The process of getting an auto loan from a credit union is basically the same as getting one from a bank. You either go to your local branch first and get pre-approved to finance a certain amount, receiving a confirmation letter to be used at the dealership, or you find your car first (most typical), and then provide your credit union representative with all of the relevant data: year, make, model, VIN, condition, mileage, etc. Speak with your credit union to find out whether they do pre-approvals. Some don’t, so you might need to find your car first.
However, there are some small differences between bank and credit union auto loans that we’ll discuss later.
Factors Credit Unions Consider
Credit unions consider many of the same loan factors that a bank does, which include, but may not be limited to:
- Loan to car’s value (LTV)…the goal being between 85 and 115 percent.
- Age of vehicle…less than 10 years old by loan termination
- Term of loan…36 to 72 months…depends on age of the vehicle.
- Miles on vehicle…under 100,000, typically
- Down payment…at least 10 percent or $1,000. May be in a combination of cash and trade.
- Time on job…two years or a total of two years within the same field.
- Time at residence…again, two years.
- Monthly income before taxes…depends on lender, usually $1,400, but some CUs will accept $1,250
- Credit score/profile…560 or above.
- Total debt to income (DTI) ratio including new payment…preferably less than 36 percent, but some credit unions may allow a higher DTI for credit scores above 699.
With many banks, the dealership sends all of the necessary paperwork back and forth, then bing-bang-boom, you have a loan within a few hours. A credit union may not work quite as quickly. Most CUs request that the borrower bring in an unsigned copy of the sales agreement. The key word being UNSIGNED. The CU will start the loan approval process once you bring in that copy. The process may take a few days. The larger the credit union, the longer it may take because the paperwork may need to go to another bank officer for final approval.
Bank Versus Credit Union Car Loans
Here is the main difference between bank financing and using a credit union: once you are approved, the credit union will tell you how much they are willing to finance, which may be less than the purchase price on the sales agreement. If you want the car, you will need to pay the rest yourself or negotiate a lower price. The credit union will often give you a check for the amount they will finance (made out to the dealership). Importantly, as we discussed here, credit unions typically offer lower rates of interest than banks, which could save you a lot of money in the end.