Why You Should Get an Auto Loan from a Credit Union
From that distinctive new car smell to the pride you feel as you drive off the lot, purchasing a new car is an exhilarating experience. But it’s also an expensive one.
If you don’t have the cash on hand to buy a new vehicle outright, an auto loan can make your car purchase possible. So, where’s the best place to apply for an auto loan?
While you can get financing from traditional banks, online lenders, and even some car dealerships, credit union auto loans come with many notable perks. Lower interest rates and more lenient credit score requirements are just two examples.
Keep reading to find out if an auto loan from a credit union could be right for you.
Understanding Credit Union Auto Loans
Auto loans are loans that can be used to finance the purchase of a car. According to Experian, in 2023 nearly 80% of new cars and 38% of used cars were purchased with the help of an auto loan. If you’re new to the auto loan world, it’s important to understand their basic features. These loans typically come with:
- Set loan amounts – A car loan can cover the difference between your down payment and your chosen vehicle’s sticker price. In 2022, the average auto loan was $22,612.
- Fixed loan terms – Your loan term is the amount of time you have to repay your auto loan, plus its interest. Auto loans usually have fixed loan terms between 24 to 60 months, though some lenders offer longer terms.
- Fixed interest rates – Most auto loans come with fixed interest rates, which can range from 2% to over 20%, depending on your credit score, loan size, car condition, and lender. A high interest rate can drive up the total cost of your loan considerably.
- Monthly payments – Auto loans are typically repaid in monthly installments. It’s important to ensure you can afford these payments in your monthly budget.
Benefits of Credit Union Auto Loans
Auto loans’ features can vary quite notably from one lender to the next. On average, credit unions boast the best auto loan interest rates. Most credit unions offer interest rates that are 1% to 2% lower than the ones you’ll find at traditional banks. These low rates can translate into hundreds of dollars of savings over the lifetime of your auto loan.
You may be wondering why credit unions can afford to offer such low rates. As not-for-profit institutions, credit unions get to reinvest all of their earnings into benefits for their members. In addition to lower interest rates, credit unions also stand out for their:
- Low fees
- High savings rates
- Lenient credit score requirements
- Customizable loan terms
- Flexible repayment options
- Dedicated customer service
Qualifying for an Auto Loan from a Credit Union
Before you apply for a credit union auto loan, it’s important to understand the loan eligibility requirements. First and foremost, you’ll need to become a member of a credit union if you’re not already.
In addition to that, you generally need to have:
- A steady income and stable employment history
- Proof of car insurance
- A qualifying credit score (credit unions’ score requirements can vary, though a higher credit score can typically help you qualify for the lowest rates)
You may also have to meet certain down payment or debt-to-income ratio requirements. Even so, qualifying with a credit union is often easier than with other types of lenders.
Preparing for a Credit Union Auto Loan
If you meet the basic criteria for an auto loan, you can start researching credit unions in your area. Once you find a credit union you want to join, the next step is to take stock of your finances and set a budget for your upcoming car purchase. Your credit union can help you calculate a car price you can realistically afford.
When you’re ready to start car shopping, make sure you visit several car dealerships, whether in person or online. Just like lenders, car dealerships’ prices can vary. By getting a lay of the land first, you’ll feel more empowered when negotiating prices with car dealers.
Applying for a Credit Union Auto Loan
Buying a car is easier if you’re already pre-approved for an auto loan. Thus, you may want to apply for financing with your credit union before you reach the final stages of your car shopping process.
These days, many credit unions offer online auto loan applications. If you prefer to apply in person, you can always visit your credit union’s local branch. Here are the steps you’ll need to take when you apply:
- Gather the following documents:
- Proof of identity (driver’s license, passport, or other government-issued I.D.)
- Proof of income (bank statements, W2s, 1099s, pay stubs, or tax returns)
- Proof of residence (utility bills, mortgage statement, lease agreement, etc.)
- Proof of adequate car insurance
- List of recurring monthly expenses
- Details about your desired vehicle
- Fill out the loan application
- Undergo a credit check
- Review your credit union’s offer (if you get approved)
- Sign the contract to finalize your loan
In most cases, these steps can be completed very quickly. Some credit unions may even approve you the same day you submit your application. Once you’re approved, you can obtain your funding shortly after and drive your dream car off the lot in no time.
The Car-Buying Process with a Credit Union Auto Loan
With an auto loan approval in hand, you’ll feel more confident during your car shopping excursions. You can use your pre-approved status to help clarify your car-shopping budget and show car dealers you’re serious.
As you compare different vehicles, make sure you request their inspection details, vehicle history reports, and the chance to take them out for test drives. This way, you can learn more about the condition of the cars you’re considering and use any issues you uncover as leverage during pricing negotiations.
After selecting the car that has all of your desired features, you can purchase it with the help of your auto loan. The car’s title will be transferred into your name during this transaction.
When it comes to auto financing, credit unions outshine other types of lenders for their low interest rates, flexible terms, and outstanding customer service.
If you want to experience the perks of credit union membership first-hand, find one near you to secure your auto loan!
