Credit unions and banks offer different opportunities for their clients – especially when it comes to getting an auto loan. Though both institutions may be able to get a borrower financed, they take different approaches and approve different borrowers. If you have bad credit, you may want to weigh your options particularly carefully. When it comes to credit unions vs. banks for where to get your next car loan, there are a few factors to check out. Let's take a look.
Credit Unions or Banks?
In many cases, a credit union may be a better option than a bank for consumers' financial needs. With many people struggling to hold on to as much of their hard-earned money as possible, paying unnecessary fees at a bank isn't high on most people's priority list. Instead, they want a better experience and to get the most from their money.
The term “big banks” is accurate because banks are typically large institutions. They're publicly owned entities, responsible to shareholders and, like any business, usually focus primarily on profit. Because of their size, banks do have the advantage of getting money at cheaper rates and they can have competitively priced loans if they choose. These loans, however, are typically reserved for people with good credit.
Historically, banks have had the ability to offer more services than smaller institutions such as credit unions. But with today’s technology, that playing field has become more level as more institutions have access to services such as smartphone apps, online banking, and automatic bill pay. Large banks still hold an advantage with 24-hour customer service hotlines, as they can usually staff call centers to operate around the clock.
However, banks still need to answer to their shareholders while managing your money. This translates into ever-increasing customer fees such as overdraft fees, minimum balance fees, checking account fees, ATM fees, monthly maintenance fees, and transfer fees – not to mention the minimum amount often required to open an account can be as much as $100 or more, depending on the bank.
Credit unions tend to be smaller organizations, but the main difference is that they're member-owned. This makes credit unions non-profit organizations, which allows them to focus more on the customer experience. They do this with personal service, low costs to open accounts, and minimal fees. In fact, typically, the only fees are for overdrafts and out-of-network ATMs – both fees are usually less than what banks charge.
Because credit unions are member-owned, there's usually a requirement for eligibility – not everybody can just walk in and open an account. These requirements can range from living in a geographic area and employee groups to specific religious or fraternal affiliations. Although, in recent years, many credit unions have begun to relax these regulations and it’s easier to qualify for membership.
Another plus to credit unions is that they often carry their non-profit savings over to their other services. This means lower interest rates on things like credit cards and loans. Also, customers generally have an easier time getting a car loan at a credit union, though they usually have to go in person to do so.
Are Credit Unions Better Than Banks?
Credit Unions aren't necessarily better than banks, though there can be many perks to being a credit union member. These days, with prices on the rise, many people are trying to hold on to as much of their hard-earned money as possible. For many, this means paying unnecessary bank fees isn't high on their priority list. Instead, they want to get the most from their money, and this often means choosing a credit union.
Credit unions are typically smaller organizations than banks, and they're member-owned. This makes credit unions non-profit organizations, which allows them to focus more on the customer experience. They are known for doing this with personal service, low costs to open accounts, and minimal fees. In fact, the only fees are usually for overdrafts and out-of-network ATMs, and both are typically less than what banks charge.
One reason someone would choose a credit union over a bank is that they often carry their non-profit savings over to their other services. This means lower interest rates on things like credit cards and loans. Also, customers generally have an easier time getting a car loan at a credit union, though they usually have to go in person to do so.
Because credit unions are member-based, though, there's usually a requirement for eligibility – not everybody can just walk in and open an account. These requirements are wide-ranging and include requirements such as living in a specific geographic area, being in a certain employee group, or having specific religious or fraternal affiliations. Although, in recent years, many credit unions have begun to relax these regulations and it’s easier to qualify for membership.
Credit unions can often be a good place to start building your financial life if you qualify for membership, and are also seen as a good option for bad credit borrowers who are members in good standing.
When it comes to getting an auto loan, Experian's State of the Automotive Finance Market report for the fourth quarter of 2022 shows that credit union lending has taken a big leap over Q4 of 2021 providing 29.12% of all auto loans. This is up from 23.49% last year. That jump shows that credit unions are becoming a more popular option among consumers.
Best Choices For Bad Credit
When it comes to getting a car loan with bad credit, there are typically a few options, though they will cost you more in interest than a borrower with better credit. If you're a member, a credit union is typically a good first choice to look for pre-approval when you need a loan.
However, since no loan is a guarantee, another good choice is to shop with a dealership that works with subprime lenders. Subprime lenders are typically indirect lenders that rely on factors beyond credit to approve applicants, such as income, employment history, and residence stability. These are lenders that work with borrowers who have lower credit scores – subprime credit is typically described as a FICO credit score of 670 or below. While you usually can't approach a subprime lender directly and apply for a loan, they lend through certain car dealerships. So, the key to getting financed with a subprime lender is applying with a dealership that works with them.
If you're unable to qualify for a subprime loan through a special financing dealership, you can also opt to look for a vehicle through a buy here pay here dealer. These are in-house lenders that both sell and finance the car.
BHPH dealers only offer used car loans, but it can sometimes be the way to go if you're struggling to get approval due to credit issues. Since an auto loan can help build credit it's important to make sure the BHPH dealer reports pays to the credit bureaus. Not all of them do, and without proper reporting, your credit score can't improve.
If you don't know where to start your search, we can help. Auto Credit Express works with a large network of special finance dealerships that are signed up with subprime lenders. We can connect you to a dealer near you to start your journey to your next car loan. Start your search with us today.