Are you thinking about buying a car? If that's the case, no doubt you've started investigating the eye rates on automotive loans from banks and dealerships. But there's a third choice for financing your purchase that you may not know about: lending institutions.
Like banks, credit unions offer savings and checking accounts, loans and other financial services. Unlike banks, lending institutions are not-for-profit organizations owned by their members. Instead of charging members fees to use its services, a credit union gives to its members by providing them higher rates of return on savings and investments—and lower rates of interest on loans.
What Makes Bank Auto Financing Different?
When it comes to financing your car, there are several benefits of using a bank, as opposed to a dealership or bank.
- You may have a better possibility of getting approved for a loan. Because they are smaller, centered on their communities and of their visitors, lending institutions tend to be more understanding of members who've less-than-perfect credit scores. This can make a credit union a better option than the usual bank if you have poor credit and have a thin credit file (few or no credit accounts and a limited credit history).
- Credit unions generally offer lower rates of interest than banks or car dealerships. Because lending institutions aren't profit-focused the way in which banks are, they do not desire to make as much cash on your loan. The average rate of interest for a 48-month new auto loan from the bank was 3.75% in March 2022, in contrast to 5.03% for the same loan from the bank, based on the National Credit Union Administration.
- Banks and dealerships typically need you to remove the absolute minimum car loan amount. Credit unions often have lower minimum loan requirements or none whatsoever. For example, a $5,000 loan to purchase a used car may be too small for a bank to invest in, although not for a credit union.
There will also be several disadvantages in getting a car financed through a credit union.
- You need to be a credit union member to try to get a loan. If you are already an associate, that isn't a big deal. If you aren't a member, chances are there is a credit union you can join. You might be in a position to enroll in a credit union based on your employer; your geographic location; or membership somewhere of worship, school or homeowners association. You will find lending institutions for government employees, union members, teachers, firefighters, people in the military or military veterans, postal workers, and faculty and employees of colleges and universities. Plus, most lending institutions allow members' family members to become listed on too. If your mom is associated with a bank for school teachers, you can join if you are not a teacher. You should use the National Credit Union Association (NCUA) Bank Locator to locate credit unions that may be open to you.
- Smaller credit unions usually don't offer all of the bells and whistles that bigger banks do. For instance, a bank may not offer online banking or a mobile banking app, may not have ATMs and could have only a few branch locations. This can be inconvenient if you're using a bank for the daily banking needs, but when you use a credit union primarily to obtain a car loan, it should not be a major problem.
What Credit rating Do I Need to Get a Car Loan Having a Credit Union?
Using the FICO® Score☉ credit scoring model, a credit rating of 669 or less is considered fair or poor and may make it difficult to get an auto loan from the bank or auto dealership. However, when you apply for a car loan from a bank, an undesirable or fair credit score isn't necessarily a dealbreaker.
As member-owned institutions, lending institutions can focus more about helping their visitors than on making a profit. That means they're usually more flexible than banks or dealerships when it comes to approving loans. (Even in a credit union, however, a better credit rating still translates into better loans.)
When Does It Make Sense to Finance a Car Via a Bank?
When if you undertake credit union auto financing rather than obtaining a loan from a bank or auto dealership?
- If you're just starting to build credit, have fair to a bad credit score or have a thin credit file, a credit union might be more prone to approve you to have an auto loan than a bank or auto dealership.
- If you already fit in with a bank, it makes sense to see how your finance terms compare to those of banks or dealerships. Getting preapproved for an car loan out of your bank before you visit the casino dealer can provide you with more negotiating power.
- Managing an auto loan from a bank can be less convenient than building a loan from the dealership or bank. When the credit union doesn't have online banking options, for example, you will need to mail inside your loan payments by check. The trade-off is really a lower interest rate on your loan. If having the ability to make your loan repayments online, make use of a mobile app to check on your loan balance, or easily visit a bank branch is really important to you, locate a bank that offers these amenities.
Get the very best Auto Loan for the Credit Score
When making any financial decision—including taking out a car loan—it is best to explore all your options. Checking your credit score from Experian before you apply for a financial loan can help you choose the best lender for your requirements, whether this is a bank, an auto dealership or a bank.