A credit union is usually the cheapest place to borrow money
When you need to borrow money — to cover a bill, fix the car, pay down higher-rate debt, or get through a hard month — a credit union is usually the cheapest place to look first. Credit unions are owned by their members, not by outside shareholders. Any money they make goes back to the people who bank there, which is why their loan rates tend to be lower than a bank's and far lower than a payday or title lender's.
This page covers the loans credit unions make, why those loans cost less, the ones built for people with low or damaged credit, and how to join a credit union if you don't already belong to one.
Why their rates are lower
A credit union is a not-for-profit. Its members are also its owners, so the money it earns comes back to them as lower loan rates, better savings rates, and fewer fees. A bank has to return a profit to shareholders, so the same loan usually costs more there.
There's also a rate cap that protects you. Federal credit unions can't charge more than a set interest rate on most loans — well below what payday and title lenders charge, and lower than a lot of credit cards. For someone with a short credit history or a few missed payments, that cap can be the difference between a payment you can manage and one you can't.
Some credit unions also offer additional benefits to members, in particular longer-term members. This may include lower rates after automatic payments, rate discounts for existing members, and relationship discounts.
The loans credit unions make
Credit unions make a few different types of loans, and it helps to know which one to ask for.
The most common is a personal or signature loan. You borrow a set amount and pay it back in fixed monthly payments. At a credit union it's usually unsecured — a signature loan — meaning you don't put up your car or savings as collateral. Your income and credit history are what qualify you. People use it for a medical bill, a home or car repair, or to combine several high-rate credit card balances into one lower payment.
For a smaller, urgent need — a few hundred dollars to get past a car repair or a late rent payment — many credit unions offer a small loan made to replace payday borrowing. It's repaid over a few months at a capped rate and can't be rolled over, which keeps it from turning into the kind of debt a payday loan does.
If your credit is damaged or you've never built any, a credit union can set you up with a credit-builder or savings-secured loan. These let you borrow against money you set aside, or make small payments the credit union reports to the bureaus, so you often finish with a higher credit score than you started with.
Credit unions are also known for some of the lowest car loan rates around. If a car payment is straining your budget, there are ways to lower or get help with a car payment, and refinancing a car loan you already have at a credit union can drop the rate you're paying now.
Credit unions are also known for looking beyond a credit score when applying for a loan. Someone who has consistent income but a few old collections, medical debt, or a short credit history may still qualify because the credit union considers the whole financial picture. That doesn't mean approval is guaranteed, but many borrowers may find a credit union is willing to work with them when a larger bank is not.
Joining a credit union if you don't have one
You have to be a member to borrow from a credit union, but joining is easier than most people expect. Membership usually opens up through where you live or work, a job or trade group, a church or community organization, or a relative who already belongs. Many credit unions also let anyone join by opening a savings account with a few dollars or making a small donation to a partner nonprofit.
If you don't belong to one, a few large credit unions accept members from anywhere in the country. Pentagon Federal (PenFed) and Alliant both let anyone join — PenFed by opening a small savings account, Alliant through a small donation it makes on your behalf. If you or a close family member served in the military or worked for the Department of Defense, Navy Federal is the largest credit union in the country and is open to you. Membership rules change, so check the current terms before you count on any of them.
To find a credit union you qualify for, the NCUA — the federal agency that oversees and insures credit unions — runs a locator on its consumer site, https://www.mycreditunion.gov/, where you can search by where you live. Your deposits at any federally insured credit union are protected up to the same limits as a bank, so your money is just as safe there.
When a credit union loan isn't the answer
A credit union loan is cheaper and safer than most ways to borrow, but it's still money you have to pay back. If your income won't cover the payments, a loan can leave you worse off than before.
Before you borrow anything, it's worth checking whether the bill can be handled another way. For example, some nonprofits, employers, faith-based groups and local programs loans that charge no interest at all. Borrow only what you truly need, and only when you know you can pay it back.
Moderated community discussion
This page explains how credit union loans work. If you'd like to hear from people who have actually borrowed from a credit union or are deciding whether to join one, visit our moderated credit union forum. Members discuss loan approvals, credit-building loans, debt consolidation, refinancing, membership requirements, and other real-life experiences. As with any online discussion, remember that individual experiences vary and you should always confirm loan terms directly with the credit union.
The information on this page is for general education and is not financial or legal advice. Loan terms, rates, fees, and membership rules differ from one credit union to the next and change over time, so confirm the current details directly with the credit union before you apply.
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