Banks Loans Versus Credit Union Loans: Who Has the Advantage?
English: Logo for Credit Union 1 – Alaska (Photo credit: Wikipedia)
Consumers who are interested in loans clearly want the best rates, services, and overall experience possible from their lender. They have a decision to make: should they seek a loan with a bank or opt for CU lending with a local credit union? The answer to that question is complicated, and will in large part depend on the individual seeking the loan, as well as on the particulars of given banks and credit unions. However, some key information can at the very least broadly introduce the differences between these two types of loans to give a sense of what each entails for a potential borrower.
What Are the Main Differences Between a Bank and a Credit Union?
The differences between credit unions and banks include:
- Ownership: Members of a credit union own and decide how to operate that credit union, while outside owners run banks.
- Profit: Banks are for-profit businesses, while credit unions are non-profit organizations.
- Rates and services: Because of the two differences listed above, banks are generally able to offer more services, while credit unions can often offer better rates on fees and loans.
Traditional Bank Loans
A traditional bank, in addition to being a generally more familiar option to many consumers, is also a fairly advantageous option for those seeking particular types of loans. In fact, the National Credit Union Association recently published an analysis by Datatrac, a research firm, which demonstrates the benefits of traditional bank rates over credit union rates in certain circumstances. For example, in the case of 30 year fixed mortgages, banks actually offer slightly lower interest rates on average than credit unions. According to the study, Traditional bank rates on 30 year fixed mortgages were 4.64% versus 4.78% for credit unions.
Credit Union Lending
CU lending, on the other hand, is a preferable option for some other types of loans. In the same study, Datatrac observed that the greatest disparity between interest rates for credit union and bank loans occurs in the case of car loans. Credit unions, on average, offer two-year car loans on used cars at 3.88% interest, whereas banks charge 5.61% interest. For new cars, credit unions are able to offer two-year car loans with an average interest rate of 3.80%, while comparable traditional bank loans only drop to 5.12% interest.
Credit unions offer better car loans because they utilize lending solutions that streamline the loan process at car dealerships. When members buy cars though the networks and software provided by their credit union, the process is faster and often cheaper for the buyer, allowing even members withlower income or poor credit the chance to own a car. Credit direct loans from credit unions are usually more attractive to those seeking car loans than traditional loans from banks.
In addition, credit unions that are federally insured and regulated by the National Credit Union Administration were able to continue offering loans in the face of the recent economic downturn. Banks had to turn away many consumers seeking loans during this period, and credit unions stepped up to fill in this gap.
Which Is Preferable?
All in all, whether a given bank or credit union has the advantage when it comes to lending is difficult to definitively say. Depending on the services and rates a particular client or member needs, either a bank or a credit union could be advantageous.
