Many people believe that credit unions are just like banks, but credit unions are actually non-profit organizations that are owned by their members. For that reason, they operate slightly differently since their main focus is on providing financial services and benefits to their owners/members rather than just making money. In fact, credit unions often offer lower rates on credit cards, personal loans, as well as other financial products, and those savings have made a lot of people eager to join.
If you’re in the market for a personal loan, try getting a quote from your local credit union – you just might find they offer the best rates. But before you sign on the dotted line, it’s important you understand the benefits and drawbacks of getting a credit union personal loan.
Benefits of Credit Union Personal Loans
Easier Approval in Some Cases
One of the key benefits of borrowing from a credit union is that you’re more likely to be approved for a personal loan. Credit unions want to help their members, and that means they’ll do everything they can in order to lend you the money you need even if you don’t have ideal credit.
For example, credit unions are one of the few financial institutions that offer credit builder loans. These personal loans, like the Credit Builder Loan offered by Metro Credit Union, allow you to rebuild your credit over a period of six months to a year with small personal loans that they keep as security until you fully pay it off. Metro Credit Union’s credit builder loan allows you to borrow $500 to $3,000 for terms up to 24 months at rates currently as low as 4.10%. This helps people who are unable to qualify for a loan build their credit, allowing them to apply for a larger loan in the future.
Lower Interest Rates
Depending on your personal credit and financial situation, a credit union might be able to give you the lowest interest rates. That’s because they’re not trying to maximize their revenue, but attempting to provide a service to their members. Credit union interest rates can be lower than their competitors. For example, Unify Financial Credit Union currently offers rates starting as low as 2.99% on their personal loans.
Better Customer Service
Obtaining a personal loan from a credit union means you’ll get better customer support. Because credit unions are often in your community, you will likely be able to go into a branch and deal with someone in person as well as being able to call or go online.
Many credit unions have lower fees than online or traditional lenders for most products including personal loans. They are less likely to have things like origination fees or pre-payment fees on their loans which can help cut back on the expenses of borrowing.
Drawbacks of a Credit Union Personal Loan
Because credit unions are membership organizations, you have to qualify to become a member and join in order to borrow from them. Sometimes you have to live in a particular area, be part of a specific profession, or have served in the Armed Forces in order to qualify. For that reason, it might be difficult for you to find a credit union that you can join, adding to the difficulty of getting a personal loan from one considerably.
Fewer Unsecured Loans
Credit unions want to help their members, but they still need to protect their interests. If you have poor credit, they might require you to provide security on the loan. They might put a freeze on the funds in your savings account as collateral or require your car or home be used as collateral. For example, the Professional Police Officer Credit Union sometimes requires that borrowers cross-collateralize personal loans to secure them. That means using the collateral you’ve used on your mortgage or car loan from the credit union to secure your personal loan.
Lower Borrowing Amounts
While credit unions are more willing to take a chance on you, they might not be able to let you borrow as much money as you might with another lender. While there is a trade-off between borrowing less money at a more attractive interest rate or borrowing more money at a much more expensive interest rate, it will depend on how much money you need as to which option is best for you.
If you have poor credit or want lower interest rates, then a credit union might be a great option when it comes to borrowing a personal loan. Just be sure to read all the fine print in your loan contract for a better understanding in case your personal loan is cross-collateralized.
Author: Andrew Rombach
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