Excellent Source for Low-Cost Financing

Less than one in five used car loans are made from credit unions, which is surprising because they can be a great source of low-cost loans because they can offer competitive financing rates to their members versus other institutions.

What's a Credit Union?

Credit unions are financial institutions formed by a group of people with a common bond (like a church, business or union). Credit union members pool their assets to provide loans and other financial services to each other.

These factors allow credit unions to pay dividends to their members (not shareholders) and offer them lower loan rates, higher savings rates and fewer service fees.

Who Can Join a Credit Union?

There are various types of credit unions. Some are affiliated with professional groups, others are part of companies, and some credit unions have geographical requirements for membership.

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Typically, credit unions are smaller organizations, which means you're also going to get faster service. Decisions are almost always made locally. Your loan check is going to be cut right there so you avoid overnight delivery fees. Other processing fees are typically lower, too.

Possible Savings

According to CUDL, the country's leader in indirect and point-of-sale lending for the credit union industry, credit unions accounted for 16.9 percent of all auto loans originating in 2007, down slightly from 18 percent in 2006. The average used-vehicle loan amount was $18,199 in 2007, a $45 increase from 2006.

The advantage to credit unions is they are owned by their members and are not-for-profit. Terms are usually better with lower interest rates. That means your loan is going to be shorter. CUDL reports that used-vehicle loans, meanwhile, decreased in average maturity from 70 months to 65 months in 2007.

Get Shorter Loans

It makes me shudder that used car loans are more than five years. It's an indication that people are buying used cars they can't afford - and paying more. For example, if you borrowed $16,000 for 48 months at 7.7 percent, your monthly payment would be $388.36 and your total payments would be $18,641.16. With a 60-month loan, your monthly payment is going to be lower at $322.13 but your total payment is going to $19,327.80. That means saving $60 a month short-term is going to almost $700 more in the long-term.

Find a Credit Union

The Credit Union National Association (CUNA) maintains a website that can help you find a credit union near you. It also has some good financial tools that could be helpful when making decisions about your loan.