Credit unions vs. banks: where should you finance an auto loan?
Shopping for a new car can be a hassle. From deciding which vehicle works best for you and your needs to where you’ll find the best deal, a lot goes into narrowing down your final choice. However, there’s another crucial factor to consider—where to finance your new car. People debate whether they should finance with a credit union or a bank. We’re here to break down the differences so you can find the right loan for your vehicle.
Lower interest rates
A credit union is a not-for-profit financial institution that is owned by its members rather than shareholders, so it’s able to return profits to and invest in members. That’s why credit unions can typically offer lower rates on loans. Credit unions often offer rates as much as 2% lower than banks. According to the National Credit Union Association, as of June 2020, a new car loan from a bank with a five-year term has an average APR of 4.90%. Comparably, a new car loan from a credit union with a five-year term has an average APR of only 3.28%—almost a 2% difference. It may not seem like much, but in the long run, it saves big.
For example, if you purchased a new car—a car sold in its original, manufactured condition with no previous owners—for $30,000 and no money down, with a 4.90% APR on a five-year term, your monthly payments would be $565. However, if you purchased the same vehicle with the same loan term but at 3.28% APR, your monthly payments would be $543. That would save you $1,320 in interest throughout your auto loan. Dozens of factors determine your APR and providing a loan, so the best way to know what rate you qualify for is to contact the financial institution directly for a quote.
Lower loan minimums
Credit unions often have lower loan minimums than banks—sometimes not having a requirement at all. So, if you’ve purchased a vehicle, have a large down payment, and need to finance a small portion of your car, then this is perfect for you. Or, if you’ve purchased a cheaper vehicle altogether, this is also an excellent option to consider.
Higher chance of approval
Credit unions tend to have smaller membership than banks, so their underwriting process can be more selective. However, credit unions also focus on ensuring their members are taken care of, and a relationship is preserved. Often, if a bank deems you too much of a risk, they’ll toss your paperwork aside and deny approval. On the other hand, credit unions are usually willing to listen to you and your situation and consider that when deciding on approval. Credit unions believe that because they’re owned by their members, the best interest of the member must be served. Plus, it’s often easier to receive services through an institution with which you have a relationship.
If you’re not a member, don’t worry—it’s simple to obtain membership to a credit union. At Georgia’s Own, there are a few easy ways you can become a member. If you meet the requirements and are approved, all you need is a $5 deposit to establish your membership, which represents your share in the credit union. Requirements at other institutions vary.
If you’re on the hunt for your perfect vehicle, consider Georgia’s Own for all of your financing needs. We offer low rates, flexible payment options, payments deferred up to 45 days, and so much more—we can even refinance your current vehicle. Ready to get behind the wheel of your dream car? Click here to learn more about our auto loans or apply today.