Ask Stacy: Is a Credit Union the Best Place for Loans?

This reader is wondering if a credit union is a good place to look for a car loan. The answer? When it comes to both saving and borrowing, credit unions are typically much better than banks.


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 24 years ago. To see the advantages of credit unions over banks, check out the following video.

Now, let’s recap the reasons to join a credit union:

Lower rates on loans

According to the National Credit Union Administration, as of June 26, the average rate on a 36-month car loan was 2.66 percent at credit unions and 5.13 percent at banks. So banks are charging nearly twice as much for the same loan.

Our Solutions Center features a page for car loans from credit unions, both local and national, with recent rates as low as 1.24 percent. That’s pretty tough to beat!

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 NCUA.

Better credit card deals

According to the NCUA, the average credit card interest rate in June was 12.71 percent for bank-issued cards, compared with an average of 11.64 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.

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 14 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 here.

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 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: “Loathe It? Leave It! 5 Simple Steps for Switching Banks.

Got a question you’d like answered?

A great way to get answers to just about any money-related question is to head to our Forums. It’s the place where you can speak your mind, explore topics in-depth and, most important, post questions and get answers. It’s also where I often look for questions to answer in this weekly column. You can also ask questions by replying to our daily emails. If you’re not getting them, fix that right now by subscribing here.

About me

I founded Money Talks News in 1991. I’ve earned a CPA (currently inactive), and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.

Stacy Johnson

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