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.

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.

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.

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. 

How Do People Use Personal Loans?

venuscurves.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.

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.