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Why Choose a Credit Union for Your Auto Loan?

With the average price of a new car hovering around $45,000, finding an affordable auto loan is critical. If you’ve been searching for the best interest rates and terms, chances are good you’ve come across auto loans from credit unions.

1. Lower Rates

Credit unions are member-owned, not-for-profit financial institutions. Their core mission is to improve the financial well-being of their members. Among the key benefits they offer are higher rates on savings, minimal fees on loans and accounts, and lower rates on loans and credit.

Compared to banks and finance companies (including dealer financing), credit unions typically offer lower average interest rates across a range of credit scores. Here’s how median interest rates stacked up for 72-month car loans based on April 2023 data from CUNA:

• Credit unions: 6.58% to 10.86%
• Banks: 7.51% to 17.11%
• Finance companies: 6.23% to 17.94%

For all lenders in the survey, interest rates go up as credit scores drop. Median credit union rates compared favorably (or at least competitively) across all credit profiles, but were substantially lower for deep subprime and subprime borrowers, who generally pay the highest rates on loans.

2. More Flexible Requirements

Even though credit unions check your credit and debt-to-income ratio when you apply for a loan, many will also take your larger financial history into account when considering your application. They may also offer specific loans and credit-builder programs that can help you secure a loan, even if you’re just starting to establish credit.

For example, many credit unions offer loans for first-time auto buyers who don’t have extensive credit histories. Rates and terms vary from one credit union to the next, but in general these loans are designed to get new borrowers off to a good start.

3. Lower Loan Minimums

Say you’re buying your aunt’s mint condition 2009 hatchback for $4,500. Many auto lenders won’t offer you a loan that small; it’s not worth their while. Some credit unions offer low (or no) loan minimums, so you can finance a car you’re buying at a great low price or minimize your loan amount when you only need to finance a small portion of your car purchase.

4. Local, Personalized Service

Credit unions pride themselves on friendly, in-person service. Their members-first philosophy also shows through in their loan terms and features. For example, many credit unions let you skip a loan payment if you’re going through a difficult month (provided you contact them first). You’ll make up your missed payment and pay interest on it at the end of your loan, but you won’t suffer late-payment consequences to your credit.

As an additional perk, some credit unions offer car-buying services that make locating a vehicle and negotiating a price easier on you.

Frequently Asked Questions

How Do Credit Unions Work?

Credit unions are member-owned financial cooperatives that provide traditional banking services. They operate on a not-for-profit basis, which allows them to offer better rates and lower fees to their members.

How to Apply for a Car Loan at a Credit Union

Applying for a car loan at a credit union is similar to applying at a bank. You’ll need to provide personal information, financial details, and information about the vehicle you wish to purchase. It’s a good idea to check your credit score and report before applying.

Alternatives to an Auto Loan From a Credit Union

If a credit union loan isn’t right for you, consider other options such as bank loans, dealer financing, or online lenders. Each option has its own set of benefits and drawbacks, so it’s important to compare rates and terms to find the best deal for your situation.

The Bottom Line

Financing a car is a big deal. Whether you’re purchasing a new vehicle or a used one, your car loan will likely be one of the largest loans you’ll ever take out. A lower interest rate can save you thousands of dollars over the life of a loan. In addition, having a lender you can work with may make it easier to get approved for financing and pay off your loan successfully while building or maintaining good credit.

If you’re in the market for a car loan, now may be a good time to check up on your credit report and credit score. Knowing your credit profile can help you identify which auto loans will work for you. If you need to improve your credit score, consider taking a few months to pay down debt and continue making on-time payments. When you’re ready to move, explore all your loan options to get the best deal.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We are here to help you find the best loan options available!

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