Ask Stacy: Should I Look to Credit Unions for Loans?

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This week’s question nudges me in a direction I’ve gone many times, albeit not recently:

Are credit unions a good place for a loan? I have very good credit and am planning on buying a vehicle and was told that credit unions offer a cheaper interest rate. How dependable are they? — Gwen Marie

I’ve been urging viewers to join credit unions since I started doing TV news 22 years ago. For five reasons why, check out a news story I shot a few years ago, then meet me on the other side for more. 

Now, here’s a recap of those reasons to join a credit union, along with a few more:

Lower rates on loans

According to the National Credit Union Administration, as of June 28 the average rate on a 36-month car loan was 2.85 percent at credit unions and 5.59 percent at banks. So banks are charging nearly twice as much for the same loan.

Higher rates on savings

The rate differences on savings aren’t as great. But interest rates on 10 different types of accounts, from checking to five-year certificates of deposit, are higher on average at credit unions than banks, according to the same website. 

Better credit card deals

According to the NCUA, the average credit card interest rate in June was 12.85 percent for bank-issued cards, compared with an average of 11.56 percent for cards issued by credit unions.

In addition, credit union credit cards tend to have lower fees and fewer of them.

Easier to borrow

While no lending institution is going to be careless with loans, community-based credit unions tend to be easier to deal with than megabanks. Lending decisions are more likely to be made locally with more flexibility.

In addition, while few national banks would make what’s called a “signature loan” — an unsecured loan guaranteed only by your signature — credit unions routinely offer this service to their members with good credit.

I recently applied online for a car loan from a local credit union without even becoming a member. The application wasn’t nearly as onerous as I had expected, I was approved in a matter of hours and, depending on whether I bought a used or new car, the rate offered was as low as 1.99 percent. (Should I actually take out the loan, however, I’d have to join the credit union, which simply means making a small deposit.)

Convenience

You’d think that a small credit union without a million branches would be less convenient than a giant national bank. Not necessarily.

Credit unions have gone a long way toward making their online, phone and in-person services as easy as possible. Many credit unions belong to a shared branch cooperative that allows members of one credit union to conduct business at any other member credit union anywhere in the country — even overseas. And when it comes to finding the nearest participating credit union? Yes, there’s an app for that.

Lower fees

When it comes to banking fees, you’ll probably find better deals at credit unions than at the giant commercial banks. Whether you’re comparing fees to maintain a checking account, foreign ATM fees, or penalty fees for overdrawing your account, they’ll probably be lower.

Human beings answer the phone

I’ve gone to the same national bank branch for more than 10 years, and the people there are wonderful. I’d never suggest that any business automatically beats another when it comes to friendly employees. That being said, however, on those rare occasions when I needed to call my bank’s national customer service number to get a problem resolved — not fun.

Credit unions are typically smaller. Should you have a problem, odds are greater you’ll be talking to a live person sooner.

Are they safe?

In the question above, Gwen Marie asks, “How dependable are they?”

Credit unions offer the same deposit guarantee offered by banks — up to $250,000. They’re not FDIC-insured. Instead, they have their own insurance fund. You can read more about the details of credit union deposit insurance in this article from TheStreet.com.

As far as “dependable,” while every business is different, credit unions are generally going to be as solid as banks. But it certainly never hurts to ask questions, like how long they’ve been in business and how many members they serve.

How do you join?

In days past, to join a credit union, you had to work at a specific company, or be a member of a specific organization or profession. Today? Not so much.

Laws still require credit unions to have a defined group of members, but that defined group can be pretty broad. For example, of the approximately 8,000 credit unions nationwide, about 25 percent are community-based. In other words, to qualify as a member, you only need to live in the same city or county as the credit union. In fact, you might not even need to actually live in the area. Working there or going to school there might be enough. Even being related to another member could qualify you.

In short, barriers to membership at some credit unions are about as high as the ones you’ll find at your neighborhood warehouse store.

You can search credit unions at a number of sites, including Find A Credit Union, CU Lookup and the Credit Union National Association site.

And if you’re worried about the hassle of changing from your bank to a credit union, check out this story: “Hate Your Bank? 3 Steps to Ditch ‘Em.

Got a money-related question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here.

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

Got any words of wisdom you can offer for this week’s question? Share your knowledge and experiences on our Facebook page.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • James

    Don’t forget to check into auto company financing. My credit union offered 3% to those with the best credit. I got zero % for 60 months on a new 2013 Camry Hybrid from Toyota

  • Kent

    Credit Unions are cheaper because they do not pay taxes and many credit unions are larger than many banks. This is just one more abuse of our generous non-profit taxes. Credit Unions, the NFL, the Green Bay Packers should all be paying taxes. There is no way any of them are truly non-profit. Credit Unions merely call their undivided profits ‘reserves’. It’s all an illegitimate tax scam.

    • Nancy

      Whatever the reason, I am certainly happy to have an alternative to the too-big-to-fail banks, especially one that is willing to serve the smaller savers that big banks don’t want to trouble with. Without some competition, the big banks would be even more rapacious than they are now.

    • Kelsey

      Credit unions aren’t non-profit. They are not-for-profit. They are owned by their members. And yes, they are “cheaper” than banks because they do not pay federal taxes. However, here are some taxation facts to consider (from http://www.donttaxmycreditunion.org/the-credit-union-tax-exemption-issue/):

      Taxation Facts

      – Credit unions don’t pay income taxes. Credit unions do pay other taxes, including payroll, sales and property taxes.
      – Credit union members pay taxes on their interest earnings.
      – Credit unions have a cap on business lending of 12.25% of their assets, as a result of the Credit Union Membership Access Act. There are currently proposals in both the House (H.R. 688) and the Senate (S.968) to raise the business-lending limit to 27.5% of assets.
      – Some banks are classified under S-Corporation status, which removes them from corporate taxation. That responsibility is passed on to the shareholders, who are taxed at the individual level, far below the corporate. S-Corporation bank customers—like credit union members—pay taxes on their interest earnings

      From the same article, it talks about sizes of credit unions compared to banks: “More importantly, banks (including the biggest banks) have a much larger market share than all credit unions combined. CUNA’s “Commercial Banks & Credit Unions: Facts, Fallacies & Recent Trends” report puts total bank assets at $14.45 trillion and credit union assets at $1.03 trillion, as of 2012. While 67% of banks had $100 million in assets, only 20% of credit unions were comparable. Credit unions cannot accumulate capital as quickly as banks, which limits their growth potential.”

      Credit unions exist as an alternative to banks and for-profit institutions. No financial institution is perfect, but I’d prefer to put my money in a place where the institution chooses to give back to their communities because it’s in their operating principles, not because they have to because they’re required by government law.

  • Jim Silkensen

    Community banks and savings banks offer many of the same advantages as credit unions, but unlike free-loading credit unions that under federal statute pay no federal or state income taxes, banks, like other corporations and individual taxpayers, are subject to both federal and state income taxes and thus help to cover the costs of the services provided by the federal and state governments.

  • Mike Collins – Wealthy Turtle

    My company has a credit union that is available to employees and I was sure glad to be a member when we were house-hunting last summer. They were incredibly easy to deal with and offered a better rate and lower closing costs than the banks I had checked out. Plus they waived the escrow requirement which was important to me. I’d rather pay my taxes and home insurance myself than through my mortgage.