Buyers of cars who want to finance their purchase have the option of visiting a local credit union instead of financing through the dealer or a traditional bank. Credit unions offer several advantages, such as the ability to adjust their offerings to the needs of the local community. However, there are also some potential drawbacks, such as a lack of promotions or financing specials that dealers often run to attract customers.
What is a credit union?
A credit union is a financial cooperative that is owned by its members. Depositors have a share in the ownership of a credit union and can vote on decisions that affect the company, such as choosing a board of directors. From the 1800s, credit unions evolved as a way for communities and organizations to come together and offer financial services to their members. Instead of being distributed to shareholders like a traditional bank, profits are used to fund initiatives that benefit the community. Consequently, credit unions are classified as non-profit organizations and do not have to pay corporate taxes.
Some credit associations limit membership to a specific niche, such as employees in a specific industry or members of a social or fraternal organization. Others are more open with membership requirements and welcome everyone from the local community. As non-profit organizations that do not respond to shareholders, credit unions can sometimes offer cheaper loans to members. Moreover, because decisions are taken locally, bureaucratic hassle is lessening to credit associations and they are better able to negotiate financial transactions with customers on an individual basis.
Credit Union Car Loan Benefits
The car loan rates of a credit union are often lower than the rates at a traditional bank. Credit unions, which are typically housed in inconspicuous buildings in small towns and staffed by employees who do not incur excessive banker wages, generally have less overhead than traditional banks, and are less concerned about making a profit. The primary purpose of a credit union is to serve its community, and one of the best ways to do this is by offering loan products that help community members make large purchases at an affordable price.
Credit unions have more leeway in making credit decisions on a case-by-case basis. Often traditional banks are tied to credit standards that come from offices in places such as New York or Chicago. A borrower who does not meet the bank’s FICO or income requirements receives a flat denial and has no possibility of challenging his or her case. A credit union customer, on the other hand, can sit down with the decision maker – in many cases a fellow member of his local community or community group – and explain the nuances of his or her credit report or work situation, often resulting in an approval that would have been a denial if this information was not discussed.
Disadvantages credit car loans
Financing through a local credit union requires an extra step in the car buying process. In addition to visiting the dealer and negotiating the terms of the car deal, the buyer must visit the credit union to obtain financing. For time-bound buyers who want to make this process as simplified as possible, this extra step can be a problem, especially if the interest savings are minimal.
Dealerships that offer financing do so through captive third-party lenders to which they borrow. Sometimes dealers work with their lenders to offer financing specials to buyers with good credit. The conditions of these loans can be as low as 0% for top borrowers. In addition, some car salesmen work financing in price negotiations. Buyers who finance internally, as a result of which the dealer earns more money from commissions, receive an extra discount on the purchase price of the vehicle. Financing from an external source, such as a credit union, can mean that you miss out on these specials.