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A personal loan can make sense when you need lump-sum financing, such as for an appliance or renovation project, that you will repay in regular monthly installments for a set period of time. You can get a personal loan at a financial institution, including at a credit union if you are a member. Let’s look at how to get a credit union personal loan and the pros and cons of using personal loans.
Key Takeaways
- Credit unions, like banks, offer personal loans.
- Personal loans provide a lump-sum amount that you repay over a fixed time period.
- Shopping around for a personal loan is important because different credit unions will offer different loan terms.
- Personal loans can provide better interest rates than credit cards.
- Mortgages, home equity loans, and auto loans are types of loans that typically have better interest rates than personal loans.
How to Get a Credit Union Personal Loan
Getting a personal loan from a credit union is a fairly straightforward process. The main difference between getting a personal loan from a bank versus a credit union is that with a credit union, you must take the extra step of becoming a member.
Here are the steps you’ll need to take to get a credit union personal loan:
- Check your credit score: Before applying for new credit, you’ll want to know your credit score. This is because the type of loan, the amount, and the interest rate you qualify for are all based in part on your credit score.
- Understand your debt-to-income ratio: Your debt-to-income ratio is the percentage of your income each month that goes toward paying your debt. A lower debt-to-income ratio indicates you are more likely to make your loan payments each month.
- Choose a credit union: First, you’ll want to find a credit union that will accept you as a member. Unlike banks, credit unions may have criteria for joining. If you are joining a credit union specifically to get a personal loan, compare interest rates and terms at various credit unions. Once you’ve found a credit union to join, you can apply for membership.
- Apply and accept the loan: Once you’ve found the credit union and loan that fits your needs, you’ll want to apply. If approved, you’ll complete paperwork or online forms to receive the funds.
When Is It a Good Idea to Get a Credit Union Loan?
You can get a credit union personal loan for a number of reasons, but there are potential downsides to consider. In some cases, it may be an ideal financing option. In other cases, you may find other types of loans will offer significantly lower rates.
First, interest rates for personal loans tend to be higher than for some other types of loans because personal loans are usually unsecured. This means you do not have to pledge collateral to back up the loan, but for the lender the loan is a greater risk.
In some situations, you may be able to get another type of loan with a significantly lower interest rate that could save you money. Situations in which it may be better to use another type of loan instead of a credit union personal loan include the purchase of a car or a house. In those cases, an auto loan or a mortgage, which are forms of secured debt, could provide you with a better interest rate.
Avoid taking out a credit union personal loan if you cannot afford the repayments. If you fail to make your payments, your credit score will decline and you will be less likely to get approved for other loans.
A credit union personal loan can be used for any purpose. These loans are often used when you need a lump sum of funds. For example, you may need money to repair your washing machine or pay an unexpected bill. A personal loan can also be used for consolidating credit card debt if the interest rate on the personal loan is less than the interest on your credit cards.
What You Need to Know About Credit Union Loans
Credit Union Personal Loan Types
Although unsecured loans tend to be the most common, credit unions may offer more than one type of personal loan. These include:
- Unsecured personal loans
- Secured personal loans
- Home improvement loans
- Short-term emergency loans
- Credit-builder loans
Credit-builder personal loans can help improve your credit score or build credit. With these loans, you pay the loan first, then receive the funding.
Documentation Required for Personal Loans
As with any loan application, you’ll need to provide specific personal and financial information to apply for a credit union personal loan. Some information you will likely have to provide includes:
- Personal information: Social Security number, date of birth, phone number, and address
- Employment information: Employment status, employer name, income, and income sources
- Personal loan information: Loan purpose, desired term, and loan amount
Choosing a Credit Union Loan
Each credit union will offer its own terms and interest rates for personal loans. Some might allow you to borrow more money while others may provide a lower interest rate, which means you’ll want to compare several options to ensure you are getting the best loan for your situation.
Other factors you’ll want to consider include the credit union’s customer service offerings, whether it has any local branches, its reputation, and whether you are already a member.
What’s Negotiable
When you apply for a personal loan, your credit union may give you multiple loan options. If the one you’ve received doesn’t suit your needs, you may be able to negotiate a better fit by changing the loan term or the loan amount.
Alternatives to Credit Union Personal Loans
A credit union personal loan can offer versatility because you can use it for a wide variety of purposes. However, in some cases other types of loans may be more suited to your needs. They include:
- Credit cards: For short-term uses, a credit card may be able to help you pay for unexpected expenses. Credit cards generally have significantly higher interest rates than personal loans, but they can be ideal for paying for everyday expenses if you pay your balance off each month. For larger expenses, you may also be able to take advantage of 0% APR offers to keep interest charges to a minimum, although keep in mind that these introductory offers have end terms.
- Personal lines of credit: A personal line of credit acts much like a credit card, with a credit limit, a monthly bill, and an interest rate. However, instead of having a card, you write checks or request payments via telephone.
- Home equity loans: If you own a home and need to finance a lump sum, you may want to consider getting a home equity loan. This secured loan draws on the equity in your property to provide you with a lump sum of funds that you repay in monthly payments for a set term.
- Home equity lines of credit (HELOCs): A HELOC is similar to a home equity loan in that it uses your home equity as collateral to provide you with a loan with a lower-interest rate. However, HELOCs are revolving lines of credit that work similarly to a credit card.
- Mortgages: If you need to finance a home purchase, a personal loan will not be appropriate. Mortgages offer lower interest rates and larger loan amounts as they use your property as collateral.
- Auto loans: While you may be able to get a personal loan large enough to purchase a car, an auto loan will likely provide much lower interest rates. These loans use your vehicle as collateral so you can get a more affordable loan.
What Credit Score Do You Need to Get a Personal Loan at a Credit Union?
The credit score that you’ll need for a personal loan at a credit union depends on the credit union’s criteria. If your credit score is too low to qualify for a traditional personal loan, some credit unions offer secured personal loans. These types of loans use existing funds to back your loan. Payments that you make are reported to credit bureaus, helping to build your credit.
Is It Better to Get a Loan From a Bank or Credit Union?
Whether it is better to get a loan from a bank or credit union will depend on your priorities and goals. Credit unions tend to be smaller and more personal, offering customized service and lower interest rates, including on personal loans. Banks can be more convenient with a larger network of branches and ATMs, for example. They can also have a wider variety of financial products.
What Are the Disadvantages of Credit Unions?
Credit unions are generally smaller than banks, with a focus on local areas. They may have criteria for membership, such as requiring that you have a certain profession. Because of this, it may not be possible to join a particular credit union or have access to its benefits.
How Do Auto Loans Work From Credit Unions?
Much like banks, credit unions often offer auto loans to their members. These are secured loans that use your car as collateral for repayment. You’ll need to apply and be approved for an auto loan from a credit union just as you would from a bank.
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