There are many well established credit unions in Canada – like Meridian, FirstOntario and Servus – who offer a variety of loan options. Credit union loans usually have less strict eligibility requirements, offer lower rates, and have quicker application processes than banks. However, you’ll usually need to be a member of the credit union in order to be eligible.
What is a credit union?
Credit unions are financial institutions similar to traditional banks, but operate as 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 credit union 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.
What types of credit union loans can I get?
Credit unions can offer the same types of loans as banks or online lenders. Credit unions in Canada offer a wide variety of personal financing including:
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.
Online loans vs. credit union loans
Credit unions and online lenders typically have more flexible loan requirements than banks. Both credit unions and banks 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 union loans usually have more competitive rates than online lenders, however.
What credit score do you need to get a personal loan from a credit union?
You have the greatest chance of getting your application for a personal loan from a credit union approved if you have a good to excellent credit score (above 660). If your score is lower than 660, your chances of approval decrease.
Can you get credit union loans for bad credit?
While credit unions tend to have more lenient eligibility requirements compared to banks, it will still be difficult to get approved for credit union loans if you have bad credit. Still, credit unions are more likely to approve borrowers with a rocky credit history compared to banks. If you’ve had trouble qualifying with banks because of bad credit, it’s worth looking into credit union loans instead.
You can increase your chances of approval by applying with a cosigner who has good credit and a higher income. Securing your credit union loan with some form of collateral will also increase your chances of approval.
If your looking for bad credit personal loans, your best bet is to apply with online lenders who specialize in working with bad credit borrowers. Read our full guide to bad credit personal loans to learn more.
Credit union loan features to consider
Interest rates. Your credit score has an effect on the annual percentage rate (APR) you’ll be offered on your credit union loan. 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.
Pros of credit union loans
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 personal loan funds you get from a credit union is basically up to you, provided you use the money for legitimate purposes. Credit union loans are typically used for reasons like vacations, repairs, education and debt consolidation.
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.
Cons of credit union loans
Membership. Applying for a personal loan from 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.
How to increase your credit union loan approval odds & get lower rates
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. Keep in mind you will lose your collateral if you can’t make your loan repayments.
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.
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.
What do I need to apply for a personal loan from credit unions?
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 credit union loans, 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.
Frequently asked questions about loans from credit unions
This depends on the credit union you choose to join. While some offer membership to all Canadians, others limit their membership to employees, staff or students of specific institutions and their family members. Keep in mind credit unions usually differ between different provinces and territories, so one you find in Nova Scotia you will likely not find in Alberta.
You can apply if you're a member and if you have a regular source of income. To become a member, you'll have to complete an application and provide an acceptable form of photo ID. You will also need to meet any age and residency requirements.
Interest rates on loans from credit unions tend to be the same or less than what traditional banks offer. Credit unions can offer lower rates because they are nonprofit financial organizations where all of the members can benefit from the earnings.
Credit unions usually don't charge loan processing fees, however this will depend on the credit union you choose. Ask the lender beforehand.
Leanne Escobal is a publisher for Finder. She has over 11 years of experience in financial services, specializing in content and marketing. Leanne has completed the Canadian securities course (CSC®) as well as the personal lending and mortgages course by the Canadian Securities Institute. She has a Bachelor of Arts (Honours) in English literature and creative writing from Western University.
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Bank loans vs. credit union loans
Online loans vs. credit union loans
Bank loans vs. credit union loans
