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You can get a personal loan from a credit union―often at lower rates and with fewer fees than loans from big banks. This makes these loans attractive to many borrowers. However, it's important to take a step back and consider the potential drawbacks along with the positives before joining a credit union and submitting an application.
Benefits of Getting a Personal Loan From a Credit Union
As not-for-profit membership institutions, credit unions are able to offer their members terms that the general public can't get. When you get a personal loan from a credit union, you may enjoy benefits such as:
- Better rates and terms: Due to their not-for-profit structure, credit unions can usually offer better rates and terms to their clients than they might find elsewhere.
- Access to a variety of personal loans: Credit unions offer unique types of personal loans, such as payday alternative loans (PAL). While PAL loans offer quick turnaround like typical payday loans, the rates and terms from PALs are much more consumer-friendly.
Drawbacks of Getting a Personal Loan From a Credit Union
Of course, there may be some downsides to opting for a credit union as your loan provider. These include:
- Membership requirements: To get a personal loan from a credit union, you must become a member. Some credit unions may limit membership to specific groups (such as members of a labor union or the military), but often anyone can join. Though this is usually a simple, low-cost option, it is an extra step in your loan application process. It may also come with a one-time fee of $5 to $25.
- Limited branches: If you're expecting to handle any of your loan application in person, credit unions with limited branches and locations may not be able to provide the service you require.
Should I Get a Personal Loan From a Credit Union or a Bank?
When deciding whether to take a personal loan from a credit union or from a bank, there are some key differences to consider that distinguish the financial institutions from each other.
| Credit Unions vs. Banks | |
|---|---|
| Credit Union | Bank |
| Not for profit | For profit |
| Membership required | Open to any customer |
| May have lower rates on loans | May have higher rates on loans |
| May have fewer branches, and be present in fewer geographic regions | Large traditional banks may have a national presence and many branches; online banks may have no branches and online-only services |
Both credit unions and banks offer general consumer financial options like checking accounts, savings accounts, home loans, credit cards, auto loans and more. But how these institutions are structured varies.
Credit unions are not-for-profit institutions owned collectively by account holders who must become members to use the credit union's services. Credit unions are often able to offer members a more personalized experience with better rates compared with big banks.
Banks, on the other hand, are for-profit businesses open to any customer. Their rates tend to be higher, but larger entities may be able to offer a wider range of products and services. Larger, traditional banks may have many branches and ATM locations, while online lenders typically do not offer in-person services.
If you're looking for lower rates and don't mind paying an initial, low cost for membership, getting a personal loan from a credit union may be right for you.
Conversely, if you want to work with a larger institution that may offer more services, or an online-only bank that may provide faster funding, a personal loan from a bank may be more up your alley.
How to Get a Personal Loan From a Credit Union
To get a personal loan from a credit union, take these steps:
- Become a member. You need to be a member of a credit union before taking out a loan. Some credit unions were founded for members of specific groups, but there may be ways to join even these credit unions. For example, the NASA Federal Credit Union permits anyone to join if they become a member of the National Space Society with a complimentary one-year membership. If you're not sure where to start your search, you can use the Credit Union National Association's locator tool.
- Apply for the loan. Like any other financial institution, credit unions require applications to get a personal loan. This may include requests for information to verify your identity, income and address.
What to Consider When Taking a Loan From a Credit Union
When you're thinking of applying to a credit union for a personal loan, make sure you have met their membership requirements and are happy with their locations and services before providing an official application.
Also, monitor your credit with Experian's free credit monitoring in the months leading up to applying for a personal loan. This can help spot and remedy any issues with your credit report that may make it less likely to get approved.