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Credit Unions vs. Banks: Things to Know When Getting a Loan

When it comes to taking out a mortgage, you probably already know that it’s best to explore all your options. Banks are great places to start, especially if you have a long-term relationship with the bank where you keep your checking and savings accounts. Credit unions aren’t banks, even though the offer many of the same services and benefits. Here’s what you need to know about credit unions vs. banks when it comes to getting a mortgage.

What Makes a Credit Union Different?

The number one biggest difference when it comes to credit unions vs. banks is the money they make. Banks are for-profit institutions that exist to make money on fees and interest. Bank executives, such as CEOs, make millions of dollars each year in this manner. Credit unions, on the other hand, are not-for-profit institutions. Another key difference comes in the way your funds are insured. While the FDIC ensures your funds up to $250,000, funds in credit unions are insured up to the same amount by a group called the NCUA, or the National Credit Union Administration.

Where Does the Money Go?

Since credit unions aren’t for-profit institutions, you may find yourself wondering where all the money from interest and fees goes. With banks, dividends are divided between a relatively small group of executives, shareholders, and others. With credit unions, things are a bit different. Each member of the credit union is also a member, per se, so dividends are divided among each member. While this doesn’t usually equal a large amount of money, it certainly does help members feel as if their contributions matter – and they’re being rewarded for their memberships.

2017 HVAC prices 300x200 Credit Unions vs. Banks: Things to Know When Getting a LoanFees and Interest in Credit Unions vs. Banks

Of course, if you’re interested in getting a major home loan, interest rates are likely one of your biggest considerations. Here’s where a credit union may fall a little short. Because credit unions tend to focus on personal interactions and building relationships with their customers over time, many of these institutions have less stringent credit requirements for mortgages. Unfortunately, this also means you’ll pay higher interest rates – even if they aren’t much higher than those offered by your bank. If you have less-than-perfect credit, though, you might find that your credit union offers better rates than your bank.

Who Should Consider a Credit Union?

If you’re deciding whether you should choose credit unions vs. banks for your home loan, there are a few things to think about. First, if you have a good working relationship with your current bank, it only makes sense to apply for your mortgage there. This is especially true if you’ve had a checking and savings account there for many years, or if you’ve had auto and personal loans from that bank in the past. If you haven’t been with your bank long, or if you have less-than-perfect credit, you might want to consider becoming a member of a local credit union.

The differences in credit unions vs. banks are many, and in some cases, it may be better to apply for a mortgage through a credit union. Remember, though, that interest rates are typically higher – even if you have excellent credit – but you can recoup some of that in terms of dividends and lower fees.

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