Need a loan to cover your personal expenses? Picking a credit union instead of a bank can make a big difference for your finances. Credit unions are owned entirely by their own members. 2023 Bankrate study and recent data show their interest rates are 1 to 2 percentage points lower than banks. The average bank personal loan interest rate is 12.36%, and credit union rates are lower than that. They also have more flexible rules for who can qualify, and better fees too. Our buying guide will help you find the right lender and the lowest possible price. Make an informed choice right now, because time is running out.
Application Process
Knowing how personal loan applications work is really important right now. Demand for personal loans has gone up in recent years. People shopping for these loans want the best deal for their needs. A 2023 study from SEMrush has new numbers from just last week. The average interest rate for a 5-year personal loan rose 1.11 percentage points. It went up from 17.78 percent all the way to 18.89 percent. That means picking the best lender is even more important now. You can do this by filling out your application carefully and completely.
Membership Requirement
Credit union
Banks and credit unions have different rules for personal loans. The biggest difference is their membership requirements. Credit unions are owned entirely by their members. You have to join a credit union before you can apply for a loan there. Let’s use John as an example. He wants to get a loan from ABC Credit Union. That credit union has rules for who can become a member. Rules might include living in a set area or working for a specific employer. John has to meet those membership rules first. He might need to live in the right area or work for the right company. Once he meets those rules, he can apply for a personal loan. Look up different credit unions’ membership rules before you apply. Some credit unions have more flexible membership rules. These make it easier to join and access their lower-cost loan options.
Bank
Credit unions have rules to join, but banks don’t. Banks don’t make you meet special rules to qualify for a loan. If Sarah wanted a loan from XYZ Bank, she could just walk into a branch or send in required papers. The bank would review her application using her income and credit record. Banks that offer pre-approval are some of the best performing. They can tell you if you’ll be approved and what your terms are. They don’t even need to run a credit check first.
Approval Speed and Paperwork
Credit union
Credit unions don’t all work exactly the same way. They take different amounts of time to approve loans. They also ask for different kinds of paperwork. Some process applications much faster than others. A few have more complicated internal rules to follow. For example, some need a different loan officer to sign off before sending you loan money. This slows down approval and payment, but adds an extra layer of protection. Most credit unions ask for a few standard documents. You’ll need to show ID, proof of income, and your credit history. Like any lender, they want to know you can pay back your loan. Gather all required papers before you submit your application. Pay stubs and bank statements work as valid proof. Having these ready will help speed up your application process. Bankrate recommends you check all requirements first when you apply. Ask every question you have about how the application works. You can use an online loan comparison tool to shop around. These tools let you compare approval rates and rules for different credit unions. Key takeaways.
- Banks usually don’t make you join a credit union if you use them. Most banks follow this same basic rule.
- Different credit unions take different amounts of time to approve your application. They also don’t all ask for the same paperwork. Getting all your required documents ready first makes the whole process go much smoother.
- First, compare all the different tools you’re looking at. You can also follow the pre-approval process as well. Doing both of these things will help you make an informed choice.
Interest Rates
Bankrate runs a weekly survey of the biggest U.S. banks. This survey is called the Bankrate Monitor. Right now, the average personal loan rate from these banks sits at 12.36%. It’s really important to know how banks and credit unions differ. That knowledge helps you understand interest rates, which are a big part of how much personal loans end up costing.
Impact of Credit Union Membership
Credit unions are owned by the people who use them. That lets them offer lower rates and fees than big national banks. They are not-for-profit, so they can pass those savings to members. Let’s say you want a loan to combine all your existing debt. Credit unions often have lower interest rates for these loans. A lower rate means you pay less total over the life of your loan. Finance experts recommend joining a credit union to save money on interest. Here’s a quick pro tip before you apply for a local credit union loan. First, double-check that you meet their membership requirements. These rules are different for every credit union. They usually depend on where you live, where you work, or groups you belong to.
Comparison of Average Rates
Credit union
Credit union loans often have lower interest rates. A five-year personal loan with a 4% average rate is really competitive. You can use these loans for all kinds of different purposes. These include paying off other debt, emergencies, home fixes, and large purchases. One local credit union member got a loan with a rate as low as 10%. Banks offered rates around 13% for similar loans at that time. A 2023 study from SEMrush compared bank and credit union loan rates. It found credit unions usually charge 1 to 2 percentage points less for personal loans than banks.
Bank
There are tons of different banks out there, so borrowers like using them a lot. Banks can have higher average interest rates overall. Recent data shows the average rate for a 5-year personal loan went up last week. It rose 1.11 percentage points, from 17.78% to 18.89%. If you apply for a personal loan at a bank, they will look over your application first. They will also pull your credit report before making their final call. Banks may let you borrow an amount that works well for you. In some cases, they might even offer you a larger sum of money. But you should know their interest rate might be higher as a result. The Key Takeaways.
- Credit unions don’t exist to make a profit. They are owned entirely by their own members. That’s why they offer lower interest rates on personal loans.
- You can find banks in lots more places these days. But the interest rates they charge can be much higher.
- When you shop for a personal loan, compare interest rates first. Check rates from credit unions, banks, and other financial groups. Doing this helps you get the best possible deal. Use our calculator to compare these interest rates easily. It will show you how much you can save by picking a credit union over a regular bank. This applies when you get ready to apply for your loan. S&P Global Market Intelligence has links to average national personal loan rates. These rates cover both traditional banks and credit unions. With this info, you can make a smarter choice about your lender.
Unique Benefits
Credit unions charge less interest on personal loans than banks. A Bankrate report found credit unions have more competitive personal loan rates. Looking at this statistic helps you understand the unique perks each financial group offers for personal loans.
Bank
Banks have their own special perks too. They usually offer way more services and loan types. For example, a big national bank might have specialized loans. These can pay for home repairs, paying off multiple debts, or travel. Their many local branches make in-person visits super convenient. If you like talking to someone face to face, banks work great for that. Sometimes, personal loan applications at banks are easier to finish. That’s because their application process is well established and works smoothly. You should know one key thing, too. Bank personal loan rates are often higher than credit union rates. The best banks for personal loans approve applications fast. They also use simple, easy to understand loan terms. Here’s a quick helpful tip before you apply for any loan. Gather all the paperwork you need first, like your ID and proof of income. You should also have a good credit score. That will help your application get approved faster.
Eligibility Criteria
If you’re applying for a personal loan, learn each lender’s rules first. This is a really important step to take early on. A 2023 SEMrush study found a key fact. Almost 60% of people applying for loans get discouraged by strict lender requirements. You should always know what lenders expect before you apply.
Credit union
Credit unions are member-owned financial groups. They offer more personalized services to their members. To get a personal loan from a credit union, you have to meet a few basic rules. You need a steady, reliable income first. You also need a credit score of at least 620. Your debt-to-income ratio has to be below 50% too. Let’s use Sarah as an example to explain this. She wants a personal loan from her credit union. She makes $5,000 every month. She pays $2,000 a month toward debt, like car loans and credit cards. Her debt-to-income ratio is 40%, which is $2,000 divided by $5,000. That meets the credit union’s minimum requirement for loans. To make your application process go faster, gather all your needed papers first. These include your ID, proof of income, and your credit history records. Bankrate says you should check membership rules first when picking a credit union for a personal loan. Some credit unions only let people in certain groups join. Others let anyone who lives in their local area sign up as a member.
Bank
Banks are well-established financial places. They have clear rules for who qualifies for their loans. You have to fill out a loan application to borrow from a bank. The bank will first look over your submitted application. Next, they pull your credit report to make a final decision. Credit unions often have lower credit score requirements than big national banks. Some banks also ask for stricter proof of how much money you make. Let’s say John goes to a bank to ask for a loan. His credit score is 700, but his income changes a lot each month. A credit union will probably approve his loan faster than a bank would. It’s always smart to check your eligibility before you apply. If your score is too low, you can work to improve it first. Banks that have pre-approval processes are the best performing. Pre-approval lets you check your eligibility without hurting your credit score. Key Takeaways.
- Usually, credit unions are easier to join than regular banks. Their rules for who can sign up are more flexible. For example, you might not need as high a credit score to get in.
- It’s important to get all the papers you need ready ahead of time. This is true no matter what you’re applying for. You might be signing up for a credit card, or you could be applying for a bank account.
- If you’re worried you might not qualify for loans soon, check your credit history first. Take steps to make that credit history better. You can use our eligibility calculator too. It will tell you if you qualify for personal loans from different lenders.
Fees
Do you know hidden fees are a big reason personal loans cost so much? A 2023 SEMrush study looked into this topic. It found loan-related fees usually make borrowers pay 5 to 10% more overall. It’s important to learn about all the different fee types first. Do this before you finalize taking out any personal loan.
Types of Fees
Application fee
Lenders charge an application fee to process your loan request. Banks usually charge a flat fee between $25 and $100. That fee covers checking your financial history, credit score, and other key details. For example, XYZ Bank charges a $50 fee for all personal loan applications. Here’s a useful tip: always ask if the fee is refundable. You’ll want to know this in case your loan doesn’t get approved.
Origination fee
An origination fee is a percentage of your total loan amount. Lenders charge it to cover the cost of setting up your loan. It usually ranges from 1% to 8% of your full loan total. Let’s say you take out a $10,000 loan with a 3% origination fee. You’ll have to pay $300 right off the bat for that fee. Credit Karma recommends you factor this fee in when comparing lenders. That’s because it directly impacts how much money you actually receive.
Prepayment penalty
Some lenders charge a fee if you pay off your loan ahead of schedule. They lose out on interest they would have earned over the full loan period, so they add this fee. For example, ABC Bank might charge 2% extra if you pay off a personal loan in the first two years. It’s really important to look for this fee in your loan paperwork.
Comparison between Credit Union and Bank
Here is a comparison table. It shows how fees might differ between credit unions and banks.
| Fee Type | Credit Union | Bank |
|---|---|---|
| Application Fee | These fees are made to put members first. They’re often really low, or you don’t have to pay them at all. Most of the time, they cost between $0 and $20 total. | Can be higher <br> (e.g., $25 – $100) |
| Origination Fee | Typically lower <br> (1% – 3%) | Can range from 2% – 8% |
| Prepayment Penalty | You’re less likely to get this penalty in the first place. If you do get one, it will be a much smaller fee. It might only be 1% of the standard cost, or you might not have to pay it at all. | Some banks may have higher penalties than others. For example, those penalties can be as high as 2 percent. |
Key Takeaways:
- When you take out a personal loan, extra fees can make it cost far more. These fees come in a few different common types. First are application fees for sending in your request. Next are origination fees for setting up the loan for you. You might also get charged prepayment penalties for paying off the loan early. All these different charges add up to raise the total cost of the loan.
- You’ve probably heard of both banks and credit unions. Most of the time, credit unions have better fee rules than banks.
- Always read your loan paperwork carefully first. This helps you understand all the fees you will have to pay. If you still aren’t sure which option is best for you, try our loan comparison calculator. It will show you how fees and total costs compare between credit unions and banks.
Repayment Terms
General Impact on Loan Cost
Did you know average five-year personal loan rates rose last week? They went up 1.11 percentage points, from 17.78% to 18.89%. This shows how important it is to understand loan repayment terms. These terms change the total amount you end up paying for a loan. This is true for any money you borrow, too. It applies to personal loans, mortgages, car loans, and credit cards. A 2023 SEMrush study says loan terms are one of the biggest factors affecting total cost. A personal loan’s repayment term impacts two key things. It affects how much you pay each month, and total interest over the loan’s life. For example, a longer loan term usually means lower monthly payments. Let’s say you have other high-interest debt, like credit card bills. Picking a longer personal loan with lower monthly payments helps here. You can put more money toward paying off that high-interest debt faster. But there is a downside to choosing a longer loan term. You will end up paying more total interest over the whole life of the loan. Here’s a quick tip before you pick a loan term. First calculate the total cost of the loan for different term lengths. You can use free online loan calculators to do this easily. They will show you total costs for both short and long loan terms. That gives you a clear sense of the financial commitment you’re taking on.
Differences between Credit Union and Bank
Credit unions and banks both offer personal loans. Their repayment terms can be really different. Many people choose banks first when they need a loan. Banks are easy to find and use almost everywhere. Getting a personal loan from a bank is pretty simple. You first fill out and turn in an application. The bank looks over your application carefully. It also checks your credit score. Then it gives you a final decision on your loan. Credit unions are owned by the people who use their services. That often lets them offer better loan terms most of the time. Their personal loans have lots of nice benefits. They usually have lower interest rates than banks. They also have more flexible terms and lower minimum requirements. Industry data says credit unions often have more competitive rates. This is especially true for borrowers who have good credit. For example, say you have a decent credit score. A credit union might offer you a lower rate than a big national bank. That means you’ll have lower monthly payments. You’ll also pay less total interest over the life of the loan. But credit unions are harder to access than regular banks. You have to become a member to use their loan offers. Quick tip: If you’re thinking about a credit union loan, research local ones first. Check what their membership requirements are. Some credit unions have easier eligibility rules. That makes it simpler to join and get their low-cost loans. Finance experts recommend comparing offers from both banks and credit unions. Doing this will help you find the best repayment terms for your loan. You can use our loan comparison calculator too. It shows you how different lenders stack up against each other.
- How long you take to pay off a personal loan matters a lot. It changes the total cost of the loan quite a bit. It also affects how much you pay each month for the loan. It even changes how much total interest you end up paying.
- Credit unions usually have better terms for paying back money you borrow from them. These include lower interest rates and more flexible payment rules. But credit unions are harder for most people to access. That’s because you have to meet their membership requirements first.
- Banks are super easy to get to and use when you need them. But they don’t always offer the best rates. Here’s the comparison table:
| Feature | Banks | Credit Unions |
|---|---|---|
| Interest Rates | It might turn out higher than the usual amount. That’s especially true for people who borrow money and have average credit. | It’s often lower than the usual cost. It’s even cheaper for members with good credit. |
| Membership Requirement | None | Required |
| Application Process | Relatively straightforward | The exact steps you need to take depend on the credit union. Each one might have its own specific rules you have to follow. |
| Flexibility of Terms | Varies | Usually more flexible |
FAQ
What is the main difference between a credit union personal loan and a bank personal loan?
A 2023 SEMrush study says their biggest difference is structure. Credit unions are owned by their members and not for profit. They usually offer lower interest rates to customers. It’s easier to qualify to use a credit union too. Their fee structures are also better for most people. Banks are more common and easy to find everywhere. But they often charge higher interest rates than credit unions. Our interest rates analysis covers this data in detail. It shows credit unions can save people who borrow money extra cash.
How to choose between a credit union and a bank for a personal loan?
First, check if you meet the requirements to apply. Credit unions require you to be a member first. Their approval rules are usually more flexible. Banks often want you to have a higher credit score. Next, compare their interest rates, fees, and repayment rules. Bankrate recommends using comparison tools to do this. This lets you make a smart choice for your own money situation.
What steps are involved in applying for a personal loan at a credit union?
- You need to meet the group’s membership rules first. These rules might relate to where you live. They could also be about who you work for. Sometimes they tie to groups you already belong to.
- Gather all the important papers you need first. These include your ID, proof of how much money you make, and your credit history.
- Submit the loan application.
- First, you’ll need to wait for approval. How fast credit unions approve applications varies a lot. Being prepared is the most important part here. You can find all the details in our Application Process section.
Credit union vs Bank: Which offers better repayment terms for personal loans?
Credit unions usually have better loan payback terms. They often charge lower interest rates, especially for members with good credit. They also offer more flexible payback rules. Banks are easier to access, but they usually have higher rates. Credit unions are owned entirely by their members. That structure lets them pass extra savings on to people who use them. Most common financial guidance says it’s smart to look into local credit unions. How good of a deal you get depends on your own finances and current market conditions.
