How Credit Union Auto Loans Work

Auto loans from credit unions can be less expensive

If you’re looking to finance a car purchase, you can get an auto loan from a variety of places: a car dealership, a bank, or a specialized auto loan financing company. One increasingly popular option is a credit union.

Using a credit union for your car loan can save you money over using a loan from other lenders because credit unions often charge lower interest rates. However, there can be some disadvantages as well. Credit unions often have membership criteria, and you might not qualify for a loan from every credit union.

Learn more about how credit union auto loans work.

Key Takeaways

  • Using a loan from a credit union can be more affordable than a loan from a bank or dealership.
  • Credit unions can offer lower interest rates because their business model prioritizes members.
  • Credit unions may be less convenient than using a bank because of their membership criteria.

How Do Auto Loans from Credit Unions Work?

In many ways, an auto loan from a credit union works in the same way as a loan from a bank or dealership. You apply for a loan online or at a branch location. If you are approved, the credit union will provide funds for the car you’ve financed. You will then make regular monthly payments—with interest—until you’ve paid the loan back, at which point the vehicle is yours.

There are some differences between auto loans offered by credit unions and those offered by banks and dealerships. Many of these differences are due to their different business models. Banks and dealerships offer car loans to make a profit, whereas credit unions are not-for-profit organizations. Credit unions prioritize providing service for their members, which own the credit union like a cooperative, over profits.

Advantages of Auto Loans from Credit Unions

Credit unions’ business model often allows them to offer lower interest rates than their commercial competitors. They don’t prioritize making a profit, so they can typically charge less for a car loan.

Many people also value the more personalized attention that some credit unions offer. In general, credit unions are much smaller than national banks, so they can often offer more customized customer service.

How Do You Calculate Interest on a Car Loan?

Your monthly auto loan payment will depend on the car price, down payment, length of the loan, and interest rate. You can use Investopedia’s auto loan calculator to get an idea of your possible monthly payments.

Disadvantages of Auto Loans from Credit Unions

The main downside of getting an auto loan from a credit union rather than a bank is that you may not qualify to be a credit union member. Most credit unions will require you to become a member before you can get a car loan, and they each have different criteria for membership. For example, you may have to live in a certain area or have a certain profession like a teacher or government worker.

Some credit unions even require you to have held an account with them for a set period of time before applying for loans.

The membership approval process can make applying for a credit union loan less convenient than taking out an auto loan from many banks. Banks typically allow you to apply online and give you a decision instantly.

How to Get an Auto Loan from a Credit Union

There are four main steps in the process of getting an auto loan from a credit union:

  1. Apply for your loan: Search for credit unions online and find one that will accept you as a member. Many credit unions also now offer an online application. Once you apply, the credit union will make a decision about whether to accept you as a member.
  2. Provide proof of insurance: If a credit union thinks you’re the right fit for a car loan, they’ll ask you to provide financial information related to the loan. This will generally include providing proof of insurance for the car you want to purchase. You should be prepared to provide your insurance agency’s name, phone number, and address, as well as your policy number.
  3. Provide proof of income: Just like a bank, a credit union will ask you to prove that you can pay back the loan by providing proof of income. They may ask for copies of your pay stubs if you’re an employee, tax returns if you’re self-employed, and other information, such as recurring monthly expenses like rent or mortgage payments.
  4. Finalize the loan: If you’re approved, the credit union will tell you how much you can borrow, what the interest rate will be, the terms of the loan, and any other pertinent information. If you decide to go ahead with the loan, you can sign the loan agreement.

How long does it take to get approved for a car loan from a credit union?

Getting approved for a car loan from a credit union can take anywhere from a few minutes to a few weeks, depending on the credit union. It’s generally slower than applying for an auto loan at a bank, but you may be offered a better interest rate.

Can I get pre-approved for an auto loan with a credit union?

Many credit unions will pre-approve you for a loan just like a bank will, and you can use this pre-approval to negotiate a better price with a car dealer. Pre-approvals are a soft pull on your credit history, so they do not affect your credit score.

Can I get a credit union auto loan with bad credit?

Whether you can get a credit union auto loan with bad credit will depend on a number of factors, including the lending criteria of the credit union. If your credit score is very low, a credit union might ask you to include a co-signer or require a larger down payment. Like banks, they will likely charge higher interest rates if you have a poor credit history.

Will a credit union refinance an auto loan?

You can refinance your auto loan with a credit union. If you can get approved for a new auto loan with a credit union, you can use those funds to pay off your old loan.

Does an auto loan increase your credit score?

An auto loan’s effect on your credit score will depend on whether you are responsible with paying the loan. If you make on-time loan repayments, this can improve your credit score as you build a history of timely payments. But if you miss payments, this can harm your credit score. Having debt can lower your credit score, but as you pay it down, your credit score improves.

The Bottom Line

Credit union auto loans are an increasingly popular choice. They often offer lower interest rates than comparable loans from banks, though they can also be less convenient to apply for. Since you’ll be probably be paying back your auto loan for a few years, it’s worth shopping around for the best deal—which might very well be with a credit union.

Article Sources
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  1. Experian. “State of the Automotive Finance Market Q3 2022,” Page 7.

  2., National Credit Union Administration. “What Is a Credit Union?

  3. National Credit Union Administration. “Credit Union and Bank Rates 2023 Q1.”

  4., National Credit Union Administration. “Find, Join or Start a Credit Union,” select “Join a Credit Union.”

  5. Federal Trade Commission, Consumer Advice. “Prescreened Credit and Insurance Offers.”

  6. Consumer Financial Protection Bureau. “What Should I Know Before I Shop for a Car or Auto Loan?

  7. Navy Federal Credit Union. “Auto Loan Refinancing.”

  8. myFICO. “What’s in My FICO® Scores?

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