How To Get a Loan From a Credit Union
Getting a credit union loan is like getting one from a bank or online lender, but you typically need to join a credit union first. Credit union loans often come with lower annual percentage rates (APR) and fees, which can make them more affordable than loans from other types of lenders.
How to get a loan from a credit union
The process of getting a personal loan from a credit union varies from lender to lender, however, there is a general course that you may follow.
1. Determine your loan needs
The first step is to determine if you actually need to borrow money, how large of a loan you can afford and how you plan to use the loan.
Common personal loan uses include:
- Debt consolidation
- Refinancing
- Home improvements
- Wedding costs
- Travel and vacation expenses
- Medical bills and procedures
- Emergencies
A loan calculator can help you calculate your monthly payments and total loan cost based on that information.
2. Compare lenders
Begin your research of personal loans offered by credit unions. Oftentimes, you can prequalify for a loan with a soft credit check (which won’t affect your credit). Prequalification allows you to see the loan details the institution will offer you, so you can better compare all lenders.
Once you’ve prequalified with a few lenders, compare the following factors:
- APR: The annual percentage rate (APR) is the annual interest rate plus fees charged by your lender.
- Borrowing limits: Make sure the credit union offers a loan large or small enough for your needs. Avoid borrowing more than you need.
- Repayment terms: The typical personal loan has repayment options between 12 to 60 months. A shorter term means a lower overall cost of borrowing, but higher monthly payments.
- Credit requirements: Many lenders will have a minimum credit requirement for personal loans. If you fall below the threshold, qualifying could be difficult.
- Membership: Check each credit union’s membership qualifications to confirm you’re eligible to join.
3. Apply to become a credit union member
Credit unions are nonprofit organizations that generally require membership, so they typically require you to join to be eligible for a personal loan. Membership qualifications vary by financial institution and can range from military affiliation to where you live. Often, you can also join a credit union if a family member already belongs to the financial institution.
In some cases, as part of the membership process, you may need to open a checking or savings account with the credit union and make a small deposit.
4. Verify your information
Once you’ve filled out an application and are ready to move forward with a lender, you’ll need to verify your personal information. Be prepared with identification and proof of address, your Social Security number and employment and income details.
You’ll also be asked how much you’d like to borrow and need to approve a hard credit check, which allows credit unions to see your credit history. Note that a hard credit check dings your credit score temporarily.
5. Close on your loan
If you’re given final approval, you’ll need to officially accept your loan from the credit union by signing a contract. After the deal is finalized, the credit union can directly deposit your funds into your bank account. This can take anywhere from one to 10 business days.
Credit union personal loan qualifications
Each credit union will have specific requirements, like minimum credit score, for qualifying for a personal loan. Here are a few personal loan requirements you should consider when reviewing your loan application:
- Membership eligibility: Before checking if you qualify for a loan, you’ll want to read the credit union’s membership criteria to see if you fit. For instance, Navy Federal Credit Union only serves those with military affiliations.
- Good credit score: Some credit unions have a minimum credit score they want borrowers to meet. In general, it is recommended that you have a credit score of at least 640 to qualify for a loan.
- Consistent income: While you don’t necessarily need to have a job, you do need to have a steady income, such as Social Security or alimony, to demonstrate that you can repay the loan.
- Low debt-to-income ratio: Your debt-to-income (DTI) ratio shows lenders how much income you have compared to how much debt you have. Ideally, you’ll want a DTI ratio below 35%.
Pros and cons of credit union loans
Credit unions offer a wide variety of benefits to the members they serve, but they are not without their drawbacks.
| Pros | Cons |
|---|---|
| Credit union loans are capped at 18% APR, so you may find better offers with credit unions compared with other lenders | May be difficult to obtain a personal loan from a credit union if you don’t meet the membership requirements |
| Aside from taking out a personal loan from a credit union, you can also bank with them | Membership process may require small deposit |
| Since credit unions tend to be focused on certain communities or demographics, you may have better customer service | As opposed to a bank or online lender, credit unions sometimes have limited access to tech and mobile apps |
Payday alternative loans at a credit union
Payday alternative loans are offered exclusively by some federal credit unions. As the name implies, a payday alternative loan is a less predatory option to a payday loan. Payday loans can come with sky-high fees, APR up to 400% and typically short repayment terms. Borrowers of these types of loans can generally only take out up to $500.
The APR on a payday alternative loan, on the other hand, is capped at 28% by the National Credit Union Administration. Depending on the type of payday alternative loans offered by your credit union, you may be able to borrow between $200 and $2,000 for a term of one month to one year.
Credit unions vs. banks and online lenders
You can find personal loans at banks, credit unions and online lenders. Although credit unions generally offer more competitive personal loan rates than a bank or online lender, they require membership.
| Financial institution | What it is | Pros | Cons |
|---|---|---|---|
| Bank | For-profit institution that typically has physical branches and a variety of products to choose from |
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| Credit union | Member-owned not-for-profit financial institution. Typically has fewer physical branches than banks and a variety of financial products |
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| Online lender | For-profit, online-only lenders with no physical branches and few financial products |
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Frequently asked questions
Getting approved for a personal loan at a credit union can be challenging since you’ll need to meet criteria to both become a member of the financial institution and get a loan. If you don’t qualify with a credit union, consider applying for a personal loan with a bank or online lender.
Generally, you’ll want a credit score of at least 640 to qualify for a loan, but the credit score requirement will vary by lender. You can check your credit score for free through LendingTree’s platform.
Credit union loans work like personal loans from a bank or online lender. The biggest difference is that you likely will have to become a member of the credit union first. You can check if you prequalify for a loan, then if you prefer its rates and fees, you can proceed with the loan process.