options and auto loan lenders to choose from, it can be easy to make the mistake of assuming that they are all more or less the same. However, this isn't the case, and there are some key differences between banks and credit unions that you should be aware of before take out a loan.

First, it is important to understand the difference between a commercial bank and a credit union. Banks are owned by shareholders, and work toward increasing the profits of their shareholders.

On the other hand, credit unions are non-profit organizations and are owned by members of their union. So, when you join a credit union, you're essentially buying a small stake of a bank with your return on investment being lower interest rates.

Lower car loan rates are probably the biggest incentive to borrow from a credit union as opposed to a bank. If you have all of your credit transactions consolidated with one bank, they may be able to offer you a better rate. However, in general, credit unions have lower interest rates across the board.

Banks sometimes try to convince you that borrowing from a credit union is risky due to the lack of FDIC protection. However, many credit unions are covered by FDIC, and all one needs to do to find out is call the credit union in question and ask if they're insured.

Another reason why some people choose to borrow from a credit union is because of the personalized service they can offer. If you're banking with a large commercial bank, it's likely that you'll have to deal with 1-800 numbers, and sometimes poorly informed customer service reps. Since credit unions are smaller in nature, they tend to be friendlier to their customers and have fewer, but better informed, employees at your service.

One of the downsides of choosing a credit union is that they typically have fewer automatic banking options than a large commercial bank would offer you. So, if this is something that's important to for you, you may want to stay with you bank.

Credit unions are known for being more lenient and friendly with first time borrowers, so if you are looking to build up your credit then this could be a good place to start. Certain factors such as your credit rating, the amount you are willing pay on a down payment, the vehicle in question's age and mileage, and your employment stability will all factor into what kind of deals you can get.

Overall, your best bet is to just shop around and find the loan that works best for you. Credit union loans are a valid option, and should be considered before simply settling on borrowing from your bank.

Interest Rates to Expect Based on Credit Scores

If you belong to a credit union, car loans may be much easier and more attractive than you are aware of. Credit union credos say they're not for profit, and that they exist to serve their members.

  • Easily obtained loans – Credit union members are typically able to get credit products such as auto loans much easier than at regular banks or other lenders. This is because one of the main functions of a credit union is to provide favorable loans to members by the pooling of the resources of all members if the credit union.
  • More attractive rates – Loan rates for credit union car loans are typically lower than at more traditional lenders. Again, this is because credit unions are in existence to serve their members, not make a profit. The pooling of members' resources makes extending lower rate loans possible. It's very likely that the best car financing options available will come from a credit union.
  • Join and sign papers on the same day – Most credit unions don't have a waiting period between when you become a member and when you're able to take advantage of the enhanced benefits of being a member. What this means is that as soon as you become a member, you can also obtain financing from the credit union, usually without talking to different people as in a regular commercial bank.
  • More forgiving of past bad credit – Because most credit unions service a particular group of people (employees of a certain company or city, residents of a given geographical area, city/county, etc.) and because their purpose, again, is to serve the needs of their members by way of the pooling of all members' resources, they're going to be a bit more forgiving about negative or derogatory credit remarks. Credit unions set up for employees of a given company will know that maybe that missed credit card payment occurred at the same time the company had to cut way back on hours, whereas a typical lender isn't going to care.
  • Typical new auto loan rates – Typical car loan rates through credit unions can range from 4% to 9%, with many institutions offering lower promotional fixed and variable rates. Some credit unions allow auto loan financing up to eight or nine years, making monthly payments low as well as bringing the affordability of a higher priced car within reach.

As stated, because credit unions are member-owned and not for profit, they can afford to give lower rates than "traditional" providers of auto loans. Below are average rates for 60-month loans on new cars, based on general credit score rankings:

  • New car loan with very good credit. This credit rating will earn you an average interest rate of 3.70%.
  • New car with good credit. If your credit is good, you can expect to pay an average of 4.0% to 4.3%.
  • New car with moderate credit. You're going to pay between 4.5% and 5.5%.
  • New car with poor credit score. Between 5.6% and 6.5% will be your rate here.
  • New car with very poor credit. Around 8% will be your rate.

If you're eligible for credit union membership, and most Americans are, you'd be able to save a considerable amount of money on your next car loan by getting one through a credit union instead of a traditional lender.

See what kind of interest rates you can get »

Financing Credit Union Used Car Loans

Credit union car loans are available for both new or used car purchases. Refinancing is also offered by most credit unions to somehow have to option of lowering your monthly payment.

Credit union auto loan interest rates are competitive and average about 4.5% to 4.75%, depending on the area, but a quick look online gives you an idea on the exact interest rates the nearest credit union might offer.

When deciding to seek financial assistance from a credit union, remember your monthly payment is determined by a lot of factors. Careful analysis of the following should be undertaken to get the best loan possible:

Kind of Car

Make the most of your new car purchase by choosing a car wisely. Cheapest may not be the best option when seeking a used car, and a thorough inspection should be made before deciding to make a purchase.

The internet is a good source of quality used cars online, but a physical visit to local dealers and banks may give you a list of repossessed vehicles you can take advantage of for a cheaper price. Most these vehicles still carry a factory warranty.

It would also be wise to keep an open eye or ear on various cars for sale in your area. This would make it easy to contact the owner and get an accurate evaluation on the car. Buying direct would usually save you a lot of money when mild negotiation skills are applied.

Rest assured that the market is never short on quality used cars, and the potential buyer should do proper research to determine the right kind of car that is fit for any need and budget.

Credit Score

Your credit score determines the amount of interest that credit unions will impose on your loan, and a better than average credit history usually yields low interest rates and low monthly payment.

Try to obtain a copy of your credit reports and fix any errors that may persist. People with bad credit need not despair, as credit unions also offer bad credit car loans, albeit at a higher interest rate than normal.

Down Payment

If you decide to pay a higher down payment for your used car purchase, this would result to a lower amount that needs to be financed by credit unions. This gives you a low monthly payment even when interest is applied.

Try to save more money for an adequate down payment to ensure low monthly payments, even when interest is added to the equation. An increase of $2,000 to $5,000 on your down payment will greatly reduce your monthly payment obligations, as well as your overall cost.

Credit Unions

Remember that there are a lot of credit unions that exist which provide quality and fast service for those seeking an auto loan. Some credit unions offer specialized services for government employees, while others may cater to people with a common interest.

You can find different credit unions in the internet and most offer online assistance and membership options. The Pentagon Federal Credit Union is one such example, and offers competitive rates for people employed by the Army, Air Force, or any government and military agency.

How to Find Credit Union Auto Loans

Finding a credit union car loan starts with locating a credit union. In order to borrow, you must be a member, but it's a wise choice since credit unions offer something many large banks cannot: local accountability.

If you don't belong to a credit union, it might be wise to look for one. You can find a credit union by going to the Credit Union National Association (CUNA) website. It will give you information about credit unions in your area and about obtaining a car loan from one of them.

Most credit unions are membership based. The way you get in is if your employer or union has an affiliated credit union. If not, some credit unions allow family members to join, so check with family to see if they belong to one. You can also look up credit unions in the local phone book and call to see what their qualifications for membership are.

Many will talk to you about the benefits of the available car loans even before you become a member. Once you've settled on a credit union, use the following steps to get the best rate on your loan:

  1. Figure out your budget. Decide what you can afford before you attempt to finance any car purchase. Knowing this up front helps you avoid overspending by taking on an unnecessarily or unsustainable high monthly payment.
  2. Obtain your credit score. The credit union will access your credit score, but it can't hurt for you to gather the information yourself. At worst, it eases the blow of being rejected. At best, it gives you a bargaining chip you can use later with the financing. You can go online for a free credit report at AnnualCreditReport.com. Make sure the report is accurate. Obtaining your credit report before obtaining a loan allows you the opportunity to correct any inaccuracies before starting the loan process.
  3. Apply for an auto loan. At the credit union, fill out the auto loan application. You have to wait until it's processed, but use the time researching different makes and models of potential purchases.
  4. Pick your car. Choose a dealer and pick the car you would like to purchase. It should fit within your budget and provide everything you need it to do.
  5. Negotiate your purchase price. Don't be lured into negotiating the monthly payment. Your aim should be a lower purchase price, for if that is taken care of, the monthly payment is lower.

After that, it's a matter of insuring the vehicle and driving away pleased with your purchase. Do the homework necessary to create the best opportunity for a credit union car loan and follow the steps above.

Disadvantages of Credit Union Car Loans

There are three disadvantages with financing through a credit union: lack of convenience, lag time, and stringent qualification requirements. This information isn't meant to discourage you from financing through a credit union. Rather, it's meant to give you a full range of information before you make your choice.

Inconvenience

A lot can be said about the convenience of a credit union. In addition to offering standard banking services, they also offer auto, home, and personal loan financing. But applying for car loan financing through a credit union can be inconvenient for a number of reasons.

Most credit unions have only one branch. In order to apply for a loan, you have to physically go down and wait to speak to a finance agent. This isn't necessarily a bad thing. It's just that it may require more waiting than you're accustomed to.

Secondly, credit union financing is nowhere near as convenient as online financing. You can apply for a loan online and be conditionally approved in an hour or less. Not so with a credit union.

Another obvious disadvantage is that you must be a member of a credit union to receive a loan from them. If you're happy with your traditional banking service and see no reason to switch, you won't be able to receive a credit union auto loan.

Lag Time

Applying for a credit union auto loan won't be an instantaneous process. The application must be processed, your credit rating and employment situation examined, and further details of your financial history considered.

Conditional approval might be quick, but final approval of an auto loan application may take several business days. If you're looking to secure financing for an auto loan quickly, your best bet is to avoid the credit union.

Stringent Qualifications

A credit union requires that you have good credit before they sign off on an auto loan, especially one with a low interest rate that they can offer. They consider their borrowers carefully, and they won't simply lend to you if they know nothing about your credit history. Less rigorous requirements can be found through online lenders, many of whom will lend to you even if you have bad credit.

You should know the pros and cons of each of your auto financing options, and a credit union is no exception. You want to be as informed as you possibly can so you go into the process knowing full well the terms of the loan you have committed to.

The Bottom Line

A credit union can be a good place to get an auto loan, but you have to meet their requirements in order to get approved. If you aren't a member, your credit score is keeping you from an approval, or you can't go through a credit union for any other reason, a special finance dealership could be your solution.

Special finance car dealers are experts when it comes to unique credit situations. They're signed up with subprime lenders to help people with poor credit get into new and used car loans.

CarsDirect wants to match you to a special finance dealership near you. Our service is free and doesn't put you under any obligation. Start the process by filling out our fast and secure auto loan request form online.

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


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