There are three standard options for securing financing for a car: dealerships, banks, and credit unions. Many people choose to finance with the dealership because it's quick and easy, but there can be many downsides to taking this approach. Some of these issues can be significant enough that they may even end up costing you more money on your loan over the long run.
While many people turn to traditional big banks to avoid dealership loans, credit unions can offer a superior alternative in many ways. Before you head to a big bank or a dealership for your next car loan, consider these three reasons that borrowing from a credit union may be a more financially savvy approach.
1. More Bargaining Power and Flexibility
Non-dealership financing provides you with a surprising amount of bargaining power and leverage when you show up on the lot. Since you aren't relying on the dealership to approve your loan, you'll know exactly how much car you can afford and how much you're likely to pay in monthly payments. This added knowledge lets you shop and bargain confidently.
While a loan from a big bank will give you this same advantage, the higher flexibility offered by many credit unions gives you another ace up your sleeve. Since credit unions are typically willing to provide loans for cheaper cars than big banks, you won't need to purchase more car than you can afford just to qualify for financing. Instead, you'll be able to pick a vehicle that fits your needs and budget.
2. A More Open Approval Process
Big banks often have strict lending requirements, and some borrowers may fall through the cracks due to relatively minor financial issues. These requirements can be a particular hurdle if you're currently rebuilding a poor credit history. While all credit unions aren't the same, many will work with you if you can show that you're working to improve your current financial situation.
This more friendly and understanding approval process also means that you may qualify for a better interest rate than you would with a dealership or a larger financial institution. Remember that even small changes in your interest rate can have a substantial impact on the total cost of your loan, so qualifying for a better rate can save you a lot of money.
3. Better Support
One of the critical aspects of banking with a credit union is dealing with a smaller institution that focuses on its members. While nearly everyone goes into a new loan with the best intentions, circumstances can change, and life can occasionally become much more challenging. In these cases, credit unions may be able to provide better support to help you keep your car through temporary financial hardships.
Ultimately, this added support is one of the best benefits of working with a credit union. Instead of holding a loan backed by a large and impersonal institution, you'll get to work with an establishment committed to the financial wellbeing of its members.