Credit Union Auto Loan Rates: Better or Worse than Banks?

Unless your name rhymes with Mardashian, you probably can’t afford to pay cash for a new car.

It’s no secret that Millennials and Gen Z have it rough when it comes to money. Between rent, groceries, emergency fund savings, and that luxurious student loan debt, we don’t have a lot of wiggle room to save tens of thousands of dollars for a vehicle.

But we still need reliable cars to drive ourselves from our overpriced apartments to our underpaying jobs every day. And that’s where auto loans come in.

80% of Millennials own their own car, and 75% of those who don’t are planning to in the future. Probably the most frustrating thing about buying a car, especially for Millennials, is that it depreciates in value the moment you drive it off the lot. While it’s often necessary, it can feel like you’re just throwing money down the drain.

After all, a new car demands some serious cash flow, and we want our precious dollars going toward our loan principle, not into the pockets of thieves bank executives. That’s why it’s important to get the best auto loan rate you possibly can. So, let’s compare.

How Do Auto Loans Work?

When you buy a new or used car, you can put money down upfront and then take out an auto loan to cover the remainder of the cost. When you apply for an auto loan, most lenders will require that you provide the following:

• Proof of identity
• Proof of income
• Proof of employment
• Credit history
• Car information
• Proof of car insurance

When you’re approved for an auto loan, your lender essentially purchases your vehicle for you. Then you make monthly payments (including interest) to your lender for the duration of your loan term. A typical auto loan term is 3-5 years, depending on your financing.

When you make your final payment, your lender mails you the title to your car, you stop making monthly payments, and you become the official owner of your vehicle!

One of the most important factors of your auto loan is the interest rate. The higher your interest rate, the less money goes toward the principal of your loan each month. Which means making monthly payments for longer and paying more for your car in the long run.

If you’re also paying rent, insurance, student loans and bills, you really don’t have excess money lying around for more monthly payments. Swinging an additional monthly payment is tough! So, you want every single penny to count.

Auto Loans: Why You Should Choose a Credit Union

Lower Interest Rates

Credit union auto loan rates are often far lower than banks. If you are buying a used car with a 4-year auto loan, the average interest rate at a credit union is 2.86%. That same loan at a traditional bank would come with an average interest rate of 5.09%.

So what does that mean for you?

Let’s say you’re buying a used car. After your down payment, you will need a $20,000 auto loan. Based on the average credit union auto loan rates mentioned above, your monthly payment at a credit union would be about $441. Your monthly payment at a traditional bank would be $461. While a $20 difference might not seem like that much, that’s a difference of $240 each year and nearly $1,000 over the full term of your loan.

Shared Ownership

Not only are interest rates higher at banks, but the money you pay in interest is lining the pockets of already rich banking execs. I promise you that bank owners do not need your money more than you do. And in this economy, that just doesn’t feel right!

At credit unions, all members are shared owners and you’re treated as such. So the interest on your loans goes right back into member benefits, like higher interest savings accounts, lower fees, and better customer service. If you choose to do all of your banking through the same credit union, the interest you pay on loans comes back to you in other banking services. It’s a win-win!

Easier Loan Requirements

When you’re applying for an auto loan, the vibes are very palms are sweaty, knees weak, arms are heavy. AKA stress. It’s essentially the epitome of scary adulting things.

Credit unions give you a better chance of getting approved for an auto loan, even if you have bad credit. Their standards are much more forgiving to the modern adult, with more flexible credit standards and lower loan minimums.

Banks, on the other hand, have rather rigid standards that make it difficult to qualify for loans, even if you’re out here trying your best to make it work in a bad economy. For many Millennials and Gen Zers, these rigid standards just won’t work.

Better Customer Service

Banks are often giant, international corporations. While they can offer great banking technology, it usually comes at the cost of personalized customer service. The traditional banking model benefits from squeezing every last penny out of its customers and funneling that money to the top executives who aren’t invested in you.

Credit unions are local or regional member-owned organizations. Credit unions only thrive when their members and communities are thriving. So, they are invested in your financial success and the wellbeing of your local community.

Many credit unions can match the banking technology of bigger banks, but also offer incredible customer service. Taking out an auto loan is a big financial move, and you should be able to trust that your financial institution has your back. When you work with a credit union, you know that every customer service rep is a local human being, just like you. And as an owner, you’re treated with respect and transparency.

If it’s time for a new (or new to you) car, you can trust credit unions to offer fair credit union auto loan rates, lower fees, and flexible qualifying standards on auto loans.