If you’re looking for a smart way to borrow money, getting a credit union loan may be a great way to secure lower rates and better terms. Plus, you might have better luck getting approved for a credit union loan with bad credit compared to a bank. Let’s take a closer look at credit union loans and how to get one.
Key Points
- A credit union loan is a type of financing offered by credit unions, and often comes with competitive rates and flexible terms.
- To get a credit union loan, you’ll need to be a member and may need to live in the location where the financial institution operates.
- Credit union loans can be beneficial for several reasons, including relatively flexible terms, competitive rates, and personalized service.
What Is A Credit Union Loan?
A credit union loan is a type of financing offered by credit unions, which are member-owned, not-for-profit financial institutions. These loans often come with lower interest rates and more flexible terms compared to traditional bank loans, since credit unions focus on serving their members over generating profits for shareholders. To qualify, you’ll need to join the credit union and meet its membership requirements.
What Is A Credit Union?
Credit unions 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 bottom line 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 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 the following:
- Personal loans
- Personal lines of credit
- Home equity lines of credit
- Car loans
- Mortgages
- Credit cards
Learn more: Loans In Canada
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. Depending on the credit union, you may also be required to have been employed with the same company for a certain amount of time to prove stability in your job.
Income
Your income should be enough to support your loan payments every billing cycle. Minimum income amounts may vary based on the lender, your loan amount, and your debt load.
Debts
The credit union will want to know what your debt-to-income ratio is. This is a measure of your income relative to your debt. The purpose of a debt-to-income ratio is to gauge how much of your income is available to cover additional loan payments after your existing bills have been paid.
Generally speaking, no more than 44% of your income should be dedicated to paying interest monthly on any debts you incurred.
Down Payment
Some loan types will require a deposit or down payment up front to qualify, such as a car loan or a 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. A high credit score indicates that you’ve been a responsible borrower in the past and will increase your likelihood of loan approval. Generally, a credit score of 660 and above is ideal.
If you don’t know what your credit score is, you can check it out for free using Compare Hub.
Learn more: Personal Loan Requirements: How To Qualify For A Personal Loan
Can You Get A Loan From A Credit Union With Bad Credit?
Yes, you can get a loan from a credit union even with bad credit, though loan approval isn’t guaranteed. Credit unions consider your overall financial health, not just your credit score. This includes an assessment of your income and debt levels.
They may also offer their members more flexible terms than traditional banks. However, expect higher interest rates or stricter repayment terms if your credit is poor.
How To Apply For A Loan With A Credit Union
Follow these steps to apply for a loan with a credit union:
Step 1: 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 for a specific company, or meet other criteria.
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 relevant 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 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: – Social insurance number (SIN) – Driver’s license – Passport – Permanent Canadian resident card Citizenship certificate |
| Fee | You may be required to pay a small upfront fee to your credit union that will be put toward investment in shares in order to become a member-owner. This allows you to vote on issues that affect the credit union and even in the election of the credit union’s board of directors. |
| Personalized Cheque | A personal cheque from a Canadian financial institution will be payable to the credit union that includes your full name, address, and account details. |
| Residency | You will need to be a resident of the province where the credit union is located. |
| Age Of Majority | You must be at least the age of majority in your province 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.
Member Requirements For Popular Credit Unions In Canada
Credit unions may have their own specific criteria for consumers to meet to become members. Here are a few of Canada’s more popular credit unions and their specific requirements for membership:
Vancity Credit Union
Vancity Credit Union is based in Vancouver, BC and has 55 branches across the province. Membership criteria are as follows:
- Be a BC resident
- Have a valid SIN
- Deposit at least $5 per account for membership shares
Fusion Credit Union
Fusion Credit Union serves members in Manitoba, with 18 branches province-wide and 30,000 members. To become a member, you’ll need to meet the following requirements:
- Live or work in Manitoba
- Have a SIN and driver’s license for ID
- Consent for a credit check
- Pay a $25 member share
First West Credit Union
First West is the third largest credit union in BC, with roughly 250,000 active members and 52 branches across the province. You can become a First West Credit Union member through one of their divisional brands, including Envision Financial, Valley First, Island Savings and Enderby & District Financial
Membership requirements are as follows:
- Live or work in British Columbia
- Provide valid government-issued ID
- Complete a membership application
- Make an initial deposit to open a membership share account
DUCA Credit Union
DUCA Credit Union is a Toronto-based credit union serving over 59,000 clients through 15 branches across Southern Ontario. To become a member, you must meet these criteria:
- Live or work in Ontario
- Provide valid government-issued photo ID
- Be at least 18 years old
- Make a small deposit to purchase a membership share
Meridian Credit Union
Meridian Credit Union is the largest credit union in Ontario, serving over 375,000 members province-wide. Membership criteria are as follows:
- Live or work in Ontario
- Be at least 18 years old
- Provide valid government-issued photo ID
- Make a small deposit to buy a membership share
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, jewelry, or home equity, you can increase your chances of getting approved for a loan.
Keep in mind that you risk losing your valuable asset if you fall behind on loan payments, as the lender may repossess it.
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.
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-perfect credit is often okay. That said, you may still need a qualified co-signer or some collateral to secure a loan at a credit union with bad credit.
- Non-Profit Perks: Since credit unions are non-profit institutions – unlike banks – whatever credit unions earn is redistributed to their members through perks such as dividends and lower fees.
- Competitive Rates: 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’re 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.
What’s The Difference Between A Credit Union And Bank?
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.
| Credit Union Loans | Bank Loans | |
| Ownership Structure | Member-owned nonprofit | Shareholder-owned for-profit |
| Interest Rates | Typically lower | Often higher |
| Loan Approval Flexibility | More lenient, personalized underwriting | Stricter, standardized criteria |
| Customer Service | Member-focused, community-oriented | More corporate, less personalized |
| Fees | Generally lower fees | May include more service and processing fees |
| Membership Requirement | Must join the credit union | No membership required |
What’s The Difference Between A Credit Union Loan And An Online Loan From A Private Lender?
While both credit unions and online lenders offer more flexible loan options than traditional banks, that’s where the similarities end.
Regulation: Credit unions are regulated provincially, which means each institution’s rules vary depending on the province. Meanwhile, private lenders operate with fewer regulations and oversight, which creates differences in lending standards, rules, and requirements for loans.
Cost: Private lenders tend to charge much higher interest rates than credit unions and may have additional origination or document fees.
Membership: There’s no need to be a member in order to apply for a loan with an online lender, unlike with a credit union.
Requirements: Credit unions may be lenient, especially for members, but online lenders are usually more flexible—often working with bad credit or alternative income sources.
Approval And Funding Speed: 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.
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, and 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.
