Credit Union vs. Bank Auto Loan: Which Should You Choose?
Wednesday, Dec 7 2022
Buying a car is commonly the second most expensive purchase people make after buying a house. Often people focus on finding the best vehicle, and financing is an afterthought. A new set of wheels is exciting, but wise shoppers know auto financing is a critical part of the process.
When buying a new or used car, truck, or SUV, being an informed buyer means doing your homework and exploring financing options before deciding. Savvy shoppers weigh if financing through a credit union vs. bank auto loan works best for them in terms of interest rates, customer service, and flexibility. There are similarities to each option, but also some differences to consider.
What is a Credit Union?
At the most basic level, a credit union is a financial institution that offers banking services, like checking and savings accounts, credit cards, loans, and other financial products. At first glance, a credit union appears to be just like a bank, but looking closer shows how they operate differently. A credit union provides unique benefits.
The most significant difference between banks and credit unions is their profit status. Credit unions are nonprofit financial institutions owned by those who use their financial products. When you join one, you become an owner of the institution. Credit unions don’t consider you a customer. Instead, you’re a member. Credit unions work by pooling members’ money and serve their members by offering financial products with better rates and fees than banks. And the fees they charge are reinvested into the products offered, whereas banks give these profits to their shareholders.
Since members own a credit union, you’ll need to meet eligibility requirements to open an account, get a credit card, or take out a loan there. Members typically share characteristics such as where they’re employed or go to school. And members determine the leadership of the organization. They elect the board of directors to represent their members’ best interests.
How Do Credit Union vs. Bank Auto Loans Work?
The process of getting a credit union vs. bank auto loan is similar. They’ll both look for indicators that you can afford to repay the loan. The top things lenders look for when you apply for a vehicle loan are your income, credit score, and a history of paying debts on time.
To get a loan, you’ll need:
- Proof of Identity. A photo ID with your signature on it. A driver’s license, passport, or other government identification are acceptable documents.
- Proof of Income. Lenders want to ensure you can repay your loan. Lenders will factor in your income but also look at other assets you own, your employment status, credit history, and monthly expenses to determine whether you can repay the loan. They’ll want copies of your recent pay stubs and bank statements.
- Credit History. They’ll review your credit history, including the type of credit accounts, credit limit, other loans, account balances, and payment history. You’ll need to provide the credit union with your Social Security Number, address, and date of birth to pull your credit score.
- Proof of Residence. A driver’s license with your current address is typically acceptable. They’ll want to know how long you’ve lived there and whether you own or rent. You can also use a piece of personalized mail you’ve received within the last month, such as a utility bill, lease agreement, credit card or bank statement, or tax bill.
- Trade-In Information. If you’re going to be trading in your current vehicle to buy your new car, the lender will want title and registration information.
If you’re considering buying a car, check your local credit union first. A traditional bank can be a good choice for obtaining a loan, but there are reasons to finance through a credit union. Getting a credit union loan instead of one from a bank could yield lower interest rates, lower loan requirements, and better chances of loan approval. You may be surprised how much time and money savings are possible.
A credit union is beneficial because it offers:
- Lower Interest Rates and Fees. One of the key differences between a credit union vs. a bank auto loan is the interest and fee structure. Banks make money for their shareholders. Credit unions are member-owned and not-for-profit. So, credit unions’ interest rates are typically lower. They’re also exempt from certain taxes for-profit lenders must pay, saving additional money. Credit unions pass savings onto members in the form of lower loan rates and lower fees. Interest rates on car loans from credit unions are 2% lower on average than those from bank rates.
- Credit Qualifications. Credit unions are often more flexible and factor in your entire financial picture. They look at your auto loan application more holistically than a bank would and are more willing to work with members with less-than-perfect credit. They’ll consider extenuating circumstances and are open to tweaking the loan product to set you up for success. A credit union is less likely to consider you a high-risk customer if your credit history has a few bumps.
- Personalized Attention. Credit unions are committed to working with you and are known for their superior member service. Employees are community members, too, and have similar interests and values to those utilizing the credit union’s services. Credit unions invest in the local community and work hard to educate members by offering great resources to help you understand your finances, products, and services. They commonly stress financial literacy and offer seminars, articles, and other tools to help members sharpen their money skills.
How FFCU Can Help You Get an Auto Loan
If you’re thinking about buying a car, truck, or another vehicle, make your first step a visit to your credit union. The credit union’s lending team will determine how much you can afford to borrow. It doesn’t take long to discuss your needs and complete the loan process so you can shop for the best option.
Focus Federal Credit Union will help you learn about available auto loan options and what fits your budget. A simple application could be worth your time. Securing financing before you walk into the dealership puts you more in control of your car-buying experience.