Finding credit union car loans for bad credit standings can be difficult, but not impossible. Many people who have poor credit scores face the possibility of not qualifying for traditional loans at reasonable rates. Before you seek an "alternate" source for securing a car loan, check with your credit union.
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What Is a Credit Union?
A credit union is a cooperative where financial services are provided to people through membership. The primary goal is to provide loans at better than the reasonable rates found at commercial institutions. And, depending upon circumstances such as membership level, length and other considerations, many credit unions have developed programs for members with less than perfect credit histories.
Credit unions can be small or they can be very big, but they are mainly run by the individual members for the benefit of all the members. This means that each person who contributes to the union will have a vote and the union acts like a community bank. The union will have policy meetings, accounts and dividend arrangements too, just like a regular bank. After saving a set amount for a period of time, each member becomes eligible for loans up to 1.5 percent of the union's funds along with the value of their own savings.
Credit Unions Save Members Money
Because there are more than 90 million credit union members in the country, it is estimated that these institutions save their members an average of $8 billion per year. Plus, with the declining borrowing opportunities available through traditional lending institutions, credit unions have begun to explore more services to people with bad credit.
Advantages for Bad Credit Borrowers
Bad credit borrowers have to pay higher interest rates with ordinary banks to cover the chances of default. Banks will charge a higher interest rate and sometimes, they will refuse a loan completely for borrowers who have a credit score of 550 and less. However, credit unions like Alliant Credit Union will charge lower fees and loan rates, even if the customer has a bad credit history. The main reason for this is that they work on a nonprofit principle and they can afford to have the best auto loan rates. These loans are also not taxed by the local or federal government, resulting in substantial savings. These savings can easily be transferred to bad credit borrowers.
From membership activity, such as deposits for savings accounts, certificates of deposit, IRAs (individual retirement accounts) and other products, credit unions make funds available to members at attractive low rates. Additionally, because of their non-profit status, credit unions are exempt from a lot of local, state and federal taxes. This allows credit unions to adopt more liberal policies when it comes to setting requirements for car loans.
Eligibility Requirements with Credit Unions
For bad credit customers, there is a chance that you will have to take on a co-signer to guarantee your loan. You will also have to pay a much larger down payment to protect the credit union. Even with a co-signer and a larger down payment, you will be paying far lower interest rates as compared to banks.
Most credit unions have a rule that they will lend to people who stay in the same community, who are in the same company or who have the same trade. This ensures that credit unions will be able to follow each borrower and it also reduces the defaulting rate.
They may also insist that they be able to recover their loans through payroll deduction. This becomes an essential requirement if you are a bad credit customer. On the whole, this will help you manage your payments much better. To prevent you falling back into the same debt trap, a few credit unions might offer you a financial adviser who will guide you on how to improve your credit history.
Lack of Credit: The Problem of No Credit History
Unfortunately, sometimes young people have difficulty obtaining a car loan not because they have a history of bad credit but, in fact, have no history at all. Credit unions specialize in providing services to people who are not the "mainstream" clientele market sought out by traditional lending institutions like banks. Additionally, credit unions provide services to lower income earners who may not meet the financial requirements posed by a bank.
Membership in a credit union has become increasingly popular in recent years as it has become easier. People looking for a credit union in their area can go online to the Credit Union National Association's locator.
First Steps
First, you need to do a little research about just what services your credit union offers. Some credit unions joined through employment sources carry tenure requirements while others have none. Additionally, some credit unions offer financial services through payroll deduction that not only helps to manage your savings, but also your loans. If you qualify for a credit union car loan, repayment can be made through payroll deduction each time. And, sometimes when it comes to bad credit situations, payroll deduction becomes a necessary loan approval requirement.
Secondly, there may be additional requirements specifically designed to be met by members suffering from bad credit scores. These requirements may include such factors as larger down payments, thus reducing the credit union's financial risk. Furthermore, many credit unions offer their membership credit counseling services designed to improve their scores and thus improve the conditions through which money can be borrowed.
Is there a Difference Between Bank Auto Loan and Credit Union Auto Loan Rates?
Yes, there is often a difference between credit union auto loan rates and those offered by banks. The loans offered by credit unions are often at lower interest rates, as borrowers who get their loans through credit unions must have accounts at the institution, which makes them shareholders in the credit union. Although non-members can apply at credit unions to get the lower credit union auto loan rates, such borrowers must also open an account at the institution in most cases. However, credit unions may not offer subprime loans aimed at borrowers with some bumps in their credit histories. At which point, the higher rates offered by banks are necessary.
Can a Federal Credit Union Auto Loan Replace a Bank Auto Loan?
Yes, you can replace a bank auto loan with a federal credit union auto loan, provided you are in an equity position that allows you to refinance the vehicle. In order to replace a bank loan with a credit union auto loan, you must get the payoff amount on your bank loan from the lender. Then tell the federal credit union what your payoff amount is, so that they can approve your loan. If you owe far more than your vehicle is worth, it can be difficult to get your bank auto loan replaced with a federal credit union auto loan.
What is the Cheapest Car Loan Rates One Can Expect with Bad Credit
When you're searching for the right financing options to get the cheapest car loan rates, you're going to need to know what kind of credit you have in order to determine your loan rates. If you have very good credit, you can expect to receive the best deals and the lowest rates. You need to do your homework in order to find the most accurate quotes in reference to your actual credit score. Credit scores can range from a low of 300 to a high of 850. Most auto lenders consider a score of 620, and under bad. With a score this low, the lowest interest rate you'll likely see will be ten percent. You can find a rate calculator here.
What is the Current Used Car Loan Rate?
Due to depreciation, current used car loan rates are going to be higher than new car loan rates. By charging higher rates on used car loans, lenders make sure that if anything happens, they can minimize the loss they suffer. Used car loans range from 6.5% for those with a minimum score of 720. For someone with average credit and a score of 660, you can expect to pay 9.5% on a used car loan. 21.2% and above is what you can expect to pay with poor credit, a score of 589 and lower. A good online loan calculator using your credit score can be found here.
