Auto Loans: Credit Unions vs. Banks

If you’re planning to buy a car and need financing, keep this in mind: If you go to a bank or manufacturer’s finance company, the interest rate and terms will probably be better in comparison to what you may get from a local dealership. But you should consider another option — credit unions. On average, credit union auto loan rates and terms maybe even better than what you can get at a bank. And unlike banks, many credit unions have less stringent standards for approval.

Benefits of Borrowing a Loan from a Credit Union

Taking a loan from a credit union can be a good option if you need funds to purchase a car – especially if you have a history with the credit union, have made a number of deposits, and can show that you can afford to pay back your loan. Since credit unions are cooperatives owned by their members, not shareholders, their primary focus is you, not their profits. Before you borrow money from a bank, ask your credit union if they offer low-cost loans.

Benefits of Borrowing from a Bank

Your local credit union isn’t the only option if you want a car loan. If you are not a member of a credit union, a bank is a good choice. The disadvantage, however, is that you may have to pay higher fees. If you are considering borrowing a loan from a bank, make sure to read through the terms and conditions of the loan so you know what you’re signing up for.

Benefits of Dealer Financing

Dealer financing is a great way to purchase a new vehicle. With low-interest rates and no pre-payment penalty (in most cases), you can purchase your dream vehicle without worrying about your finances. But if you’re purchasing a pre-owned car, it’s best you don’t opt for dealer financing since the rates can be pretty high.

The Lease Option

With a lease, you can be back on the lot in a few months for a new set of wheels. Depending on how long the term is, you may have to make monthly or yearly payments. The terms can range from 36 months to sometimes as far as 120 months! The term “lease” in the context of vehicles is used to refer to a contract that allows you to rent a car. Lease payments tend to be lower than loan payments because when a loan is paid, you keep the car, whereas, with a lease, you need to return the car.