7 surprising benefits of borrowing from a credit union

After years of saving, you’re finally ready to find a mortgage lender. Or perhaps you need to replace your vehicle with a newer SUV, and you’re shopping for an auto loan. Maybe your HVAC system needs repairs, and you need cash quickly to cover the bill.

When you need to borrow money, big banks are often the first option people think of, but there may be a better alternative: credit unions.

Credit union loans tend to have lower fees and interest rates than bank loans, but there are other perks that can also make them especially useful when you need to borrow money.

Banks are for-profit financial institutions. As a result, their goal is to make profits and satisfy shareholders. Credit unions work differently. Credit unions are nonprofit, member-owned organizations that exist to serve their customers.

The difference in structure significantly impacts your experience as a borrower. While a traditional bank maximizes profits, a credit union returns its earnings to its members in the form of lower fees and better rates. In short, borrowing money from a credit union can feel more like a partnership, since it’s a not-for-profit institution.

The catch? To enjoy better loan rates and personalized service, you must be an existing credit union member. Credit union membership criteria can be limited to certain groups, such as residents of particular areas or specific employers.

Related: Credit union vs. bank: Which is right for you?

Credit unions are often overlooked, but they typically offer a broad range of loan products. Whether you need a mortgage, car loan, or personal loan, a credit union can be a smart choice.

A loan’s annual percentage rate (APR) is the yearly cost of borrowing money. The higher the rate, the more you’ll pay over the life of the loan. In general, credit unions tend to offer significantly lower interest rates than banks, so you could save hundreds or even thousands by choosing a credit union loan.

Below are the average loan rates offered by banks and credit unions on several loan products:

Those rate differences can produce major savings. For example, say you bought a used car for $20,000. If you took out a loan through a bank and qualified for a 48-month loan at 7.73% APR, you’d repay a total of $23,315 over the life of the loan.

But if you went through a credit union, you could qualify for a 48-month loan at 5.53%. By the end of your repayment term, you’d repay $22,339. Opting for a credit union with competitive rates would save you about $975.

Related: How to get the best personal loan rate

Credit union loans typically have lower fees than bank loans, so you’ll pay less money upfront to borrow money. For example, some for-profit lenders charge origination fees of up to 10% on personal loans. If you borrowed $10,000, that means you’d pay $1,000 in origination fees to take out the loan.

Credit unions rarely charge origination fees on personal loans, allowing you to save money.

In general, credit unions have less-stringent eligibility requirements than banks, so you may be more likely to qualify for a loan from a credit union if you have less-than-perfect credit. For instance, for-profit lenders usually require a minimum credit score of 650 or higher for a personal loan. But some credit unions require a minimum score of just 580.

A federal credit union must follow strict caps on interest rates. For most loans, the maximum rate a credit union can charge is 18.00%. Banks and for-profit lenders aren’t limited by this rate, so these lenders may charge 35.99% or more.

For borrowers with poor to fair credit, the maximum rate offered by credit unions may be lower than the best rate a for-profit lender can give you, so you could save money by working with a credit union.

Read more: Best personal loans for bad credit

Payday loans are expensive, short-term debt. Taking into account the loan’s fees, a payday loan can have the equivalent of a 400% APR.

When you need cash quickly to tide you over until payday, a credit union payday alternative loan (PAL) can be a much better choice. PALs are available through some federal credit unions, and they allow you to borrow $200 to $1,000 and have as long as six months to repay the loan. Federal credit union PALs have rate restrictions; the highest APR allowed is 28%.

Read more: 5 ways to repay or refinance a payday loan

When you need money for an emergency, such as a veterinary bill or car repair, credit union emergency loans can be a helpful option. These loans can give you up to $5,000 quickly; in many cases, you can receive the loan funds as soon as the same day you apply. And, if you’re an existing credit union member, you may be eligible for a loan without a credit check.

If you have poor credit or haven’t built a strong credit history yet, a credit-builder loan can be a convenient tool.

With a credit-builder loan, you take out a relatively small amount — usually $500 to $2,000 — and repay it (with interest) over a term of six months to two years. As you make payments, the lender reports the loan payments to the major credit bureaus, helping you to build your credit. At the end of the loan term, the lender returns the principal to you.

It’s a safe way to establish your credit and build a positive payment history, but credit-builder loans from for-profit lenders can have high rates and fees. By contrast, credit unions that offer these loans tend to offer much lower rates and fees, so you can build your credit at a lower cost.

Credit unions reward members with better interest rates, lower fees, and more flexible eligibility requirements on their financial products. Whether you plan to buy a car or consolidate high-interest credit card debt, a credit union loan will likely be more affordable than a bank loan, particularly if you have less-than-stellar credit.

If you’re not a member of a credit union yet, you can use the National Credit Union Administration’s locator tool to find a credit union in your area.