Using a Credit Union to Finance Your Next Car Purchase
Credit Unions May Offer Lower Interest Rates
Automobile purchases can be nerve-wracking since the best financial options are the desired outcome. Credit worthiness plays a crucial role in obtaining the best interest rates possible. Credit unions often offer excellent interest rates. However, it is best to be prepared to do some comparison shopping in advance in order to fine the credit union with the best interest rates.
How to Obtain a Loan From a Credit Union
The process for securing a loan from a credit union is not complicated. You must first become a member of the credit union, which entails opening an account at the institute of choice.
Both unsecured and secured loans carry fixed rates and your rate will depend on your:
- Credit score
- Credit History
Credit Union Fees
Be prepared to open an account with the credit union, usually no less than a twenty-five dollar deposit is necessary. You may also be required to pay a one-time membership fee.
Choosing A Federally-Chartered or State-Chartered Credit Union
Credit unions are either federally-chartered or state-chartered. Federally chartered unions usually cap their loans at 18% APR (Annual Percentage Rate) and the application fee is not included.
According to the National Credit Union Administration, an APR of 9.3% for a 3-year loan has been applied for the last 5 years.
State-chartered loans have a higher APR, on average 11.3% and can vary according to individual states.
Credit Loan Approval Process
Applying for a loan can be done on-line or in person. Credit unions make it very convenient to begin the loan process. Customer service has generally been described as excellent and personable. Loan applicants need to feel catered to and that their business is desired by the union.
Once basic application information has begun the applicant should be prepared to supply proof of income, identity, and basic monthly expense information including rental or mortgage amount. A credit check will also be performed in order to determine credit worthiness.
It is possible to receive a loan approval while still in the office, on the original meeting. A credit approval amount will be determined and proof of credit will be supplied in order to show a car dealership. Faxing between the credit union and the car dealership cements the accuracy of the credit approval application.
Afterward, the sale of the automobile can take place and the signing of the paperwork is completed.
Bad Credit Need not Prevent Obtaining a Loan
Having a bad credit rating does not prevent a credit union from approving a car loan. Credit unions have been known to allow credit scores as low as 640 to qualify for car loans. Depending on the agency, a deposit may also be required. Experian reports that nearly 20% of borrowers have credit scores below 600.
It will however cost more in the form of higher interest rates. The extra cost can possibly be spread out in longer pay-back terms, for example a 7-year payment schedule as opposed to a 5-year payment schedule, which will lower the amount of the monthly payment for the life of the loan.
Out-of-State Car Purchases
Obtaining a loan from one state and buying a car in a different state can potentially increase the amount of time it takes to receive state tags and documentation. Motor vehicle departments vary when it comes to working hours and processing times. It is not uncommon to experience a delay causing problems between the allotted time given by the state to use a temporary tag and the actual time it takes to receive permanent tags.
Reputable Lenders and Pre-approval
A final word of caution: Make sure you are dealing with a reputable lender. A legitimate credit union is a not-for-profit organization that is in the business of making money for its members. Check out the credit union with the Better Business Bureau or the Consumer Financial Protection Bureau and make sure there are no complaints on record.
As for pre-approved loans, don't forget that a loan is not valid unless the process is complete. Pre-approved loans can be helpful when shopping for cars and good deals, but they are not legally-binding contracts. There is no substitute for having a loan agreement in writing and completely spelled-out as to terms and amounts.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.