Should I Get a Credit Union Auto Loan?

When you’re in the market for a new or used car loan, the odds are good you’ll see credit unions advertising to get your business. In fact, there are more than 5,000 federally insured credit unions in the U.S. where your next auto loan potentially waits.

You could end up saving a significant amount on your auto financing, but you’ll want to get the credit union auto loan that’s right for you.

[READ: Best Auto Loan Rates and Lenders.]

What Is a Credit Union?

A credit union is a member-owned not-for-profit financial institution that generally provides services similar to those of retail banks, including deposit accounts and loans. Also, “Credit unions are run by a volunteer board of directors as opposed to shareholders,” says Kenny Cooper, senior vice president of lending at Neighborhood Credit Union.

When you join a credit union, you become a part owner. Credit unions don’t consider you a customer; they call you a member.

Like banks, credit unions come in a variety of sizes, ranging from tiny single-branch credit unions with just a few employees to massive institutions that rival some of America’s largest banks. The largest U.S. credit union by asset size is Navy Federal Credit Union. It has more than 12 million members and 355 branches, spanning the globe to serve military members and their families.

There are many benefits to getting an auto loan through a credit union instead of a traditional bank or lender.

Lower Interest Rates. Because credit unions aren’t focused on turning a profit, their interest rates are lower than those of other lenders. They are also exempt from some of the taxes for-profit lenders have to pay, which saves them money — and those savings are then passed onto members. “Credit Unions are known to offer better rates and more flexible terms,” Cooper says. “They also can offer additional discounts that a traditional bank cannot.”

Personalized attention. Because members in a credit union share certain characteristics, some credit unions may look at your auto loan application more holistically than a bank would. You may get approved for financing even if your credit score isn’t the greatest or your job history is shaky.

Member owners. Some people are partial to credit unions because they answer to a member-elected board of directors, not investors. This ensures that the best interests of members are put first.

[READ: Best Lenders for Refinancing Auto Loans.]

How Do Credit Union Auto Loans Work?

Credit unions work by pooling members’ money. “Any assets members deposit with the credit union can be utilized to fund loans or investments,” explains Lyle Solomon, consumer finance expert and principal attorney at Oak View Law Group.

Credit unions take the money deposited by its members and lend it to other members. When borrowers repay the loan, they pay back the original loan amount, plus the interest. That revenue funds the credit union’s operations while allowing them to offer lower fees and higher savings dividends.

“Applying for a credit union auto loan can be done in several ways, including online or in person at a branch,” Solomon says. He notes that it can be helpful to get preapproved for a credit union auto loan ahead of time, as it gives you more negotiating power at the dealership and ensures you walk away with a good deal.

Credit Union Auto Loan Rates in November 2022

Individual car loan interest rates are going to vary based on your credit score, but a quick look at some of the annual percentage rates offered by the largest credit unions in the country shows that they do tend to be fairly low. Your rate will vary based on your financial picture. To make it easy to compare, we looked for advertised new car loan rates for 60-month loans.

Minimum APR Minimum Loan Term (Months) Maximum Loan Term (Months)
PenFed — Pentagon Federal Credit Union 4.44% 36 84
State Employees’ Credit Union 4.5% 36 96
Navy Federal Credit Union 4.54% 36 96
Truliant Federal Credit Union 5.49% 36 96
SchoolsFirst Federal Credit Union 3.74% 36 84
RTP Federal Credit Union 3.99% N/A 120
Civic Federal Credit Union 3.99% 36 96

Though these car loan rates aren’t as good as the few zero-percent interest car deals offered by some new car manufacturers, they are better than the current average new car loan rate for someone with excellent credit, which is 9.31%.

How Do I Get a Credit Union Auto Loan?

To join a credit union and get a car loan, you simply need to find a credit union you’d like to work with and see if you qualify for membership. Individual credit union membership is usually open to people who share characteristics with other members, like living in the same area, working at the same company or having family members who are already members of the credit union. In most cases, you can apply for credit union membership online and then apply for an auto loan right away.

When looking for a credit union to join, start with one that’s in your community. Local credit unions will have a finger on the financial pulse of your area, so they’ll have products and services that fit the region. Many might work directly with local car dealers, so you may get a slight discount or be able to apply for financing through the credit union at the dealership. Your job may also qualify you for membership in a particular credit union. For example, many school systems have credit unions for their employees that offer financial products tailored for educators.

[Read: Best Personal Loans.]

Alternatives to a Credit Union Auto Loan

Credit unions aren’t your only car loan options. Also consider:

Finance companies. You can work with lenders that only offer loans, as opposed to banks and credit unions that offer other financial services. Some finance companies don’t have physical branches and take other steps to keep their costs low, so they may be able to offer you better terms than a bank or credit union.

Automakers. Many automakers have financing arms that lend directly to car buyers. When you get a special financing deal from an automaker, you’re working with their captive finance company.

Community banks. These offer a blend of bank and credit union features. While they are for-profit institutions, community banks have tighter links to local communities and may be able to offer more flexibility than large national banks.

More from U.S. News

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Should I Get a Credit Union Auto Loan? originally appeared on usnews.com

Update 11/30/22:

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