How Do Credit Union Loans Work?
Friday, Jun 18 2021
Credit union loans work much like they do at a bank, except you get a much more personalized experience and usually with better rates. Applying for a loan can seem overwhelming and that is why with us we walk with you through the process.
The last thing you need is to worry about whether to use a bank or a credit union when getting your loan. This post explains how to get a loan with a credit union. You can use the information to determine your best loan option.
What is a Credit Union?
Credit unions are community-based institutions. The members (customers) partially own a credit union. You have to meet certain criteria to become a member. Each credit union’s conditions are different.
Credit unions usually base membership eligibility on common attributes among members. For example, members could be from the same school, employer, labor union, or location.
Once you find a credit union you want to join, review the membership requirements. If you’re eligible, you can contact the credit union directly to join.
Why you should be a member at Focus Federal Credit Union.
Credit unions provide members similar products and services as banks. Both institutions offer members credit cards, mortgages, auto loans, and other financial services. You also can access services including ATM services, direct deposit, and mobile banking at a credit union.
The primary difference between a bank and a credit union is their profit status. Banks are for-profit institutions. We are a are nonprofit organization.
Credit Union Loan Advantages
Credit unions provide members unique benefits. There are advantages to getting a loan through a credit union.
Lower Interest Rates
Once you qualify as a credit union member, you can apply for a loan. Other members’ savings fund your loan. Credit unions promote the financial well-being of members. With that in mind, they often get more favorable loan terms, including lower interest rates and fewer fees.
More Forgiving Qualifications
If you have strong credit, you have a higher likelihood of accessing a low annual percentage rate. APR is the annualized representation of the interest rate you pay. It’s how much additional you’ll pay back to the lender during the length of the loan. When deciding between loans, always compare APR rates.
Credit unions are more forgiving if you don’t have a credit history or if you’ve had financial setbacks. They review your entire financial situation when evaluating your application. Even if the member’s credit isn’t pristine, they work to find the right loan to meet their needs. And while banks tend to have strict rules, credit unions offer flexibility in the decision-making process.
Better Customer Service
Credit unions are known for providing a more personalized experience. Credit unions work to help members, not to increase their stock price like a bank. Representatives at Focus Federal Credit Union and others like us, are more willing to work with you. This willingness is because they are nonprofit and want to improve the member’s experience.
How Do Credit Union Loans Work?
The loan process at a credit union is similar to a bank’s process. Since credit unions are membership-based, you need to become a member before applying for a loan.
The exact forms needed for a loan depend on the type of loan and your situation. The credit union will want an overview of your finances. Typically, you need the following to complete a loan application:
- Proof of Identity. You need two forms of identification such as a driver’s license, passport, ID, or birth certificate.
- Income Verification. You need a paystub, tax return, W-2, and 1099s, or employer contact information.
- Proof of Address. This documentation could include a utility bill, lease or rental agreement, proof of home insurance, or voter registration card.
To assess you as a borrower, the credit union will pull your credit report. Your credit score will provide the credit union with a snapshot of your financial health. Credit union loans work in one of two ways, secured and unsecured.
You back a secured loan with collateral such as financial assets you own like a home or car. If you can’t repay the loan, the lender may take your collateral to get its money back. Typical secured loans are mortgages, vehicle loans, secured credit cards, and home equity loans. Lenders view these loans as lower risk because of the collateral. Therefore, these loans are easier to get.
Unsecured loans don’t require collateral. With these loans, lenders are evaluating the creditworthiness of the borrower. Lenders consider these to be riskier, so they usually have higher interest rates. Common unsecured loans are credit cards, personal loans, and student loans.
How Focus Federal Can Help
Focus Federal Credit Union offers several loan options, including vehicle, personal, and home. If you want to learn more about how credit union loans work or start your loan application, contact us today.