There are many lenders in the auto loan industry. And, with rising car prices and low gas prices, many of us are considering buying a new car. But one type of lender in particular is standing out from the pack; credit unions, which are increasingly becoming the main lender for auto loans.
The math is undeniable: Credit unions have seen nearly 4 million applications for new cars, surpassing the previous two years, which have also been records, in just about every respect. Most notable is that this is nearly a quarter of all new car sold, according to industry data. Credit unions are signing on more dealerships as partners and originating more loans. In other words, odds are pretty good that if you’ve applied for an auto loan in the last few years, at the very least you’ve looked at your local credit union as a lender.
Credit unions are distinct from banks in that they’re generally not-for-profit institutions, and they’re owned by the members of the union. Instead of being accountable to a board of directors, your local credit union is accountable to its members, which can make it appealing for those who feel that creditworthiness is tied more closely to numbers on a report than their character and hard work.
There’s plenty of good reasons for that. Credit unions are generally non-profits; unlike other lenders, they don’t have to charge their clients high interest rates, even if they have less than spectacular credit. Many credit unions have a mandate to loan to members of the community, thus making auto loans a natural fit.
And, just as importantly, it’s good for the credit union. What’s rarely discussed, even as credit unions take off, is that in order to apply for a car loan, you generally have to be a member of the union. The more members a union has in a community, generally the stronger the credit union is seen.
So should you apply to the credit union for your loan before you set foot on the lot? Well … it won’t hurt, but you should necessarily count on it, either.
The most fundamental issue is that, due to their nature, credit unions are among the trickiest institutions to receive actual credit from. Their auto loans are an excellent example; out of the four million applications they received, only roughly a quarter actually received a loan. Credit unions, by their nature, are strict; after all, it’s the money of the owners they’re gambling with, every time they back a loan.
This doesn’t mean that your local credit union isn’t worth speaking to for securing a loan. It does mean, however, that they’re not the only lender you should speak to. Make a point of shopping around and looking at as many lenders as possible; while your local credit union may be able to offer you a competitive loan, you might be surprised by what turns up elsewhere. Your local credit union is always worth a visit, but if you’re looking to fund a car loan, make sure it’s not your only stop.