How Does a Credit Union Personal Loan Work?

A credit union is a type of financial institution similar to a bank that provides a range of banking services. Unlike banks, however, credit unions are owned and operated by their members. Some credit unions are small and serve individual neighborhoods, while others have nationwide coverage. To get financial services from a credit union, you’ll need to become a member.

Credit unions offer many of the same financial services as banks, including access to personal loans. Personal loans from credit unions often have benefits like lower interest rates, options for smaller loan amounts, more flexible terms, and less stringent approval requirements.

Key Takeaways

Credit union personal loans provide a lump sum of financing that you repay in fixed, regular payments.
To apply for a personal loan from a credit union, you’ll have to be a member of that credit union.
Personal loans from credit unions generally have lower interest rates and fees than loans from banks or online lenders.
Typically, credit unions take one to 10 working days to approve or deny a loan.

Find A Good Rate

Many of the best personal loans available are from credit unions.

How a Credit Union Personal Loan Works

Credit unions have several advantages over banks. The primary benefit of using a credit union is that, since a credit union is not run for profit, it can often offer lower interest rates than traditional and online lenders. Many credit union users also value the more personalized service that credit unions can offer to their members.

You’ll first have to become a member of a credit union before you can apply for its loans. Each credit union has its own membership criteria, but many now allow you to apply online. You’ll generally have to make a small deposit to open your membership ($5 to $25), but once you are a member, you can apply for a personal loan.

At this point, a personal loan from a credit union works in much the same way as a loan from a bank. The credit union will assess your application and decide whether to lend to you. While credit union membership is a required first step to apply for a credit union loan, membership alone won’t necessarily improve your chances of getting approved unless your credit is excellent or you have guaranteed employment, such as serving in the military.

Note

If you are approved for a credit union personal loan, the credit union will pay you a lump sum, which you will pay back (with interest) in fixed monthly installments.

Purposes

You can use a personal loan for a variety of purposes, no matter if you get the loan from a credit union, a bank, or an online lender. Some lenders may ask what you plan to do with the money, while others will just want to be certain that you have the ability to pay it back. Personal loans are often used for:

Moving expenses
Debt consolidation
Medical bills
Wedding expenses
Home renovations or repairs
Funeral costs
Vacation costs
Unexpected expenses

Before you opt for a personal loan, however, you’ll want to make sure this is the right financing option for you. Primarily, you should consider whether there may be less expensive options for you to borrow money depending on your situation.

For example, you may be able to get a lower interest rate if you have home equity that you can use toward a home equity loan. Or a credit card with a 0% introductory interest rate could provide free funding if you can repay the money back before the introductory period ends.

Some reasons for choosing a personal loan are:

You need a lump sum of financing that you can repay in regular payments.
You don’t have assets to use as collateral for a less expensive loan.
A personal loan is your least expensive borrowing option.

How to Qualify for a Credit Union Personal Loan

To qualify for a personal loan from a credit union, you’ll first have to become a member. Each credit union has different criteria for becoming a member, and you may not qualify to join each one.

However, there are a range of credit unions, and you can likely find one that fits you. Once you are a member, you’ll be able to apply for a range of financial services, including personal loans.

Eligibility requirements for personal loans from credit unions are less strict than a bank’s criteria. In particular, a low credit score may not disqualify you from a loan with a credit union, because a credit union is more likely to take into account your overall financial circumstances. However, a good credit score will likely get a lower interest rate.

Check your credit score before applying for a personal loan. If your score is lower than you would like and you can delay taking out a personal loan, then you can take steps to improve it, such as paying down your debt.

Note

A personal loan, whether from a bank or a credit union, is typically an unsecured loan. This means that the lender does not require collateral—a home or a car, for example—to borrow money.

How to Apply for a Credit Union Personal Loan

To apply for a personal loan from a credit union, you’ll have to complete a number of steps. First, you’ll need to apply for membership in the credit union. Every credit union has its own requirements and process for this, but some will now allow you to apply online.

To join a credit union, you might have to make a small deposit to open your account. Once you have an account, you can apply for a personal loan. Some credit unions will allow you to apply for a loan online. Others will require you to visit a branch of the credit union.

Similarly, each credit union will ask for different information as part of your loan application. You should expect to have to provide personal and contact information, a Social Security number, employment and income details, and any debts you already have.

After you apply, the credit union will consider it and make a decision on whether it can lend to you, and at what interest rate and loan term. This check may have a temporary, small negative impact on your credit score, but it should disappear in a few months to a year.

If you are approved, you can expect to receive funds in a few days to a few weeks, depending on the credit union.

A low credit score generally won’t automatically disqualify you from a personal loan from a credit union. However, lenders will check to ensure that you can repay the loan, especially if it’s unsecured.

How Do People Use Personal Loans?

Investopedia commissioned a national survey of 962 U.S. adults between Aug. 14, 2023, to Sept. 15, 2023, who had taken out a personal loan to learn how they used their loan proceeds and how they might use future personal loans. Debt consolidation was the most common reason people borrowed money, followed by home improvement and other large expenditures.

Pros and Cons of a Credit Union Personal Loan

Credit union personal loans are different from bank personal loans in several ways, both positive and negative. In general, credit unions offer better interest rates and more personal services. However, credit unions may take longer to fund your loan.

Credit Union Personal Loans

Typically offer lower interest rates on personal loans
Lower eligibility requirements, particularly for borrowers with low credit scores
Emphasis on strong customer service
Lower fees and prepayment penalties on personal loans
May take longer to get a loan funded, since you have to apply for membership first

Bank Personal Loans

Higher interest rates, making the loan more expensive in the long term
Less emphasis on personalized customer service
Fast, easy application
May charge higher fees and prepayment penalties
Larger banks offer convenience with access to multiple branches, ATMs, and online and mobile banking technology

What Is a Credit Union Field of Membership?

Membership in a credit union is based on a common criteria that is often called a field of membership. This can be working for a particular employer or in a particular industry, or simply living or working in a specified geographical area.

How Do I Join a Credit Union?

How you join a credit union depends on the credit union’s process, as each has its own requirements. Some credit unions will allow you to apply online by filling out an application with your personal information. Others may require you to visit a branch to apply.

What Is the Minimum Credit Score for a Credit Union Personal Loan?

The minimum credit score for a personal loan will vary by credit union. It’s possible to get a personal loan from some credit unions with a low credit score. The credit union will likely use other criteria to make sure you can repay the loan.

Do Credit Union Personal Loans Have Fees?

Credit unions may charge fees, but they tend to charge fewer and less expensive fees than banks charge. Whether a credit union charges fees depends on the credit union’s individual policy.

How Long Does It Take to Get Approved for a Personal Loan from a Credit Union?

Once you are a member of a credit union and have applied for a loan, it can take anywhere from one to 10 working days to be approved. The exact time it will take depends on the credit union.

The Bottom Line

A personal loan is often the least expensive way to borrow, and you can get a personal loan from a variety of providers. Personal loans from credit unions generally have lower interest rates and fees than equivalent loans from banks or online lenders.

The disadvantage is convenience. To get a loan, you’ll have to join a credit union first, and it may take longer for your loan to be approved.