In some cases, a credit union may be a better option for a consumer and their financial needs – especially when it comes to getting an auto loan. 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.
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.
When it comes to getting an auto loan, Experian's State of the Automotive Finance Market report for the second quarter of 2022 shows that credit union lending has taken a big leap over Q2 of 2021 providing 26.69% of all auto loans. This is up from 15.27% last year. That jump shows that credit unions are becoming a more popular option among consumers.
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.
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. 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.
Credit is one of the major factors that impact your ability to get a car loan. Other factors that may impact your auto loan approval are a lack of job history, income, or lack of a down payment.
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.