If you’re looking for a loan before buying a car, don’t forget to consider credit union auto loans. Even if you’re not a currently a member of a credit union, they’re worth checking out. Depending on your credit and employment history, you could get a lower interest rate than from other lenders while enjoying a more personalized application process.
Just as with banks and online lenders, at most credit unions you can get preapproved for an auto loan. This simplifies the car-buying process and puts you in a stronger negotiating position at the dealership.
Advantages of credit unions
Car buyers increasingly are turning to credit unions for auto loans, in part because of the lower interest rates on offer. Credit unions’ share of the auto loan market rose to 19.6% in the third quarter of 2016 from 17.6% in the previous third quarter, according to Experian’s Automotive Finance Market report.
Credit unions offer:
- Competitive interest rates for a wide range of auto loans
- A personalized loan application process
- Preapproved financing to streamline car shopping
- Perks and promotions for members
There are also fundamental differences between credit unions and banks that could make a big difference for you. Credit unions are nonprofit financial institutions and tend to offer more personalized service, while banks are for-profit and may have more innovative products and technology.
Rate shop before you car shop
If you’re already a member of a credit union, find out what interest rate it will offer you. The rate may seem good, but you should also compare it with those at other banks and online lenders. Only by shopping the marketplace can you find your lowest interest rate and best terms. Shopping for rates might sound like a hassle, but many online auto loan providers now contact multiple lending sources — including credit unions in some cases — after you fill out a single application.
Even if you’re offered a lower rate elsewhere, other factors could steer you back to your credit union. Trust, simplicity and the personal touch that credit unions provide are important to many people.
Wide range of loans
Typically, credit unions offer the same loans available through conventional banks or online lenders, such as:
- New car purchases from dealerships
- Used car purchases from dealerships or private parties
- Refinancing for your existing car loan
- Lease buyouts
Membership requirements relaxed
While many credit unions specialize in serving members of a certain community or workforce, such as teachers, membership requirements are usually broad, so don’t assume you can’t join a credit union. If the rates are good, it could be worth joining just for a car loan. Plus, credit unions provide other services that you might later use such as savings accounts, credit cards and personal loans.
At the dealership
Once you make a deal for the car you want, the finance manager will request payment. When he finds out you’re financing through a credit union, he may try to beat your rate with a loan through the dealership. It doesn’t hurt to see what he can offer, because below-market rates and even 0% financing may be available.
If you do take financing through the dealership, make sure all the other terms of the loan remain the same. And don’t be talked into long loan terms just to get a lower payment; you pay a lot more in interest in the long run.
But if you already have a good rate and don’t want to complicate things, you might be more comfortable proceeding with the credit union loan. If you’re shopping around for a good auto loan, check out NerdWallet’s favorite credit unions.
Philip Reed is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org.
Updated June 1, 2017.