With the current economic climate, a lot of people’s sources of income have come to a standstill. As a result, many have to rely on loans to fulfill their basic needs or help their business survive. There are countless lenders available in the market. For example, you can apply for a loan from either a federal credit union or a bank. Given that there are many lenders to choose from, how will you know which one will work best for you?
What Are the Main Differences?
The primary difference between the two is that a credit union is a nonprofit while a bank is a for-profit institution. Both provide the same types of financial products, such as savings accounts and loans, but they may offer different rates and terms. Before choosing the right lender, you need to understand the pros and cons of each option.
What Are the Advantages of Choosing a Credit Union?
Credit unions are nonprofit financial cooperatives where their members are also part-owners. These are democratically controlled, community-based financial institutions where each member has an equal vote. This means that members can influence the decisions regarding their union, such as electing members to the board of directors.
Joining a credit union can give you access to lower rates and better terms than most traditional financial institutions. This is mainly due to the fact that credit unions are nonprofit organizations, which means they are exempt from paying most federal and state taxes. The savings they get from being tax-exempt is passed on to their members through financial products with lower fees. Additionally, credit unions are less stringent on eligibility requirements than other lenders.
While most traditional banks seem cold and formal, credit unions are more personal when serving their members. These financial cooperatives often foster a friendlier atmosphere than traditional lenders.
The Cons of Joining a Credit Union
Credit unions often have fewer brick-and-mortar locations than most traditional banks. This fact can be a huge drawback for people who prefer in-person service. Aside from that, they often have a smaller budget for technology. This means that they may offer less advanced online features than other financial institutions. Although, it is important to note that some of the mid-range to larger credit unions have online and mobile banking apps that rival those of bigger financial institutions.
Why Should You Go With a Bank?
More often than not, traditional banks have access to a higher budget for financial technology. As a result, their online and mobile banking products are more advanced than those of credit unions. They also have more brick-and-mortar locations and ATMs. To compete with banks, some credit unions partner with other financial cooperatives to give members access to fee-free ATMs and additional branches.
Banks provide you with a wider range of financial products and services. They often offer more options when it comes to investment products, commercial loans, and credit cards.
What Are the Cons of Taking a Loan From a Bank?
Although banks give you access to a wider array of products than credit unions, they may be more stringent when it comes to eligibility requirements. Some products are not available to those with unfavorable banking or credit histories.
Interest rates on loans taken out from a traditional bank are, more often than not, higher than that of credit unions. On the other hand, the interest rate on savings products of a bank is noticeably lower.
Both banks and credit unions can provide you with the financial products and services you need. However, there are pros and cons in choosing one over the other. Whether a bank or a credit union is the right choice for you depends on your needs. If you are looking for excellent financial products with a personal touch and lower rates, credit unions are the way to go. On the other hand, if you want access to leading-edge online and mobile banking, your best bet may be a traditional bank.
If you are planning to take out a loan today, consider reaching out to your local banks and credit unions. By talking to lenders in your area, you can compare products, terms, and rates. This will give you access to the information you need to make a smart decision about your finances.