Credit Union

Unlike most lending institutions – particularly large banks - that are publicly owned corporations, credit unions are nonprofit organizations owned by their member customers. Since credit unions don't have to worry about answering to stockholders about profits, they often price their products (such as loans) more aggressively than banks. This means that, in many cases, credit union auto loans often feature lower interest rates when compared to those of bank auto loans.

Another common difference between banks and credit unions is customer service. Because credit unions are typically smaller and have fewer employees, the service their members receive from them is usually more personal. In addition, while most credit unions will charge their customers for overdrafts or returned checks, they usually refrain from charging checking, savings, or teller fees. ATM withdrawals are, in most cases, also fee-free unless the machine being used is outside their network. It should also be noted that, even though credit unions are local, many of them participate in one of the nationwide networks of credit union ATM machines that allow members, wherever they are, to use them at no additional charge.

Applying for an auto loan at a credit union is easy, although it usually has to be done in person. In most cases, borrowers have to live in the area served by the credit union. Credit unions require borrowers to become members once they get approved for a car loan which means they'll need to open a savings account (called a share account).

The most important thing to remember is that if borrowers have issues with their credit, they may not qualify for a car loan through a credit union car loan – although credit-challenged borrowers that already have a relationship with a credit union will generally have a better chance of getting approved for a loan at a credit union than those who have a relationship with a bank.

In addition, credit unions are far more likely to offer their current borrowers alternatives to keep them from defaulting on loans such as loan extensions, loan re-finance options, and even loan revisions (such as combining loans).

Like banks, though, credit unions typically don't approve auto loans to applicants with the lowest FICO scores.