Apply for a personal loan through a credit union for competitive interest rates
You may need extra money to consolidate your debt, go on a vacation, repair your home or move house. You can take out a personal loan to cover all of the above costs and more. These loans are usually unsecured, but some lenders provide deposit-secured personal loans.
You can usually get a personal loan from a traditional bank, online lender, peer-to-peer lender or a credit union. However, choosing a credit union may save you money. Find out more in our guide.
Credit unions are financial institutions that offer the same products as traditional banks, but differ in the sense that they are nonprofit organizations owned by all of its members, instead of a small group of owners. Credit unions have a strong focus on their community of members and use a democratic approach.
Members get to elect a board of directors who provide general oversight of keeping the best interest for the credit union’s members. Since credit unions are nonprofit, the earnings are put back into the members pockets in the form of lower interest rates, reduced fees and typically better terms for the financial products on offer, including loans.
The main difference between a credit union and most other kinds of lending institutions is that credit unions are nonprofits. That means their end game isn’t making profits for its shareholders, but instead providing its members with more competitive services.
Before you get a personal loan from a credit union, you’ll have to become a member. Some credit unions offer membership to limited groups of people, so be sure to check if you qualify.
Credit unions vs. banks
Credit unions are more similar to banks than other types of lenders — they offer a wide range of financial services including chequings and savings accounts, credit cards, retirement funds and loans.
When it comes to loans, both banks and credit unions typically have much more involved applications than online lenders have, and it can take at least a couple weeks to process and disburse loan funds.
Compared to banks, credit unions tend to have less strict eligibility requirements. They also tend to have more information available online, often providing tables, calculators and other tools allowing you to calculate your potential monthly repayments before you apply.
Credit unions vs. online lenders
Credit unions and online lenders typically have more flexible requirements than banks. Both are also usually more friendly to online customers.
Online lenders usually come up stronger than credit unions on two major factors: Turnaround time and ease of application. Online lenders can sometimes get you funds in as little as one business day. You also don’t have to become a member and open a new bank account in order to be eligible for a loan.
Credit unions usually offer more competitive rates, however.
Many credit unions across Canada provide personal loans to their members. Since credit unions differ in each province and territory, personal loans too vary across different parameters, such as:
- Interest rates. Your credit score has an effect on the annual percentage rate (APR) you’ll be offered on the amount you borrow. This rate will vary between lenders. The APR has a massive effect on the overall cost of your loan, especially if you borrow a significant amount.
- Fees. Credit unions tend to keep their fees to a minimum. However, this does not mean that they don’t charge any fees. Take time to review how much you’ll have to pay if you make late repayments or if payments fail to go through because of insufficient funds in your account.
- Loan amount and term. The minimum and maximum amount you can borrow will vary from one credit union to the next. This also holds true when it comes to the loan term.
- Extra repayments. By making extra repayments or repaying your loan early you can save on interest charges. In some cases, you may have to pay additional fees or penalties, so be sure to check with your lender before making extra or early repayments.
- Competitive rates. Since credit unions don’t operate with the motive of generating profits, they’re able to offer competitive interest rates. Credit unions also usually charge lower fees in comparison to banks.
- Use funds for any purpose. What you do with the funds you get through a credit union personal loan is basically up to you, provided you use the money for legitimate purposes.
- Bad credit loans. Some credit unions offer personal loans to individuals with poor credit. Applying for such loans may require that you apply with a qualified cosigner or that you provide some kind of collateral.
- Nonprofit. Credit unions are nonprofit institutions. Unlike banks, any earnings a credit union sees are redistributed to its members in the form of small dividends, low interest rates, smaller fees and other perks.
- Membership. Applying for a personal loan through a credit union requires that you start by becoming a member. You may have to pay a nominal minimum deposit along with a membership fee.
- Less choice. You have less choice if you limit your selection to only personal loans from one credit union.
- Slow turnaround. It can take a couple weeks to get your funds — or even longer.
- Limited services. Many local credit unions only have a handful of ATMs and locations. While this might not affect your loan necessarily, you could have trouble accessing your chequings or savings account if you move — which you’re likely required to open to become a member.
The APRs on unsecured personal loans are often higher than secured loan rates. If you’re able to provide some kind of collateral, like your home equity or your car, you may want to consider getting a secured loan. Your creditworthiness affects the APR you’re offered, so if you have a poor credit rating you may want to postpone your plan of getting a loan until you build up your credit. Keep in mind you will lose your collateral if you can’t make your loan repayments.
If you feel you might have problems in making timely repayments, it’s important to consider how a personal loan would fit into your budget. Making late repayments will have you paying additional fees and can damage your credit score.
To get a personal loan from a credit union, you will first need to become a member. Each credit union will have different stipulations for joining.
Eligibility can be determined by many factors – where you live, your employer, your family and any sort of activity within the community where the credit union operates. Once you’re a member, there will be certain requirements when applying for a personal loan, such as:
- Personal identification. Providing a copy of your driver’s license or valid government issued ID, like a passport.
- Personal details. Verification of your home address with either a copy of a rent, utility or credit card bill. You’ll also need proof of past or current income with recent pay stubs or bank statements.