Understanding Credit Union Personal Loans: Low Rates and Flexible Terms

A credit union is a member-owned financial institution that offers a variety of financial services and which uses its profits for the good of its members. Benefits include lower interest rates and fees on personal loans than you'd find at banks, more flexible loan terms, and more attractive approval requirements. You must join a credit union, to receive these benefits.

Keep reading to learn how to become a credit union member and how to apply for a personal loan.

Understanding Credit Union Personal Loans

Credit unions have several advantages over banks. The primary benefit of using a credit union is that, since a credit union is not run for profit, it can often offer lower interest rates than traditional and online lenders. Many credit union users also value the more personalized service that credit unions can offer to their members.

You’ll first have to become a member of a credit union before you can apply for its loans. Each credit union has its own membership criteria, but many now allow you to apply online. You’ll generally have to make a small deposit to open your membership ($5 to $25), but once you are a member, you can apply for a personal loan.

At this point, a personal loan from a credit union works in much the same way as a loan from a bank. The credit union will assess your application and decide whether to lend to you. While credit union membership is a required first step to apply for a credit union loan, membership alone won’t necessarily improve your chances of getting approved unless your credit is excellent or you have guaranteed employment, such as serving in the military.

Common Uses for Credit Union Personal Loans

You can use a personal loan for a variety of purposes, whether you get the loan from a credit union, a bank, or an online lender. Some lenders may ask what you plan to do with the money, while others will just want to be certain that you can pay it back. Personal loans are often used for:

• Moving expenses
• Debt consolidation
• Medical bills
• Wedding expenses
• Home renovations or repairs
• Funeral costs
• Vacation costs
• Unexpected expenses

However, before you opt for a personal loan, you’ll want to ensure this is the right financing option for you. You should consider whether there may be less expensive options for you to borrow money depending on your situation.

For example, you may be able to get a lower interest rate if you have home equity that you can use toward a home equity loan. Or a credit card with a 0% introductory interest rate could provide free funding if you can repay the money before the introductory period ends.

Some reasons for choosing a personal loan are: 

• You need a lump sum of financing that you can repay at a fixed rate regularly.
• You don’t have assets to use as collateral for a less expensive loan.
• A personal loan is your least expensive borrowing option.

Qualifying for a Credit Union Personal Loan

To qualify for a personal loan from a credit union, you’ll first have to become a member. Each credit union has different criteria for becoming a member, and you may not qualify to join each one.

However, there are a range of credit unions, and you can likely find one that fits you. Once you are a member, you can apply for a range of financial services, including personal loans.

Eligibility requirements for personal loans from credit unions are less strict than a bank’s criteria. In particular, a low credit score may not disqualify you from a loan with a credit union because a credit union is more likely to take into account your overall financial circumstances. However, a good credit score will likely get a lower interest rate.

Check your credit score before applying for a personal loan. If your score is lower than you would like and you can delay taking out a personal loan, then you can take steps to improve it, such as paying down your debt.

Applying for a Credit Union Personal Loan: A Step-by-Step Guide 

1. Apply for membership at the credit union. Check individual requirements and suggested actions, which may include an online application or an in-person visit.
2. Upon membership approval, make a small deposit to open your account.
3. Proceed to fill out the personal loan application, whether in person at a branch or online, and provide the necessary personal and financial information, such as a Social Security number, employment and income details, and information about any debts you already have..
4. Await the credit union's decision on your application and the terms of the loan, such as the loan amount, interest rate, and loan term.
5. Approval for a credit union personal loan can take one to 10 working days. If approved, you'll receive the funds within days to weeks, depending on the credit union's processing time. 

Popular Ways People Use Personal Loans

Investopedia commissioned a national survey of 962 U.S. adults between Aug. 14, 2023, and Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the most common reason people borrowed money, followed by home improvement and other large expenditures.

Comparison of Credit Union and Bank Loans

Credit union personal loans are different from bank personal loans in several ways, both positive and negative. In general, credit unions offer better interest rates and more personal services. However, they may take longer to fund your loan.

The Bottom Line

A personal loan is often the least expensive way to borrow, and you can get a personal loan from a variety of providers. Personal loans from credit unions generally have lower interest rates and fees than equivalent loans from banks or online lenders. However, the disadvantage is a lack of convenience. You’ll have to join a credit union first, and it may take longer for your loan to be approved.