Loans from credit unions are among the most competitive loans. If you want to borrow money, it is worth including a local credit union while shopping (be sure to include local banks and online loans).
Credit unions usually come with low rates and fees, which means a lower overall cost of borrowing. Moreover, it might be easier to get approved for credit at a credit union.
No one wants to make a loan that will not be repaid, but small credit unions are more likely to take a more personal approach to evaluating your loan (rather than rigid access to anyone seeking credit).
Starting with credit unions
If you have never used credit unions before, you may not know much about them, or you may just think that they are the same as banks. There are many similarities, but the key difference is ownership: Credit unions are non-profit organizations that are owned by their customers. Most credit unions work to provide financial services to their members. As a result, credit rates for credit unions often come out a little lower (compared to the big banks that have to constantly increase profits).
Become a member
Before applying for a loan, you must become a ‘member’ or partial owner of the credit union (don’t worry, it’s not as complicated as it sounds).
- Membership Criteria: To become a member, you will need to qualify by meeting certain criteria. This usually means sharing some features with other members (such as where you live or the industry in which you work or your family members).
- Easy way to: No matter who you are, there is a good chance that you will join a credit union and you may be surprised at how easy it is to qualify. For example, when buying a car, you may find that your dealership is able to make you a member – without ever visiting one of the branches. By purchasing from this dealer, you meet (one of) the credit union’s eligibility requirements.
- Finding a Credit Union: To find out which credit unions are available nearby, try the search tool. If you can’t find anything locally, many credit unions accept members from all over the state.
- Opening a Deposit: When you find a credit union you are eligible to join, you will become a member by opening an account and making small deposits (often $ 25 or more). After that, you are ready to apply for a loan.
Apply for a loan
In many cases, you can join a credit union and apply for a loan. If you are already a member, then you are so far ahead.
Talk to a loan officer at your credit union to understand the types of loans available and ask for basic credit approval requirements.
The process varies from place to place, but most credit unions (and any other lender) have the following conditions:
- Application: You will need to complete the application, either online or on paper.
- Identification: On the application you will need to provide identification information about yourself, such as your Social Security number.
- Recruitment: Some credit unions require that you be in the same job for a certain period of time (for example, 1 year).
- Income: You need income to repay the loan, and you will need to tell the credit union how much you owe. Your monthly payments for all debts will need to be below a certain debt-to-income ratio.
- Equity or down payment: If you are buying a house or car, you will need to make some kind of payment (which is a good idea anyway). You need sufficient capital to refinance, usually measured as a loan-to-value ratio.
- Credit: A history of lending and loan repayment will help you get approved. Your credit score is often used to evaluate credit worthiness.
There is nothing wrong with asking someone at a credit union about these requirements before applying for a loan. A quick conversation can save you (and time). For example, if you know your credit score, you get an informal opinion on whether you can qualify or discuss any issues such as a recent dig.
After applying, the loan officer will review your application to see if you qualify for credit.
Even if you do not have a solid loan repayment history (or if you have had a few problems in the past), you might still get approved for a loan. Especially in small community institutions, there is a decent chance to speak to staff, who will personally review your credit reports and your personal situation. Sometimes a personal letter can help. This will never happen at a big bank – if your credit score is too low, there are no exceptions, and your computer will decide everything.
Long-term relationships with the credit union (and getting to know the staff) can improve your chances even more. If they see that you are managing your accounts well, they will overlook some mistake in your past.
A secured loan can also help you get approved (and it will help you build your credit scores for the next time you need a loan). To secure a loan, you would pledge some type of security, which the credit union can take if you fail to make payments. You don’t have to rent your house, car or jewelry – cash loans use the money in your account to help you get approved.