When shopping for a cheap personal loan, think local.
Your neighborhood credit union should be your first stop for borrowing money, especially if you don’t have perfect credit. Compared with other lenders, credit unions often have lower interest rates, more flexible terms and a loan officer willing to look at more than your credit score.
A personal loan from a credit union is a particularly good option if you:
- Are already a member of a credit union or can qualify to become a member
- Have average or bad credit
- Don’t mind having to visit a branch to complete the application process
How a credit union personal loan works
Credit unions are not-for-profit financial organizations that serve members who live, study, work or worship in a particular area. If you meet the credit union’s requirements, you typically pay a one-time membership fee and a deposit of up to $25. To apply for a loan, you need to become a member first.
Many credit unions offer both unsecured and secured personal loans. Both types of loans carry fixed rates, and your exact rate depends on your credit score, credit history, income and debts.
A low credit score alone won’t disqualify you from getting a loan. Credit unions also look at your whole financial picture as well as your standing as a member of the credit union. Still, a good score will get you a lower rate than someone with bad credit, so it pays to know your score.
Credit unions come in many sizes, so the application process, approval criteria, rates and other aspects of a personal loan vary. Some allow online-only applications; others may require you to start the application online and walk into a branch to complete paperwork.
>>MORE: NerdWallet’s best credit unions
Credit union vs. online lender
Some banks and many online lenders also offer personal loans, but they typically give the best rates only to those with excellent credit profiles and don’t always consider your overall financial picture.
There are some downsides with credit unions. Many conduct a hard credit check on applications — which can cause a small temporary dip in your credit score — while online lenders typically perform soft credit checks to see if you prequalify for a loan. Credit unions also may not have the latest online or mobile banking technology you would expect from a big bank.
But loans from credit unions tend to be cheaper than those from online lenders, especially for borrowers with bad credit scores. The average rate online lenders charged to customers with scores of 630 or less was 28.64%, according to NerdWallet’s 2016 survey of lender rates.
Cost of a credit union personal loan
There are two types of credit unions: federally chartered and state chartered.
At federal credit unions, annual percentage rates on most types of loans are capped at 18%.
In the last five years, federal credit unions charged an average APR of 9.6% for a three-year loan, according to data from the National Credit Union Administration.
State-chartered credit unions may have higher rates than federal credit unions, depending on where you live. State credit unions charged an average personal loan APR of 11.3% in the last five years, according to data compiled by the Credit Union National Association.
Here are personal loan rates from three credit unions that NerdWallet rated as easy to join:
If you’re already a member and you can withstand a temporary hit to your credit score, a credit union may get you the cheapest loan. In any situation, NerdWallet recommends comparing rates from multiple lenders. You can use our tool to compare offers from online lenders with one from your credit union. Checking rates on the tool won’t affect your score.
Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email: email@example.com. Twitter: @ajbombay.