7 Surprising Benefits of Borrowing from a Credit Union

After years of saving, you’re finally ready to find a mortgage lender. Or maybe you need to replace your vehicle with a newer SUV and are shopping around for an auto loan. Maybe your HVAC system needs repairs and you need cash fast to cover the bill.

When you need to borrow money, the big banks are often the first option people think of, but there may be a better alternative: credit unions.

Credit union loans tend to have lower fees and interest rates than bank loans, but there are other benefits that can also make them especially useful when you need to borrow money.

Banks are for-profit financial institutions. As a result, their goal is to make a profit and satisfy shareholders. Credit unions work differently. Credit cooperatives are non-profit, member-owned organizations that exist to serve their clients.

The difference in structure significantly affects your experience as a borrower. While a traditional bank maximizes profits, a credit union returns its earnings to its members in the form of lower fees and better rates. In short, borrowing money from a credit union can feel more like a partnership since it is a non-profit institution.

The catch? To enjoy better loan rates and personalized service, you must be a member of a credit union. Credit union membership criteria may be limited to certain groups, such as residents of particular areas or specific business owners.

Credit unions are often overlooked, but they typically offer a wide range of loan products. Whether you need a mortgage, car loan or personal loana credit union can be a smart choice.

A loan annual percentage rate (APR) is the annual cost of borrowing money. The higher the rate, the more you’ll pay over the life of the loan. In general, credit unions tend to offer significantly lower interest rates than banks, so you can save hundreds or even thousands by choosing a credit union loan.

Below are the average loan rates offered by banks and credit unions on various loan products:

These fee differences can result in significant savings. For example, let’s say you bought a used car for $20,000. If you took out a loan through a bank and qualified for a 48-month loan at 7.73% APR, you’ll pay a total of $23,315 over the life of the loan.

But if you went through a credit union, you could opt for a 48-month loan at 5.53%. At the end of your repayment term, you will pay $22,339. Opting for a credit union with competitive rates would save you about $975.

Credit union loans tend to have lower fees than bank loans, so you’ll pay less money upfront to borrow money. For example, some for-profit lenders charge origin commissions up to 10% in personal loans. If you borrowed $10,000, that means you’ll pay $1,000 in origination fees to take out the loan.

Credit unions rarely charge origination fees on personal loans, saving you money.

Credit unions generally have less stringent eligibility requirements than banks, so you’re more likely to qualify for a loan from a credit union if you have less than perfect credit. For example, for-profit lenders usually require a minimum credit score of 650 or more for a personal loan. But some credit unions require a minimum score of just 580.

A federal credit union must follow strict interest rate limits. For most loans, the maximum rate a credit union can charge is 18.00%. Banks and for-profit lenders are not limited by this rate, so these lenders can charge 35.99% or more.

For borrowers with poor or fair credit, the maximum rate offered by credit unions may be lower than the best rate a for-profit lender can offer you, so you can save money by working with a credit union.

Payday loans they are expensive and short-term debts. Factoring in loan fees, a payday loan can have the equivalent of a 400% APR.

When you need cash fast to get you to payday, a credit union alternative payday loan (PAL) can be a much better option. PALs are available through some federal credit unions and allow you to borrow between $200 and $1,000 and have six months to repay the loan. PAL Federal Credit Unions have rate restrictions; the highest APR allowed is 28%.

When you need money for an emergency, such as a vet bill or a car repair, credit union emergency loans can be a helpful option. These loans can give you up to $5,000 quickly; in many cases, you can receive your loan funds as soon as the same day you apply. And, if you’re a member of an existing credit union, you may be eligible for a loan without a credit check.

If you have poor credit or have not yet built a solid credit history, a loan for credit generation can be a convenient tool.

With a credit-building loan, you take out a relatively small amount (usually $500 to $2,000) and pay it back (with interest) within six months to two years. As you make payments, the lender reports the loan payments to the major credit bureaus, helping you build your credit. At the end of the loan term, the lender returns the principal to you.

It’s a safe way to build your credit and build a positive payment history, but credit building loans from for-profit lenders can have high rates and fees. Conversely, credit unions that offer these loans typically offer much lower rates and fees, so you can build your credit at a lower cost.

Credit unions reward members with better interest rates, lower fees and more flexible eligibility requirements on their financial products. Whether you are planning to buy a car or Consolidate high interest credit card debtA credit union loan will likely be more affordable than a bank loan, especially if you have less than stellar credit.

If you are not already a member of a credit union, you can use the National Credit Union Administration location tool to find a credit union in your area.