When seeking a loan, many people fall into a common misconception. They often seek out online lenders and traditional big banking companies. However, there's one key alternative lending source that often gets overlooked. This lending source is local non-profit organizations known as credit unions. Credit unions have quietly arisen as worthy competitors to big national banks and online lenders. However, credit unions operate a little differently from traditional banks. To help you prepare, here are two things to know when getting started with credit union loans.
You'll Need a Membership
Each credit union is comprised of members and volunteers. To become a member, you'll have to meet certain requirements. Membership eligibility requirements are typically based on commonalities found between the members. The most common eligibility requirement for members is for them to live within a certain location. This makes sense because credit unions are typically small organizations that only have the capacity to operate within their local area, unlike large national banks.
Additionally, members are often required to be associated with a particular school, church, labor union, or homeowner's association. Depending on the credit union, the exact requirement varies. If you meet these basic requirements, contact the credit union to join. You'll typically have to pay a one-time membership fee and a fairly small deposit. Only then can you apply for a loan.
You'll Have Better Odds of Loan Approval
While national banks are primarily concerned with turning a profit, a credit union can focus on the wellbeing of its members due to credit unions being non-profit organizations. This reduced focus on profit means that many credit unions are more willing to take a chance on individuals who have low credit or even no credit history at all. Credit unions do this by offering members lending options such as co-signed personal loans and payday alternative loans.
Co-signed personal loans involve adding a second individual to the loan application. This second individual is responsible for paying off the loan if the primary is unable to do so. Payday alternative loans consider the borrower's income and ability to pay the loan back instead of only considering the borrower's credit score like many traditional loans. Payday alternative loans also have repayment terms of up to 12 months. These terms are much longer than the usual 2 - 4 week repayment terms of traditional payday loans. Co-signed personal loans and payday alternative loans allow the borrower to secure a larger loan, reduced fees, and a higher chance of approval.
Conclusion
Working with traditional banks and online lenders can be a daunting and costly experience. Fortunately, you're now well equipped to get started with credit union loans.
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