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Warning

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Contrary to what some people believe, a credit union is not the same as a bank. While banks are owned by shareholders, credit unions belong to the members. They focus on providing the best service, rather than on making profit for shareholders. Unlike banks, they are not open to everyone. Members must share a common bond, such as a geographic location, employment industry, or a religious affiliation.


Benefits of Joining a Credit Union

Credit union membership does not cost a lot. A person may only be required to deposit as little as $5 into a savings account to join. The benefits include a number of services that are becoming obsolete at banks, such as free checks and debit card transactions, checking and savings account dividends, a low interest rate on loans and higher dividend rates on deposit products. Some even offer the same services as banks, such as mortgages, retirement and financial planning.

Credit unions seem to be doing better than the banks in the current financial crisis. At the start of 2009, there were 7,965 credit unions. In the same year, 28 failed and 15 have gone out of business. In 2009, 222 banks out of 8,305 have closed their doors. In other words, do not put all of your savings in one place or you may live to regret it.


Types of Credit Union Loan

They offer similar loan products to banks, such as vehicle, personal, student, computer loans and credit cards. Some also finance recreational vehicles, such as scooters, four-wheelers, jet skis and snowmobiles. Interest rates for these products are very competitive. They are usually lower than those at banks. Some offer one low interest rate for all members, regardless of their credit history. If a loan application is approved, the member with less-than-perfect credit gets the same rate as a member with an excellent record. An additional rate discount may be available to members who maintain a close relationship with the credit union. This may include having a direct deposit and active accounts with frequent transactions.


Eligibility Criteria

Members can complete an application by phone, in person or online. Because they focus on service, they strive to exceed members' expectations. Applications completed online are forwarded to loan officers who review them and contact members for more information and to finalize the details. Call centers can process most loan applications and provide pre-approval notices within an hour. It may take a little longer.

When buying a car at a dealership, members can process their applications through the Credit Union Direct Lending (CUDL) program, which links over 800 credit unions with new and used car dealerships nationwide. A dealer can send an application through the system and receive a fast response. For qualified members, applications can be finalized within a couple of hours allowing members to leave the dealership in a new car without much hassle.

Just like any banker, a credit union representative needs the same basic information for the application, such as personal information, income and employment details, and the loan amount. If a member is buying a car, the lender will need the details on it, such as year, make, model and mileage to find the book value. He will also need to review the applicant's credit report before he can make a decision. Upon approval, the lender will finalize the details of the loan with the member, including the terms and disbursement information. Some members do not live close to credit union locations. To facilitate the process, the lender can expedite a cashier's check to the member or the dealership. In certain situations, the member can have the proceeds deposited directly into his checking account.


Terms of Borrowing

Besides lower rates, they are able to offer favorable terms for qualified consumers. Banks usually determine them based on the consumer's creditworthiness or the collateral information. Older vehicles are considered high risk by banks and are financed at significantly higher rates. Many of them have one interest rate for new and used vehicles. New vehicles can also be financed for up 72 months. Banks usually approve loans for 48 to 60 months.


Loan Products

Large credit unions can offer car-loan products to their members at very competitive prices. Banks and dealership prices are usually much higher. GAP insurance is a popular product that protects the borrower if a vehicle is declared a total loss as a result of an accident. It pays off the difference between the loan amount and the insurance payout. It costs between about $200 at a credit union. Dealers mark it up by several hundred dollars to as much as $600 to $800.

Mechanical Repair Coverage (MRC) is another product where dealers usually overcharge. MRC is also known as an extended warranty for used vehicles with less than 100,000 miles on the clock. Depending on the plan, MRC covers major breakdowns, including transmission and engine repairs. Prices vary widely and depend on the year, make, model and the mileage on the vehicle. It is definitely less expensive to purchase this through a credit union, because dealers charge much more.
Both GAP protection and MRC are excellent products to invest into to gain protection from unexpected out-of-pocket expenses. Lenders may allow members to include these products in the loan if the financed amount is less than the value of the collateral.


Delinquency

Because they focus on providing the best services to members, it is also easier to work things out if you are having financial difficulties and are unable to make the repayments. Lenders can agree to forbearance for up to three months if a member loses his job. They may also be able to refinance the loan to reduce the monthly payments if a member takes a pay cut.
Before applying for a loan, contact them for membership information. Interest rates may vary so you should always shop around to find the best rate.