In many cases it is better to get a car loan from a credit union. The main reasons are that credit unions typically work with lower credit scores than large banks, charge lower interest rates, and have fewer fees.
Auto Loan APR Comparison: Banks vs Credit Unions
Statistics gathered by the National Credit Union Administration (NCUA) have shown that credit unions charge an average of two and a half percentage points less than traditional banks for a car loan. Here are some specifics from this report:
|48-Month Used Car||2.90% APR||4.21% APR|
|48-Month New Car||2.68% APR||3.74% APR|
A lower interest rate should keep your monthly payments down, allow you to pay less in total interest, and keep you from being upside-down on your loan for as long.
Minimum Auto Loan Credit Scores: Banks vs Credit Unions
Large lenders try to protect themselves from bad loans by working with higher credit scores. This minimizes their investment risk, and keeps them from having to deal with issues like repossessions as often. In most cases large banks require a credit score of 670 or higher in order to offer you a car loan. Anything below this, and chances are they will turn your application without a second thought. Credit unions, on the other hand, often will work with scores as low as 620. From 620 to 680 is considered subprime credit, while “bad credit” is starts at 620 and lower. Lastly, credit unions have fewer fees that they attach to their services and the fees that they do charge are generally much lower than a banks will be. Since many lenders attach an ”origination” fee to loans, you will save money from the start by using a credit union.
If your score is too low for a credit union, don’t fret. There are subprime auto lenders who can still approve you for financing, and we can help. Submit your application, and we’ll match you with a lending specialist who can guide you step by step through the process.
Credit Union Membership
You might be worried that you’re not eligible to join a credit union, but you’d be surprised how open many are in terms of membership requirements. You can find a CU in your area, and review eligibility requirements, through CULookup.com, a website run by the National Association of Federal Credit Unions (NAFCU). Often you can join simply because of your state or county of residence, and of course there are many employer/occupation-specific credit unions. If you want more information about how bank-financed auto loans work, read our latest article on the subject here.