Auto loans can be confusing. The best credit unions help you get the lowest rate, whether it’s for your first car or your dream car.
Car loans can be a confusing topic, but they don’t have to be.
If you’re ready to purchase your next car and want an easy way of understanding how credit unions work, then this guide is for you!
It’s easy to get caught up in the big banks but we’ll go over how the process works as well as what benefits come with going through a credit union instead of a bank or dealership.
You might even find that rates are better at your local credit union––let’s dive into what makes credit unions so valuable.
What is a credit union?
Credit Unions are institutions that help people save and borrow money. They’re kind of like banks, but with much better rates for members––and more personalized service!
A credit union is owned by its members which means it isn’t driven solely by profit margins or shareholder interests; instead, everyone involved gets treated fairly no matter where they fall on the socio-economic spectrum.
This can only come from an environment in which one’s needs take priority over everything else––this leads us back to a credit union’s following core values such as honesty and integrity.
Credit unions also offer a lot of the same services as banks, such as checking accounts, savings accounts, loans, credit cards, and more! Because they’re not-for-profit organizations, their rates and fees tend to be better and there’s less red tape in how you can use your money.
While credit unions aren’t perfect and often don’t receive the same amount of press as traditional banks or even their online counterparts, they still offer people an alternative to larger financial institutions. Auto loans from credit unions are a great place to start in how you can use this type of financial organization for your benefit.
What are auto loans?
Auto loans are one way of financing the purchase of a vehicle. Banks and other financial institutions will lend money to consumers that need help affording a new or used car, which is then paid off over time with interest.
The rate you get on your auto loan has to do with how much risk banks perceive you have when lending you a large amount of money. This means a good credit score will play into how much interest a bank will charge on your loan––and the higher the credit score, the better.
Credit unions are great for many reasons and one reason is how they offer people an alternative when it comes to their individual financial needs and goals. If you’re looking to get an auto loan, then a credit union can be a great option––it’s worth looking into and can save you tons of money.
Can you get an auto loan from a credit union?
There are a ton of benefits that come from how credit unions work and how they help people achieve their financial goals. One such benefit is your likelihood of getting a great rate on your auto loan––chances are that these rates might even be better than you’d find elsewhere.
Credit unions can often offer lower interest rates on both new and used car loans.
Differences between bank auto loans and credit union auto loans
The main difference between how banks and credit unions help you get an auto loan is how the loan is offered.
Banks are for-profit organizations that put their bottom line first, whereas how a person uses their money will take precedence in the way a credit union works. The rates they offer on loans are often lower since they don’t have to worry about making money off of you.
The other main difference between how bank loans and credit union auto loans work is how risk factors into the process of getting a loan. Banks assess how risky it is for them to give someone a loan based on their current financial situation––if you have bad credit, then banks are going to see you as a risk and calculate your interest accordingly.
This benefits banks because:
- Interest rates are an important factor in determining the profitability of banks
- Banks use interest rates to manage their liquidity, which is the amount of money they have on hand to meet depositors’ demands
- Banks use your money to lend to others for a higher return
- The higher the interest rate, the more profit for banks
- Less competition between banks means they can charge higher rates and still have customers willing to borrow from them
Credit unions, on the other hand, don’t view how good or bad your credit is as the only major factor in making this determination. How creditworthy you are will be based upon your income, what you plan to use your loan for, and how long it will take you to pay back the money.
This is why people may want to look into getting an auto loan from credit unions if they want to get the most from their loan. When it comes to how much someone can save through utilizing a credit union, the numbers speak for themselves!
Credit unions often offer auto loans at lower interest rates than banks do––and for people with less than ideal credit, this is an added perk.
So, how do auto loans work from credit unions in comparison to banks?
- Credit unions are nonprofit organizations, while banks are profit-driven
- Credit unions have a more personal approach and typically offer smaller loans with lower interest rates
- Banks offer higher loan amounts but at a higher interest rate because they make money from what they charge in interest on your loan
- When deciding which type of lender to use for your car purchase, consider how much money each option would save vs their different terms and conditions
Credit union auto loan: advantages and disadvantages
One of the biggest advantages to how a credit union can help you get an auto loan has nothing to do with their rates––rather, it’s about what they offer people in terms of flexibility and repayment options.
You may be wondering why this is such a big deal––what makes the flexible or multiple repayment options at credit unions better than how traditional banks tend to offer loans?
One of the biggest reasons is how these options can be beneficial for people in different financial situations. Some people might be able to pay back their loan in six months and if this is the case, then it doesn’t make sense to pay back your auto loan over three years.
Another reason why flexible repayment options are often better than what banks offer is that credit unions don’t tend to charge you a penalty for paying off your loan early.
What’s more, it’s usually easier and faster to apply for an auto loan at your credit union, which means that you may have money in hand sooner than you might think.
The biggest drawback for credit unions is that they don’t have locations nearly as widespread as banks do, so if you need to get a loan in a hurry and there’s no credit union nearby, then you may need to consider alternatives.
Other disadvantages of credit unions for auto loans are:
- Fees will vary depending on the credit union ––some don’t charge any fees while others might charge monthly fees or late payment penalties
- Credit unions are not as well known in the auto industry
- Credit unions offer less variety for car loans, such as different loan terms and rates
- A credit union will only give you money for an auto loan if they know that it is going towards an approved purchase of a vehicle––they don’t just give out cash as many other lenders do
- There’s no guarantee that you’ll qualify for a loan
What are interest rates for credit union auto loans in 2021?
Interest rates from credit unions are often lower than what you’ll find at banks.
You can expect to see interest rates between 1.99-4.99% for those investing in a car made in 2014 and up. For those interested in cars made before 2014, interest rates will be between 5.49-7.99%.
It’s important to remember that this is just an average, and you will probably want to do some research on what the interest would look like at your community credit union.
How to sign up for an auto loan from a credit union
Applying for an auto loan from a credit union is easy, all you have to do is find the right lender and then complete their application, which should take about 30 minutes or less!
Once your information has been received, one of their representatives will contact you. They’ll look at your current financial situation and then discuss with you your auto loan options.
Looking for an alternative to your bank?
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