If you need a loan, you have a few options when it comes to where to obtain one. That includes applying with a credit union. A loan from a credit union comes with a few perks, including lower rates and fees. Plus, you might have better luck getting approved for a credit union loan with bad credit compared to a bank.
What Types Of Loans Can You Get At A Credit Union?
Credit unions offer many of the same loan types that you would get with banks and alternative online lenders. This includes:
- Personal loans
- Personal lines of credit
- Home equity lines of credit
- Car loans
- Mortgages
- Credit cards
How To Apply For A Loan With A Credit Union
Follow these steps to apply for a loan with a credit union:
Step 1. Apply To Become A Credit Union Member
Credit unions require you to be a member to access their loan products. If you’re not already a member of a credit union, you’ll first need to become one. Requirements can be stringent and very specific. For instance, you’ll need to live in a specific area, work in a certain industry, or meet other criteria.
Basic Requirements To Get Approved For A Loan With A Credit Union
Before applying for membership with a credit union, review the loan requirements needed to make sure you’re eligible.
- Employment status. You will need to be employed in order to get approved, and depending on the credit union you deal with, you may be required to have been employed with the same company for a certain amount of time to prove stability in your job.
- Income. In order to be able to repay your loan – plus interest – with no troubles, you’ll need to show that you have an adequate income that can support your loan payments every billing cycle.
- Debts. The credit union will want to know what your debt-to-income ratio is. More specifically, your credit union will want to know that most of your income is not dedicated to paying off your current debt. Generally speaking, no more than 43% of your income should be dedicated to paying your monthly debt bills.
- Down payment. Some loan types will require a deposit or down payment upfront, such as a car loan or mortgage. You will need to come up with a certain down payment amount before the credit union will supply you with a specific loan amount.
- Credit history. Your credit history will be looked at, which will tell the credit union what your history of making bill payments is like. If your payment history is positive, your credit score should be healthy, which is precisely what credit unions want to see. If you don’t know what your credit score is, you can check it out for free using Compare Hub.
Step 2. Apply For A Credit Union Loan
Once you’ve been approved for membership, you can apply for a loan. To apply for a loan, complete a formal loan application with your credit union. Along with the application, you’ll also need to supply the lender with the following:
- Photo identification to verify your identity
- Proof of residency to verify your address
- Employment details to show you have steady work
- Income proof to show you earn enough to carry a loan
Your credit union will also conduct a credit check to verify your creditworthiness. Doing so is considered a “hard credit inquiry” and may negatively affect your credit scores.
Step 3. Wait For Approval
As long as the credit union has everything needed and all your financials and credit health are up to par, you should have little trouble getting approved for a loan. Your credit union will notify you of their decision shortly after receiving your application and all relative documents, which shouldn’t take any more than a day or two.
The funds will then be deposited into your account shortly after.
How To Increase Your Chances Of Getting A Loan With A Credit Union?
If you’re concerned about not getting approved for a loan with your credit union, there are a few things you can do to boost your odds:
Offer Collateral
Unsecured loans can be a bit more difficult to get approved for and often come with higher interest rates due to the higher risk for the lender. If you can offer some sort of collateral to back the loan, such as a car or home equity, you can increase your chances of getting approved for a loan. Just remember that you risk losing your valuable asset if you fall behind on loan payments.
Use A Co-Signer
If your credit or income isn’t strong enough to meet your credit union’s criteria for loan approval, find someone you trust with good credit and strong income to add to your loan as a co-signer. Their healthy finances and good credit will minimize the lender’s risk, and therefore increase the likelihood of loan approval. Just make sure that the co-signer understands that they will have to take over the loan payments if you stop making them yourself.
How To Become A Member Of A Credit Union?
Before you apply for a loan with a credit union, membership will be required, as previously noted. In order to become a member, you will need to meet some criteria, including the following:
- Identification. You’ll be required to provide certain pieces of ID that are current and not expired, such as your social insurance card, driver’s license, passport, or permanent Canadian resident card, for instance.
- Fee. You may be required to supply a small upfront fee to your credit union that will be put toward investment in shares in order to become a member-owner, which will allow you to vote on issues that affect the credit union and even in the election of the credit union’s board of directors.
- Personalized check. A personal cheque from a Canadian financial institution will be payable to the credit union that includes your full name, address, and account details.
- A resident of the province. You will need to be a resident of the province where the credit union is located.
- Age of majority. You must be at least 18 years of age to apply for membership at a credit union.
The application process should not take too long to complete. Once the credit union reviews your membership application, you’ll be contacted with instructions on how to proceed further.
Borrow Up To $50,000
Pros And Cons Of Getting A Loan With A Credit Union
There are obvious perks to getting a loan from a credit union, including getting access to much-needed funds. But there are other advantages to these loans, as well as some drawbacks that should be considered.
Pros Of Getting A Loan With A Credit Union
- Bad Credit May Be Accepted. Applying for a loan at a conventional bank with a poor credit score will almost always result in a rejected application. But at credit unions, less-than-stellar credit is usually okay. That said, you may still need a qualified cosigner or some collateral to secure a loan at a credit union with bad credit.
- Non-Profit. Since credit unions are non-profit institutions – unlike banks – whatever credit unions earn is redistributed to their members through perks such as dividends, low-interest rates, and lower fees.
- Competitive Rates. As mentioned, credit unions may be able to offer lower interest rates, making their loans affordable. That’s because credit unions are not in the business of generating a profit, so they’re in a better position to offer more competitive interest rates.
- More Tailored Loans. Since you are a member of the credit union, you may be able to get a loan that’s more tailored to your needs.
Cons Of Getting A Loan With A Credit Union
- Must Be A Member. The most obvious downfall of applying for a loan at a credit union is the fact that you must be a member. If you’re not interested in membership at a credit union, you may have to look elsewhere for a loan.
- Slow Funding Time. Although applying for membership and a loan may not take too long, it could take a while before you are actually approved, and then even longer before you’re given access to the funds.
- Fewer Choices. Your credit union may have more limited loan options, so your choices are fewer.
- Chance Of Loan Rejection. There is always the chance that your loan application gets rejected, even after having gone through the steps of becoming a member.
What Is A Credit Union?
Credit unions are a lot like banks: they allow consumers to open up savings and chequing accounts, provide products like credit and debit cards, and even offer loans like mortgages and loans. They have typical brick-and-mortar branches and ATM machines like banks, too.
But there are certain differences between banks and credit unions. For starters, credit unions -unlike banks – are owned by their depositors instead of shareholders. People who bank with credit unions are considered members, and credit unions are more focused on serving these members as opposed to their bottom line. Further, credit unions are not-for-profit entities, unlike banks that seek to beef up their revenues as their main priority.
Credit unions may have certain criteria when it comes to who can become a member. Some credit unions may accept anyone who lives within a certain distance from the credit union, while others may limit their membership to those who belong to certain companies or labour unions, for instance.
What’s The Difference Between A Credit Union Loan And Bank Loan?
Loans offered by credit unions and banks are relatively similar. Both financial institutions have roughly the same requirements for borrowers to meet, including a strong income, steady employment, and good credit.
That said, credit unions’ lending criteria for members may be laxer compared to banks. In addition, credit unions may charge lower interest rates to their members compared to what banks offer.
What’s The Difference Between A Credit Union Loan And An Online Loan?
Credit unions and online lenders may be somewhat similar in their loan offerings in terms of their more flexible loan criteria compared to banks. But that’s typically where their similarities end.
While credit unions may have less stringent lending requirements than banks, online lenders‘ requirements are even laxer. Different online lenders work with different classes of borrowers, including those with bad credit who would otherwise be unable to get approved for a loan through conventional avenues.
In addition, loan approval is usually much faster with an online lender. While credit unions may take days to provide notification of loan approval, online lenders often approve applications within 24 hours, and even on the same day, the application is submitted. Funding is also much faster with online lenders, who typically deposit the funds within hours following loan approval.
Further, there’s no need to be a member in order to apply for a loan with an online lender, unlike with credit unions. However, online lenders tend to charge much higher interest rates than credit unions.
Credit Union Loan FAQs
How much can you borrow from a credit union?
Do I need good credit to qualify for a personal loan with a credit union?
Do credit unions charge processing fees on loans?
Can I get a bad credit loan from a credit union?
Bottom Line
There are a handful of advantages to seeking out a loan from a credit union, including potential savings in lower rates and fees, as well as a better chance of loan approval with bad credit. Just make sure you consider all your options before choosing to work with a credit union, it’s always important to find the best fit based on your financial needs.
