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As you look for a car loan, the odds are good you’ve seen credit unions interested in your business. Your town probably has its own credit union, as do most colleges, and even some large companies. There are credit unions for people who work at hospitals, credit unions for people who work in various government agencies, and credit unions for teachers. There are more than 5,600 federally insured credit unions in the U.S. looking to get your business.

Given that there’s a credit union for every Tom, Dick, Harry, and Harriet, you’re probably wondering if getting a credit union car loan makes sense. With the right credit union car loan, you could end up saving a significant amount of money on your auto financing, but you’ll want to make sure you get your car loan from the credit union that’s right for you.

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What Is a Credit Union?

At the most basic level, a credit union is a financial institution that offers banking services, like deposit accounts, loans and investment accounts. However, what makes credit unions different from traditional banks is that they are not-for-profit institutions, and when you join a credit union, you become a part owner of it.

It’s that not-for-profit status that makes getting a car loan from a credit union an appealing proposition. Because credit unions aren’t run for profits, they don't need to charge high interest rates to pad their bottom lines, and they are taxed at a lower rate than banks, which saves them money. They pass those savings on to their members in the form of lower loan rates and lower fees, and sometimes dividends. The lower loan rates and fees save you money, and saving money is a major reason to get a credit union car loan.

Another reason that some people are partial to credit unions is because they answer to members, not investors, and because members in a credit union share some characteristics. That means that some credit unions may look at your auto loan application more holistically than a bank would. Think of the difference between the Bailey Building and Loan and Old Man Potter’s bank in “It’s a Wonderful Life.” The bank only looked at a few factors when deciding which vehicle loans to approve, but the Bailey Building and Loan considered other factors, like how hard of a worker the applicant was, when deciding. While today’s credit unions won’t be able to give you a loan because of your work ethic, they may be able to look beyond your credit score to assess your application.

How Do Credit Union Auto Loans Work?

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Credit unions work by pooling members’ money. Many credit unions started on a small scale, with a few linked individuals putting their money together for investing and mutual aid. Rather than just opening an account at a credit union, you become a member. Any assets members deposit in the credit union can be used to make investments or loans, with the profits from those endeavors going back to members.

Credit union car loans take the money deposited by its members and lend it to other members who need an auto loan. They charge interest on the money, which is a percentage of the amount borrowed that serves as a kind of rental fee on the money (read more about how to finance a car and get a car loan). When borrowers repay the loan, they pay back the original loan amount, plus the interest. That interest allows they credit union to make money, which they then share with their members in the form of lower fees, higher savings rates, or dividends.

Credit Union Auto Loan Rates in October 2019

Individual car loan interest rates are going to vary based on your credit score, but a quick look at some of the annual percentage rates offered by the largest credit unions in the country shows that they do tend to be fairly low. The advertised rates shown here are current as of this writing, and your rate will vary based on your financial picture. To make it easy to compare, we only looked at advertised new car loan rates for 36-month loans.

Credit Union

Advertised New Car Loan Rate

Loan Term

PenFed

2.49%

36 months

State Employees’ Credit Union

3.75%

36 Months

Navy Federal Credit Union

2.99%

36 months

Boeing Employees Credit Union

3.39%

36 Months

Schools First Federal Credit Union

2.99%

36 Months

Though these car loan rates aren’t as good as the few zero-percent interest car deals offered by some new car manufacturers, they are better than the current average new car loan rate, which is currently 4.53%.

To see how much a credit union car loan could save you, let’s do a comparison using our car loan payment calculator. We’ll assume a 36-month new car loan rate of 4.53% from a bank. If you borrow $25,000 for a new car, your total cost for the loan will be $26,784, meaning you’ll pay $1,784 in interest. If you take a credit union car loan for 36 months at a rate of 2.49% (the lowest rate at a credit union we found this month), you’ll pay $25,971 overall, saving you just about $800 over the life of the loan – and that savings doesn’t take into account the reduced fees that some credit unions offer compared to other lenders. 

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How Do I Join a Credit Union and Get a Car Loan?

Joining a credit union and getting a car loan isn’t tough. You simply need to find a credit union you’d like to work with and see if you qualify for membership. Individual credit union membership is usually open to people who share characteristics with the credit union’s members, like living in the same area, working at the same company, or having family members who are already members of the credit union. In most cases, you can apply for credit union membership online, and then apply for an auto loan right away.

When looking for a credit union to join, it’s easy to start with one that’s in your community. Community credit unions will have a finger on the financial pulse of your area, so they’ll have products and services that fit the area. You may also be able to look at credit unions based on your job. For example, many school systems have credit unions for their employees that offer financial products uniquely tailored for educators. Some credit unions also work with local car dealers, so you may get a slight discount, or be able to apply for financing through the credit union at the dealership – another advantage of a credit union car loan.

What’s the Difference Between a Credit Union and a Bank?

The main difference between credit unions and banks is ownership and profits. Banks are owned by their shareholders – people who buy stock in the bank. Credit unions are owned by their members – people who actually use the services the credit union offers. Banks are for-profit institutions, and those profits are given to shareholders. Credit unions are not-for-profit, so any money they make above their costs are returned to members in the form of higher savings rates, lower loan rates and fees, or even dividends, in some cases. Because they are not-for-profit entities, credit unions are taxed differently than banks, which allows them to save more money, and those savings get passed on to members as well.

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When it comes to borrowing money to buy a car, the main difference between a credit union car loan and a bank auto loan is that credit union rates tend to be lower, and they usually have lower fees, too (note that individual car loan rates and fees will vary). Credit unions may also be able to take a larger view of your financial picture than a bank or other lender would, so you may have an easier time getting your car loan approved.

Differences Between Credit Union Car Loans and Other Car Loans

Credit Union Auto Loan

Bank Auto Loan

Other Auto Loan

Not-for-profit

For profit

For profit

Tend to have lower average rates and fees

Tend to have higher rates and fees

Tend to have higher rates and fees

Open to members

Open to anyone

Open to anyone

May have flexible approval requirements

Strict approval requirements

Strict approval requirements

Other Auto Loan Options

Banks and credit unions aren’t your only options when getting a car loan. You can also work with lenders that only offer loans, as opposed to banks and credit unions, which offer other financial services. Some of these lenders don’t have physical branches and take other steps to keep their costs low, so they may be able to offer you better terms than a bank or credit union. Before committing to any type of auto loan lender, you should shop around to get the best deal, regardless of the type of lending institution.

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