Getting An Auto Loan With A Credit Union vs. A Dealership

Tuesday, January 29th, 2019
Cars on a lot you can buy with a loan from a credit union

Updated 1/3/2022

Buying a car is a big deal. It is almost always exciting, but also expensive and exhausting. After scouring car lots, test driving, and navigating a sea of eager salesmen, you still have one more hurdle before getting the keys….financing.

Will you finance a loan through a credit union or dealership? How do you know which is right for you? There are many reasons why you should go with an auto loan through a credit union, such as lower interest rates and personalized service. Here’s what you need to know when deciding whether to finance your car loan through a credit union or the dealership.

Dealership bargains aren’t always what they seem

is it better to finance through a credit union or dealership

If you choose to buy a car through a dealership, you will likely be offered an “unbeatable deal” or a sizable discount in exchange for financing through them. The issue is that this bargain usually isn’t the best deal when it comes to long-term interest rates.

A dealership’s APR is usually higher than what you qualify for based on your credit score. For example, you may get a 6.9% rate with an offer of $1500 off if you finance through them. But at a credit union, you could qualify for as much as 3% less on a 60-month loan. Over time, the credit union’s offer will save you much more money.

Dealerships make commissions, credit unions don’t

Most of the time, dealerships are the middleman. If they can broker a deal between you and a lender, they get a cut. As a result, they are motivated to talk you into signing a loan that may not be the best for you.

By choosing to finance through a credit union, you can get pre-approved for an auto loan faster and easier. When you walk onto a dealership lot with financing already in hand, you can simply choose the car you want within your budget. You’ll know your price range and won’t have to worry about hidden fees or skyrocketing interest rates.

Credit unions have great rates and extra benefits

Happy Couple Near New Car

A car dealership is not a federally-insured financial institution. They are a business, so it is in their best interest to get your money. Credit unions don’t have to pay any third-party investors and are not-for-profit. If you are a member of a credit union, you are not just a customer: you’re an owner.

It is in the best interest of credit unions to make sure that you get the benefits of any financial services you use. One of these benefits is lower rates on auto loans, even lower than banks. You won’t see those kinds of rates at a dealership because they simply aren’t structured to offer them. Other credit union benefits include the following.

  • GAP insurance
  • Credit life
  • Disability insurance
  • Extended warranties
  • Flexible loan periods
  • Close communication whenever you need help
  • Financial education
  • A more personal relationship that will make the entire process easier

Although dealers offer a few of these benefits, it’s best to compare services and prices before your purchase. Checking with a local credit union first could save you money and put you in a better financial position.

Preparing to get a loan

When you choose to go with a credit union, there are some things that you will need to do before getting your loan. First, you must join the credit union. Then you can open an account and they will help you get your loan. Here are some other things to keep in mind.

You will need to budget

If you aren’t sure how to budget, you can ask someone at the credit union to help or look up helpful info online. Here are some tips to get you started on budgeting.

  • Figure out your monthly expenses and how much you have leftover.
  • Have a down payment ready. You don’t have to have an exact amount.
  • Ask about an equation you can use like the 20-4-10 rule.
  • Prepare to include related costs of owning a car in your budget. You should consider full coverage insurance, fuel, and maintenance needs.

Gather everything you will need

Be sure to have everything you need before you apply for a loan. This will make the process easier so you can focus on buying your new ride. You will need the following information, and perhaps more. Ask a team member at the credit union if you aren’t sure what you will need to gather.

  • The completed application (online or on paper)
  • Identification documents (Like your social security number and driver’s license)
  • Proof of employment and income information
  • Your credit history (This is something the credit union can get for you.)

Ready to join a credit union and get that auto loan?

Contact Borger Federal Credit Union today! By joining BFCU, you will see many benefits including financial education, lower loan rates, and personalized service! You can reach us at (806) 273-9506 or Contact us by email. Becoming a Member is easy: if you live, work, attend school, or worship in Hutchinson, Carson, or Gray Counties, you are eligible to join!