Why a Credit Union Car Loan Can Be a Great Deal

A credit union might not immediately come to mind when you’re shopping for an auto loan provider, but many American car buyers know there are good reasons to consider one. During the fourth quarter of 2014, credit unions made nearly 18% of all auto loans in the U.S., according to a unit of credit reporting bureau Experian. Among used-car buyers, credit union financing was even more popular. Those thrifty consumers used credit unions for nearly 24% of their used-car loans, up 5% from the fourth quarter of the previous year.

As financial cooperatives, credit unions offer a variety of benefits and incentives to their car-purchasing members. Many offer lower interest rates on auto loans than other types of lenders do. As of June, credit unions charged an average rate of 2.7% for a five-year new-car loan, close to half the average rate of 4.77% charged by banks, according to regulator National Credit Union Administration.

Used-car buyers saved even more in June by skipping banks. Credit unions charged an average of 2.66% for a three-year used-car loan, compared with the average 5.13% charged by banks, NCUA data shows. Of course, the terms you receive will depend on many factors, including current market rates and your credit score.

It’s not just lower interest rates that make credit unions worth considering. The lenders might take more time to review your individual financial situation during the approval process. This means that, if you have less-than-stellar credit, a credit union might be more willing to lend to you than a larger institution would be — and could offer more flexible repayment terms. Some, such as Money One Federal Credit Union, occasionally offer special promotions during which members may snag even better deals on auto loans.

For first-time car buyers, credit unions have educational resources to explain the often-confusing process of assessing a car’s value and comparing financing options. Members might also receive faster loan preapprovals, grace periods before payments begin or better pricing on extras, such as guaranteed asset protection (GAP) insurance, which covers the difference between an insurance payout and the balance you owe on your car loan, in case the vehicle is totaled or stolen.

Credit unions’ potentially lower loan rates, personalized service and low-pressure approach can take some of the stress out of purchasing a new or used car.

Jeanne Lee, NerdWallet