You’ll have to be a member of a credit union to qualify for credit union loans, but they may come with low rates and fees. Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
If you’re looking for a personal loan, you should think about applying to a credit union, which is a member-owned, non-profit financial organization.
An alternative to banks—which are for-profit businesses—is provided by credit unions. A credit union requires you to be a member in order to use its services, unlike banks; however, credit union loans often have more flexible terms and lower interest rates. Learn how credit union loans operate and how to apply by continuing to read.
What are credit union loans?
Credit union loans function similarly to bank loans in that you take out a loan from a financial institution and have to pay it back over time with interest. To be eligible for a credit union loan, which might have a lower interest rate and fewer (or no) fees, you must become a member of the credit union. If you are rejected by a bank, you might still be able to get approved for a credit union loan.
Credit unions provide many of the same services as banks, but their guiding principle is “people helping people.” Because of their non-profit organization, all profits are distributed to members as reduced interest rates, reduced fees, and increased savings rates.
You may be thinking about getting a payday loan if you need quick money to pay for unforeseen bills. However, taking out these tiny, quick loans is an extremely costly way to borrow money. They can trap borrowers in a debt cycle because they usually have fees associated with them that add up to triple digit annual percentage rates, or APRs. Payday loans should therefore only be used as a last resort.
Payday alternative loans, sometimes known as PALs, are less expensive. You can find PALs through some federal credit unions. Payday loans and PALs have different purposes, but PALs typically have far lower fees and provide you with quick cash when you need it. You might be able to borrow more money with a PAL, have more time to repay it, and pay less interest than you would probably pay with a payday loan.
Before you can apply for a PAL, you must be a member of a credit union that offers them and usually be in good standing for at least a month, though occasionally you can apply right away.
Every credit union has the authority to establish its own guidelines for the PAL approval procedure. Because of this, obtaining a PAL may be more challenging than obtaining a payday loan, but PALs are superior products. In fact, some states have outlawed payday loans due to their predatory nature. Comparing different credit unions to obtain a PAL is worthwhile compared to obtaining a payday loan.
How do credit union loans work?
At a credit union, you can apply for loans that are secured or unsecured. Your property is used as collateral for secured loans, and if you default on the loan, the lender may take possession of the collateral.
Unsecured loans aren’t backed by collateral. Lenders typically charge higher interest rates for unsecured loans than they do for secured loans as a result.
Even with a fair or low credit score, you can still benefit from credit union loans. Regardless of where you apply, you should be able to get a decent loan rate if your credit score is excellent. However, because credit unions are small, neighborhood financial organizations that cater to their members, they frequently take into account variables other than credit score, like your membership status. It could be beneficial to open a savings account with the credit union if your score is low.
Federal and state credit unions are both accessible. Federal credit unions have the ability to charge an annual percentage rate (APR) of up to 20% more than 2018 for a loan, and many can charge less than that. Also, many credit unions allow cosigners on personal loans. If you are unable to repay the loan, a cosigner guarantees to do so. You may still be able to obtain a loan with a cosigner if you are not eligible for a personal loan on your own.
Credit union loans vs. online lenders
An additional option for comparing personal loan rates is to utilize an online lender. While digital banking is practical, it’s wise to shop around for the best interest rates. When a member has bad credit, credit unions typically provide better rates than an online lender would.
How do you join a credit union?
Requirements vary for joining a credit union. The best way to join one is to find a credit union near you. You can use this tool from the National Credit Union Administration (NCUA) to find one.
Next, find out the membership requirements by visiting the credit union’s website. Some only ask that you be a resident of the region that the credit union serves. Others are employee-sponsored or for military members. Usually, the entire family can sign up if just one member meets the requirements. Although membership fees vary, joining a credit union normally costs about $25.
How to get a credit union loan
To obtain a credit union loan after joining, take the following actions:
- Determine the maximum loan amount you need. Your financial situation, including your debt-to-income ratio, employment status, and credit history, will determine how much your credit union will let you borrow.
- Check your credit. Credit unions have rules in place to safeguard their members even though they can be more lenient when it comes to lending requirements. The better your credit score is when applying for any kind of loan, the more favorable it is. Through AnnualCreditReport, you can get free copies of your credit report from each of the three major credit bureaus. com.
- Apply for the loan. Personal information including your phone number, date of birth, Social Security number, and proof of address will be required. Additionally, pay stubs, tax returns, and bank statements may be requested of you.
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FAQ
Is it easy to borrow money from a credit union?
Credit unions have strict lending standards, but because of their structure, they might be more forgiving of borrowers with poor credit than other lenders. If your credit is poor, a credit union might be able to help you find a loan with better terms and rates.
What are the easiest loans to get?
Payday loans, auto title loans, and pawnshop loans are the easiest loan categories to be approved for without a credit check; however, because of their exorbitant interest rates and other fees, these loans are also very predatory.
Does a credit union loan help your credit?
While specific options may vary, most credit unions provide tailored loan programs intended to assist borrowers in establishing credit for the first time or repairing credit that has been damaged. Credit builder loans, as they are aptly named, are a product of some credit unions and work similarly to secured credit cards.
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