Should I Get an Auto Loan From a Credit Union?

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If you’re in the market for an auto loan, now might be a great time to consider a credit union.

There are a lot of places you can get auto loans these days. Banks might seem like the natural choice, but you can also get an auto loan from online lenders, buy-here-pay-here dealerships, credit unions, and even your Nana.

Out of all of those options, credit unions are one of the most underrated choices. You might think that you won’t be eligible for credit union auto loans (and that’s sometimes true), but you might be surprised by what you can get. Often, credit unions offer the best rates on new vehicles and used auto loans, and many people like their for-the-people vibe more than with other lenders.

Here’s what you need to know about getting your next auto loan from a credit union.

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Credit Unions vs. Banks: What’s the Difference?

Both financial institutions can be used for your everyday banking needs like getting a savings and a checking account, but there are several differences between banks and credit unions.

One of the biggest differences is the ownership structure. Banks are owned by private individuals or shareholders, and they are for-profit businesses. Credit unions, on the other hand, are non-profit banking institutions, and they’re owned by the people who bank there — i.e., you, if you have an account there too.

This difference in ownership drives a lot of the things you’ll notice day-to-day between the two, such as higher-than-average earnings on your deposits, and lower-than-average rates on your loans. Credit unions also tend to be more consumer-friendly, since they’re concerned more about community well-being than turning a profit for a select few.

Are Credit Union Auto Loans Better?

In general, yes — credit union loans do tend to be better than bank loans because they’re cheaper. Here’s the national average rate that people are paying for car loans at credit unions, and car loans at banks as of the second quarter of 2021, according to the National Credit Union Association (NCUA):

Average interest rate charged by:
Vehicle loan term and type Credit Unions Banks
Used car, 36 months 2.80% 5.08%
Used car, 48 months 2.91% 5.13%
New car, 48 months 2.76% 4.68%
New car, 60 months 2.87% 4.78%

As you can see in the above chart, if you choose a credit union for your next car loan, you’ll likely get an interest rate that’s around 2% cheaper than if you had gone to a bank. Of course, this is just one snapshot in time, but in general you’ll find slightly cheaper Annual Percentage Rates (APRs) at a credit union than a bank.

To see how much this can save you, consider this: Let’s say you take out a $25,000 loan with a $5,000 down payment on a new car with a 60-month term. With a bank, you’ll pay just over $1,000 more in interest over the term of the loan than with a credit union, and your monthly loan payments will be $17 higher.

In addition, it can sometimes be easier to qualify for an auto loan at a credit union than a bank, especially if you’re still working on your credit. Credit unions can’t give out loans willy-nilly, but since they are built from a spirit of community well-being, they’re often more willing to lend to people who have credit challenges such as a low credit score.

And if they can’t give you a loan, they often have other products to help you build your creditworthiness and credit history so you can qualify for a loan sooner, like credit-builder loans, secured credit cards, or payday alternative loans (PALs).

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How Can Credit Unions Offer Cheaper Loans?

Credit unions have a lot of tools up their sleeve to offer low rates for borrowers. Since they’re non-profit, the money that would have passed on to the owners or the shareholders is reinvested in the members, keeping loan costs low and earnings rates higher.

Recently, credit unions have been on a big push to increase the number of loans on their books as well. According to a report from the NCUA for the first quarter of 2021, the average loan-to-share ratio is 68.8%, the lowest it’s been in at least the past five years. Federal credit unions can boost that number up by giving out more loans with competitive rates, which is exactly what they’re trying to do right now.

Credit unions have been especially notable for the large amount of auto refinance loans they’ve been giving out lately. The credit bureau TransUnion noted in a 2020 report that banks were responsible for 43% of auto loans, while credit unions were responsible for a whopping 69% of auto refinance loans.

The trend seems to be that people are choosing banks more for their first auto loan and then deciding to jump ship and refinancing with a credit union. And according to the 2021 RateGenius State of Auto Refinance Report, this trend is likely to continue this year as credit unions are predicted to hold interest rates steady while welcoming new refinance customers with open arms.

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How Can I Get a Credit Union Auto Loan?

If you’re intrigued and you’d like to see whether a credit union auto loan might be for you, there are a lot of ways to check your rates and get the application process started.

First, you can always approach a credit union directly to check your rates. A good place to start is credit unions in your area since membership is often regionally-based. You’ll need to verify that you are indeed eligible for membership with each credit union.

If that prospect sounds a little daunting to you, check out an auto loan marketplace that does the rate and payment shopping on your behalf. For example, AUTOPAY works with credit unions and financing institutions around the country to help borrowers find the lowest rates and payment options on new car loans and auto loan refinancing.

Another possibility is working with your dealership’s financing department or a car-buying service. They often connect borrowers with financing options in their area, some of which may include credit unions. Watch out for buy-here-pay-here dealerships, however, which are a different thing entirely.

Keep in mind that aside from meeting the credit union’s membership requirements, you may have to keep a small amount (usually $5) in a share savings account as well to establish your membership.

What rate can I get? What rate can I get?

Bottom Line

Choosing where to get your next car loan doesn’t have to be stressful.

Credit unions are a great place to start your search because they generally offer cheaper auto loan rates, which translates into more savings for you and better monthly payments. Even so, we recommend checking your rates with as many lenders as possible. Credit unions don’t have a monopoly on good rates, and it’s possible that another type of lender will be better for you. The only way to know is to check.

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About The Author

Lindsay VanSomeren

Lindsay VanSomeren is a personal finance expert who has written for many websites such as Credit Karma, LendingTree, The Balance, and Experian. She currently lives in Kirkland, Washington with her husband, two cats, and a dog. In her spare time she enjoys homebrewing, reading, and outdoor adventures.

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