Credit Union Auto Loans: What Should You Know?

If you plan to buy a car, you’re probably figuring out how to finance it. The good news is that you have options. Getting a car loan from a bank or credit union is typically the most common—and cost-effective—option. 

Credit unions are not-for-profit financial institutions that members own. While some credit unions have strict membership criteria, many allow anyone to join. Credit unions often offer lower interest rates for loans, unique banking perks, and more flexible financing. 

Here’s how to determine if a credit union auto loan is the right fit for you. Plus, to find the top credit unions with the best rates. 

Best credit unions for auto loans

When seeking an auto loan, credit unions can offer competitive rates and member-focused services. Our selection criteria for the best credit unions include rates, membership requirements, availability, and unique benefits. 

Below is a summary table highlighting each lender and a more detailed exploration. Click the credit union’s name in the table to find out more about its auto loan.

Credit union	Open to everyone?	Low rates (APR)	Membership requirements
PenFed Credit Union	✅	5.24% (new) 6.49% (used)	$5 in a savings account
Navy Federal Credit Union	❌	4.54% (new) 5.44% (used)	Ties to the armed forces, DoD, or National Guard
State Employees’ Credit Union	❌	5.50% (new)  6.25% (used)	Employment or association with select NC entities

PenFed Credit Union: Best for credit union eligibility

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• Available nationwide with competitive rates for new and used vehicles
• Open membership allows anyone to join with a simple savings account
• Prequalify without affecting your credit score

PenFed Credit Union stands out for its broad accessibility and competitive APRs. Membership is open to anyone in the U.S., requiring only a $5 deposit into a PenFed savings account. 

Financing options are generous: up to 125% of the vehicle’s value, with terms up to 84 months for new and used vehicles. A standout feature is the ability to prequalify for an auto loan without affecting your credit score, providing a hassle-free way to gauge your loan options.

Navy Federal Credit Union: Best for military members

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• Tailored to military members with exclusive discounts
• Global availability for auto loans in all 50 states
• Co-applicant option for borrowers with varying credit histories

Navy Federal Credit Union is best suited for members of the military community, offering auto loans with low APRs. Membership is open to anyone with military ties, including family and household members. 

NFCU provides new and used vehicle loans with terms of up to 96 months for new and 72 months for used vehicles. The inclusion of discounts for military members and the option for co-applicants make Navy Federal a compelling choice for those eligible.

State Employees’ Credit Union: Best for North Carolina state employees

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• Exclusively for NC, SC, GA, TN, and VA residents with ties to state employment
• Finance up to 120% of the vehicle’s value
• Special rate discounts for qualifying NC state employees and retirees

State Employees’ Credit Union offers targeted services with low starting APRs. Membership is limited to individuals with a direct connection to various North Carolina state entities, including state and federal employees, members of the North Carolina National Guard, and others outlined in their membership criteria. 

With financing options up to 120% for new and used vehicles and terms up to 96 months for new and 72 months for used vehicles, SECU caters to a specific demographic while providing added benefits, including a 0.50% interest rate discount for certain qualifying members.

Pros and cons of credit union auto loans

Credit union auto loans often come with helpful financial perks. But there are also potential downsides. Here are the benefits and drawbacks of financing an auto loan through a credit union. 

Pros

• Lower borrowing rates

  Since credit unions are member-owned, the institutions do not have the same pressure as corporations to generate profit. Because of that, credit unions often charge lower interest rates on loans, ensuring members benefit from the profit. It’s a win-win for the credit union and the borrower. 

• One-on-one support

  Credit unions are often local, meaning they can provide more personalized support for members. National credit unions usually have membership criteria, which allows for more individualized support for members. 

• Educational resources

  Shopping for an auto loan is a big undertaking, especially as car costs have increased. Credit unions often provide educational resources or financial counseling to help you learn more about loan options, interest rates, and other considerations as you shop for a vehicle. 

Cons

• Membership requirement

  Many credit unions have a membership requirement. It often involves working in a particular field or having connections to specific organizations. Because of that, it’s not an accessible option for everyone. For example, Navy Federal Credit Union requires members to have a connection to the military or Department of Defense.

• Fewer services

  Larger credit unions provide full-service banking, insurance and loans. However, many small credit unions do not offer all-in-one banking. If you prefer to handle all your finances in one place, a small credit union might not be the right fit. 

• Limited locations

  Credit unions are usually local not-for-profit institutions, so in-person access might be limited depending on your location. If you prefer in-person access, confirm that there is a branch near you.  

In my experience, credit unions have lower-to-no fees for checking and savings accounts. They also have competitive rates for personal loans and mortgages. 

Erin Kinkade

CFP®

Common misconceptions about credit union auto loans

Loans from credit unions are similar to loans from any other provider. But a few common misunderstandings exist. The following misconceptions about credit union auto loans are not true. 

You need to know the exact vehicle value before being approved ❌

You do not need to know the exact vehicle value before applying for an auto loan with a credit union. It’s helpful to have an amount in mind to request it when you apply. However, the credit union will determine the size of your loan. 

You might get approved for more or less than you want, but you can decide whether to move forward with the loan after pre-qualifying and reviewing the offers. 

You must be a member for a long time before applying ❌

Most credit unions are excited to welcome new members and originate a loan. Once you complete the membership steps, you can apply for a loan. For example, PenFed requires prospective members to complete an application and deposit $5 in a savings account to become a member. 

You need to visit the dealership first ❌

You do not need to visit the dealership, test drive cars or secure a vehicle before getting preapproved for a loan. The Consumer Financial Protection Bureau recommends that buyers compare loan offers from multiple lenders and complete the preapproval process before visiting the dealership. 

Are there any risks to getting an auto loan from a credit union?

While there are few general risks of joining a credit union, it is important to know that credit union regulations differ from banks’.

Banks are insured by the Federal Deposit Insurance Corporation (FDIC). Credit unions are insured by the National Credit Union Administration (NCUA). Both of these organizations insure your funds in the case that the financial institution fails.

The FDIC insures up to $500,000 for joint accounts. Meanwhile, the NCUA insurance is limited to $250,000 per separate account title. 

It’s important to know this if you join a credit union to obtain an auto loan and plan to do additional banking at the credit union.

How do credit union auto loans differ from alternatives?

Buyers can work with a credit union, bank, or car dealership to secure financing for a car. The result is the same, but the process and how much you pay for the loan differs depending on which institution you decide to work with. 

As you decide which financing option is best, consider your location, budget, timeline and credit score. Those factors will affect your financing options and which makes the most sense. 

Here’s how getting a car loan from a credit union differs from getting one from a bank or car dealership. 

Credit union	Bank	Dealership
Not-for-profit	For profit	For profit
Might be able to offer lower interest rates	Typically offers market rate interest rates	Typically offers higher interest rates
Borrower can buy from almost any dealership	Borrower can buy from almost any dealership	Borrower can only buy from one dealership
Decreases time spent at the dealership	Decreases time spent at the dealership	Increases time spent at the dealership
Must apply with the credit union before buying a car from the dealership	Must apply with the bank before buying a car from the dealership	Can visit the dealership and leave with a car the same day
Membership criteria	No membership criteria	No membership criteria
Does not qualify for vehicle manufacturer discounts related to financing	Does not qualify for vehicle manufacturer discounts related to financing	Qualifies for vehicle manufacturer discounts related to financing

How to get an auto loan from a credit union

Once you’ve decided to apply for an auto loan with a credit union, it’s time to pick a credit union, prequalify and complete the loan process. Here’s everything you need to know about getting a credit union auto loan.

Determine your budget

Before you select a credit union or apply for a loan, you need to set your budget. Determine how much you can comfortably afford each month and decide whether you want to contribute a down payment. You can typically pay for the car with a combination of cash and loan. 

For example, imagine you choose to buy a car for $30,000. You decide to use a $25,000 loan from a credit union and $5,000 from your savings account. These decisions aren’t final, but having a plan ahead of time is helpful. 

Compare rates from multiple credit unions

Most credit unions publish current loan rates. Compare general rates and check for significant differences between your top credit unions. 

You can also call a local branch if you can’t find the rates online. Confirm that the credit union offers private seller loans if you plan to purchase a car from an individual instead of a dealership.

Choose a credit union

After researching rates and credit unions, it’s time to make a decision. Select the credit union you want to join and confirm that you qualify for membership. 

Become a member

Apply for membership at your chosen credit union. Make sure to complete the steps as instructed to activate your account. You must apply before prequalifying for the loan.

Prequalify for a car loan

Now that you’re a member, you can prequalify for a car loan. You typically need to provide proof of income and insurance. Prequalifying allows you to lock in a rate, usually for 30 days. Make sure you have a copy of your pre-qualification letter when visiting a dealership to shop for cars. 

Buy the car

Find the vehicle you want and negotiate the deal. Whether you are buying from a dealership or a private seller, finalize the details of the sale and price before signing the paperwork.  

Finalize the loan

Complete the loan agreement with the credit union and the purchase agreement with the seller.

Make payments

Your first payment is typically due about 30 days after purchasing the car. The credit union pays the dealership the loan amount, and you repay the credit union according to the loan terms.  

FAQ

Do I need to be a member of a credit union to apply for an auto loan?

Yes, membership is typically required to apply for an auto loan from a credit union. Credit unions are member-owned financial institutions, and their services, including loans, are only available to their members. 

The criteria for becoming a member can be quite broad and inclusive, often based on factors such as where you live, work, worship, or your affiliations with certain groups or organizations. 

Some credit unions may allow you to apply for membership and an auto loan simultaneously. Membership usually comes with a small, one-time fee or a deposit into a savings account.

Can I apply for a credit union auto loan if I have bad credit?

Yes, you can apply for a credit union auto loan even if you have bad credit. Credit unions are known for their member-focused approach and may offer more flexible lending criteria than traditional banks. 

Your credit score will still be a factor in the loan decision and can affect your interest rate, but credit unions often consider your entire financial situation, including your income, employment history, and the steps you’ve taken toward financial stability. Some credit unions even offer special programs or resources to help members improve their credit scores and financial health.

Can I refinance my auto loan with a credit union?

Yes, many credit unions offer auto loan refinancing options. Refinancing your auto loan with a credit union could lower your interest rate, reduce your monthly payments, or change the term of your loan. 

To qualify for refinancing, you’ll need to meet the credit union’s lending criteria, which will include an evaluation of your credit score, income, and the value of your vehicle compared to the loan amount (loan-to-value ratio). 

Just like with a new auto loan, you’ll need to become a member of the credit union to take advantage of their refinancing options. It’s wise to shop around and compare offers from multiple credit unions to find the best rates and terms for your situation.