Credit unions are financial institutions owned by its depositors. Though they offer a variety of products and services that you can typically see in a savings bank, there is one key distinction:
Credit unions are not-for-profit companies (profits are usually distributed among its members). Because of this, they have more flexibility when it comes to issuing loans such as mortgages and auto loans.
Advantages of Credit Unions
- Credit unions are tax-exempt organizations, so they care less about making money from their borrowers. Their primary focus is serving the needs of their members, so they typically offer lower interest rates.
- You can qualify to become a member of a credit union based on being part of a common field, profession, or specific area of interest. For example, there are credit unions for those who work at a particular company or brand. There are also credit unions for teachers, military, certain religious groups, and many others.
- They don’t have the same stringent requirements that a bank imposes on people with bad credit.
Disadvantages of Credit Unions
- There are fewer financial products available. They have limited options when it comes to different types of loans and mortgages you can apply for.
- They are not as “high-tech” as banks. Because of their not-for-profit status, they don’t spend as much money on advanced banking technology, leaving you with limited online or on-the-go banking functions.
Who Should Take A Loan From A Credit Union?
If you have existing bad credit or no credit, you stand a higher chance of getting approved for a loan with a credit union than a traditional bank. Applying for credit union loans in these situations would be optimal.
Meanwhile, if you have a good credit score, you can try your luck first with banks and use credit unions as your secondary option.
Tips For Borrowing From A Credit Union
The first thing you can do is to search for credit unions that cater to your locality. Geography-based credit unions are the easiest to become a member of, as you only need to live in a certain location to qualify for membership.
To join a credit union, you first need to open a savings account with them. Start with a higher opening deposit. It might seem counterintuitive, but you stand a better chance of qualifying for a loan with a credit union if you deposit a considerable amount in your savings account with them.
Check online for credit unions in your area, or ask around for referrals from people you know. Compare rates, membership qualifications, and financial products available before making a decision on what credit union to join.