Lower Loan RatesWho Has Better Loan Rates, Credit Unions or Banks?
Who Has Better Loan Rates, Credit Unions or Banks?
If you’re shopping for a house or a car, you typically run the full gamut of price checks and comparisons to make sure you get the right fit. The process of finding a loan should be no different; after all, it costs money to borrow.
As you search for the best deal possible, you’ll find that, in general, credit unions offer better loan rates. That means you’ll owe less in interest over the life of the loan. Here’s what you need to know to stretch your dollar when it comes to borrowing.
Loans cost money. And the difference of just a few percentage points can translate to hundreds of dollars in costs. The area where credit unions such as Horizons North Credit Union have the greatest advantage is in affordability of car loans. According to the National Credit Union Administration’s most recent data, the average interest rate for a 48-month new car loan was 2.63% at a credit union, compared with 4.76% at a bank. That makes the average bank’s interest rate 80% higher than the average credit union’s.
Let’s say you got an auto loan from a credit union for 48 months at that 2.63% rate on $18,000. You’d be looking at a monthly payment of about $395, totaling $983 in interest over the life of the loan.
Now take the same principle and term period, only this time with the average bank rate of 4.76%. Your monthly payment would rise to almost $413 and the loan would cost $1,804 in total interest. That’s a difference of over $820. Don’t pay more than you have to.
Mortgages and other loans
When it comes to home loans, the rate differences aren’t as dramatic. Thirty-year mortgages hover nationally around the same average rate for both types of institutions. However, credit unions generally offer better rates on home equity loans and lines of credit. They also tend to charge less in processing costs on mortgages because, as member-owned not-for-profit organizations, they don’t have to maximize fees to generate earnings for stockholders.
When you’re looking to borrow money, the ideal scenario is to find a place that will offer you low costs and good customer service while keeping your needs and interests in mind. A credit union’s unique makeup and mission make it a good place to find all three.
Cait Klein, NerdWallet