When you’re in the market for a new car, it’s important to do your homework and compare all of the options available to you. One place to look for auto loan rates is credit unions, which often offer lower rates than banks do.
Credit unions are not-for-profit organizations that return their profits to their members in the form of lower fees and better rates on loans. This is particularly true for auto loans, as credit unions typically offer lower interest rate car loans than banks and dealerships do. The main reason for this is that credit unions have lower overhead costs, which allows them to pass the savings on to their members in the form of cheaper car loan rates.
Unlike banks, which are required to make a profit and pay taxes on their earnings, credit union auto loan rates aren’t required to do so. This is because they are owned by their members and are designed to serve the needs of their members rather than making a quick buck. Because they don’t have to worry about turning a profit, credit unions can afford to offer lower auto loan rates and other rates on financial products.
The average auto loan rate for a five-year term at a credit union was 4.74 percent in the last quarter of 2022, while the average auto loan rate for the same term at a bank was 5.53 percent. This difference can add up to a significant amount of money over the life of the loan.
In addition to offering low auto loan rates, credit unions also tend to be more flexible with their lending requirements than banks are. While the exact rules will vary from one credit union to the next, they generally have a more understanding of how individual borrowers’ situations and financial histories can impact their ability to repay debt. In fact, Ryan Keene, vice president of lending at Ardent Credit Union in Texas, notes that credit unions may be willing to lend up to 120% of MSRP or Retail Kelley Blue Book/NADA Value, depending on a borrower’s creditworthiness.
Another benefit of using a credit union for an auto loan is that many lenders provide online calculators to help potential borrowers determine how much their monthly payments will be and what the maximum amount they can finance will be. While this isn’t something that all banks and credit unions do, it can be helpful to borrowers who are trying to plan their car purchases and figure out the best way to finance them.
Consumers Credit Union in Illinois, for example, offers a free online car-buying service that can help potential borrowers estimate their payments and calculate what they can afford to spend on a new vehicle. Its auto-loan rates are also competitive with those offered by other lenders and start at 5.54% for cars made in 2021 or later. The lender requires membership but doesn’t charge an application fee, and it accepts applicants with a variety of credit profiles, including those who are self-employed or have fluctuating income streams.