Should I Get a Personal Loan at a Credit Union or Bank?

Personal loans are a popular borrowing option; choosing where to get your loan is almost as important as the loan itself. Two types of financial institutions are likely to attract your interest: credit unions and banks. A little research can help you choose which financial institution makes the most sense for your goals and budget.

However, before you choose a financial institution, you need to know your loan options and find a loan that aligns with your financial goals. Your needs are unique, so taking the time to understand those needs and make an informed decision is essential. Keep reading for information about personal loans, the differences between credit unions and banks, and how to decide which financial option is right for you.

What Kind of Loan Will I Need?

Understanding your loan needs will help you decide which financial institution offers your preferred services, products, and programs. Personal loans are a popular option because of their versatility. A personal loan can help you achieve various goals, including making home improvements, consolidating debt, paying tuition, or even taking a vacation.

Personal loans differ from lines of credit in that with a personal loan, you receive the entire approved amount up front. You then pay it back through fixed payments and interest rates. With a line of credit, you’re approved for a set amount, but you can borrow smaller portions of the total as needed, and how much you borrow and how soon you repay it determines your payment amount.

Another factor to consider is interest rates. Some personal loans, such as those from credit unions, offer competitively low interest rates compared to loans or lines of credit from other financial institutions, such as banks. This brings us to our main point: there are several similarities between banks and credit unions, but there are also some key differences, and you should consider these when choosing your lender.

What Is a Credit Union?

A credit union is a not-for-profit financial institution that allows its members to borrow from the pooled deposits of all members at an often-discounted rate. Credit unions act as financial cooperatives owned by their members. Your local credit union will likely comprise holdings from people in your community, neighborhood, or workplace.

Acquiring a personal loan from a credit union is typically a simple process, and often, they come with lower interest rates than loans from banks. These low interest rates are available because credit unions turn over any profits made to their members, who act as shareholders. In short, credit unions can give lower interest rates because they exist to service and support members instead of stockholders.

What Is a Bank?

Like a credit union, a bank is a financial institution that accepts deposits and approves loans. Banks are for-profit financial institutions with wide networks that allow them to offer a large variety of products, services, and locations. Banks’ Customers are more likely to find a branch outside their neighborhood if they need to travel but still want access to a branch. Accessibility and extensive products and services are often crucial to customers who choose a bank for their financial needs, although interest rates may be less competitive and fees higher.

How Are Credit Unions and Banks Similar?

Banks and credit unions share many similarities. For starters, they are both financial institutions that provide banking services to members and customers. Other similarities are the kinds of products and services offered. Both institutions provide checking and savings accounts, a variety of loan programs, and investment products for members and customers.

Additionally, credit unions and banks are federally insured by US government agencies, meaning that members of credit unions and customers of banks have insurance from the government that their funds are safe and secure. Credit unions are insured by the National Credit Union Administration, or NCUA, a federal agency that monitors credit unions and assures members their funds are safe and available. Banks are regulated and monitored by the Federal Deposit Insurance Corporation, or FDIC.

What’s the Difference Between a Credit Union and a Bank?

The differences between a credit union and a bank are essential before choosing where to get your loan. As stated above, credit unions are smaller, locally owned, not-for-profit cooperatives where interest rates tend to be lower, and profits are passed down to members who act as shareholders.

On the other hand, banks are for-profit institutions with large networks and invested stockholders focused on profiting from bank earnings. They offer a wide range of financial services and locations while being less localized. In addition, customers are not members or shareholders.

Where Should Your Personal Loan Come From?

Now that you know the similarities and differences between credit unions and banks, you can see how these two institutions fit within your goals and lifestyle. If you travel extensively for work or recreation, a smaller, local credit union back home may not be your best option. You’re likely to prefer a bank with several branches across the region or country, even if it means a less personalized touch and less control over profits and investment decisions made by stockholders.

If it’s vital that your money stays in your community and connects you to your neighbors or coworkers, then a credit union personal loan is more likely to fit your needs and convictions. The lower interest rates and more personalized service at your local credit union will likely attract you.

Choosing the right financial institution is essential and worth the time it may take to educate yourself on your options. Look into the services offered, branch locations, and eligibility for membership at the institutions near you. For example, Mid-Hudson Valley Credit Union offers membership to anyone in Ulster, Dutchess, Orange, Westchester, Rockland, Putnam, or Sullivan Counties in New York. When choosing a credit union or bank for your personal loan needs, these details can make all the difference.