When looking to borrow a large amount of money for purchase of a vehicle or piece of property, most people think that an installment loan from a bank is the only option. In reality, credit unions offer a much more affordable and manageable alternative to regular banks for several reasons.
A credit union is a non-profit financial organization set up to assist its members with savings, money management and loans. It is governed by a board of directors elected by the members of the union, and its funds are insured by the National Credit Union Share Insurance Fund in the same manner a for-profit bank’s funds are protected by the FDIC.
An installment loan agreement includes a set amount of money paid back to the bank or credit union to pay down the amount of capital loaned, usually scheduled in weekly or monthly installments. Part of the payment will be used for the principal of the loan and part will be used to pay the interest that accrues. The difference between banks and credit unions is that banks charge interest in order to profit from the interest from the loan, while credit unions are non-profit. This means the amount of interest charged by the credit union will usually be significantly less than a normal bank, leaving the borrower more money in pocket and paying less over time to settle the debt. According to the National Credit Union Administration, a comparison between banks and credit unions who offered installment loans over $10,000 in 2013 showed some banks charged nearly double the interest of comparable credit unions. While interest rates vary depending on the choice of credit union or bank, this can mean the difference between hundreds and even thousands of dollars over the life of the loan. Less interest means less money the borrower owes and more money they can use for everyday purposes. Because of the personal, member-oriented service that credit unions provide, those with average or bad credit are more likely to successfully apply for loans, although there is no guarantee a loan will be given. Many credit unions will be sensitive to customer’s needs and individual situations, sometimes adjusting a loan to make it more advantageous to the borrower.
Credit unions and banks offer similar products, but for many people, especially those seeking an installment loan of $10,000 or more, a credit union offers advantages far and above what for-profit banks can provide.