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Many times you’ll find better rates and more-personalized customer service at a credit union over a commercial bank.
When you’re in the market for a new or used car, you’re probably thinking about financing the vehicle. While dealerships make their own financing programs sound especially attractive, it’s always a good idea to shop around for the best auto loan rates—starting with local credit unions.
Mike Schenk, vice president of economics and statistics of the Credit Union National Association, says there are several reasons why you’ll be better off choosing a credit union over a commercial bank. Here are five of them:
- You have a better chance of having your loan approved. If you have mediocre credit or have had credit problems in the past, a credit union might be “more likely to listen to your story than a commercial bank,” says Schenk. If you’re worried you might get turned down for a car loan because of your credit history, consider approaching a credit union before you talk to a lender at a commercial bank. Even though the loan application process is the same and the underwriting process is similar, the credit union may make some adjustments that a commercial bank would not. Many credit unions are more inclined to listen to its members’ needs and unique situations—sometimes adjusting terms of a loan accordingly.
- Lower rates. A five-year term is the most common loan term for a new or used car, and rates at a credit union are typically much lower than the average rate at a competitor bank. According to the latest report from the market research firm Informa, the average rate on a new car loan of $30,000 from a commercial bank is 4.16 percent, while the average rate on a new car loan for the same amount from a credit union is 2.82 percent; that’s more a 1.3 percent difference and equates to a difference of $215 a year, or $1,100 over the life of the loan.
- Personalized service. Credit unions are non-profit organizations and work to provide members with high-quality customer service. Since operations decisions are made by a group of volunteer board members—rather than a corporate office—members tend to have a more personable experience at a credit union. You can openly discuss your concerns about your loan, talk about flexible repayment options and review your financial situation with a dedicated professional. This can alleviate some of the pressure of applying and securing financing for your new or used vehicle and you can be more confident that the credit union is working with your best interests in mind.
- Educational resources readily available. Schenk explains that almost all credit union branches have a dedicated education and resource center, where members can learn more about financing options and how to make the best decisions when assessing the value of their car purchase. If you’re a first-time car buyer and apprehensive about the loan process, you can turn to a credit union for unbiased answers. “The branch can show you how to calculate the real value of your car—not just what the dealership declares as the value of the vehicle—and make a better decision about the deal,” says Schenk.
- Non-sales approach. Unlike commercial banks, which often grant their lenders bonuses or some type of compensation for the loans they get approved, credit unions work for their members and aren’t driven to sell you anything that equates to extra money in their pocket. All profits from members end up going back to them in the form of lower rates on other financial products, such as savings accounts, and more flexible loan options. If you don’t like the pressure of working with lenders from a commercial bank, consider heading to a credit union for a less sales-oriented approach—and potentially rewards in the form of better financial products and services.
Article originally posted by Sabah Karimi at Money.USNews.com
With many banks losing their credibility by the day, and loans continuing to evaporate, could a local credit union be the answer for finding a great deal on your next home loan?
What is a Credit Union Anyway?
Credit unions are similar to banks in that they accept deposits, offer checking and savings accounts and provide credit for a wide range of needs including auto loans and home loans.
However, credit unions differ in that they are member-owned financial cooperatives. They promote themselves as “not-for-profit” organizations designed for building up the local community, which gives them tax and operating advantages over banks that are clearly not charitable institutions.
The American Bankers Association regularly lobbies against moves by credit unions to expand their lending capabilities as they feel that they have an unfair competitive advantage. Lower operating costs have often enabled these unique financial institutions to offer extremely low mortgage rates and low closing costs. However, due to their loyalty to their members, they could be more conservative in their lending in some circumstances.
While you may not have thought about approaching credit unions for a home loan before, they are certainly not new to the mortgage game. In fact, during the recent hard times other lenders have been through, credit unions increased their mortgage volume from $55 billion in 2006 to $96 billion in 2009.
Advantages of Choosing a Credit Union for Your Home Loan
While borrowers will essentially find that credit unions offer the same types of banking and lending services as actual banks, these institutions promote themselves as the best choice for various reasons, including:
- Low mortgage interest rates
- No fees
- Personalized service
- Speedier closings
- Better rates on other credit products including auto loans
- Higher returns on CDs to offset borrowing costs
Do Credit Unions Have the Home Loans I’m Looking for?
While different credit unions may offer slightly different loan programs and options, you can expect to find a full range of mortgage solutions for purchasing a home, refinancing and completing home improvements.
Borrowers will find a variety of conventional mortgage options available, including 30- and 15-year fixed-rate mortgages, ARMs (adjustable rate mortgages) of varying lengths, home equity loans as well as government backed home loan programs like FHA and VA home loans and HomePath Financing. Basically, anything you’ll find offered at your local bank you’ll find here.
Why Doesn’t Everyone use Credit Unions for Home Loans?
Obviously, despite their growth, most people don’t turn to credit unions for their loans. Why not?
For many it is because they simply don’t understand how credit unions work or don’t know that they offer home loans. Secondly, these loans are only available to members of credit unions. Membership for most types of credit unions is restricted to certain groups. The most popular are corporate credit unions and industry specific ones. However, with more than 7,000 state chartered or federally chartered credit unions across the U.S., and a growing number of location-based community unions, there are many options to explore no matter where you live or want to move.
Of course, the home loans that are offered by credit unions aren’t always a great fit for everyone. Even those who are credit union members may not get approved for the loan they want.
Borrowers also shouldn’t blindly fall for the slick marketing and promises of better deals without shopping around. Always explore all of your options and make sure you are getting a fair deal. This is especially true of the “not-for-profit” aspect. Credit unions don’t just give money away.
Those who don’t fit the conventional loan mold and need more lenient underwriting guidelines, alternative lending options, and more flexibility – or real estate investors who have already maxed out the number of loans they can have with one institution – should look further afield before giving up.
Depending on the specifics of your situation, you may want to check out specialist construction or rehab lenders, hard money lenders, or talk to a mortgage broker or loan officer who is an expert in helping self-employed borrowers or those with credit or documentation challenges.
Article originally posted by Tim Houghten at Realestate.com