3 Reasons Why Credit Unions Can Offer Loans With Low Interest Rates

You may have only a passing familiarity with credit unions. Perhaps you have driven by a regional one in your community, or have seen a commercial for a larger, federal one on television. What you may not know is that credit unions often have interest rates on loans that are much lower than the ones offered by commercial banks. While this may seem too good to be true at first, there are plenty of reasons why credit unions across the country can offer these loans with confidence. Take a look at just three of the biggest reasons below.

A Different Business Model

The major difference between banks and credit unions — despite the fact that the vast majority offer very similar products — is that banks are structured as for-profit corporations. That means that many of the biggest national and international banks exist merely in order to turn a profit for their shareholders. Credit unions, on the other hand, have an entirely different business model: they are either non-profit organizations or co-operatives owned by members themselves. Instead of only pursuing the bottom line, credit unions reinvest the money they earn back into consumer services, which often means lower rates for members.

Less Infrastructure

The biggest banks in the country have a sizable presence in most states, meaning that they have hundreds of physical branches, thousands of ATMs, and usually a stylish smartphone app on top of all that. While the convenience this provides customers shouldn't be understated, it should also be noted that operations on this scale aren't truly provided free of charge. Instead, they're financed in part by the higher interest rates on home, auto, and personal loans. Credit unions may not be able to offer the same degree of access to ATMs and bank locations, but they more than make up for it with lower rates offered to members.

Focus on Members

Credit union membership is often limited to those within a certain community, be it geographic, professional, or academic. The stringent rules that go along with being a credit union member mean that loans can be offered with loyalty in mind. An international banking conglomerate isn't particularly motivated to negotiate a loan's interest rates for somebody looking to buy a small starter home. On the other hand, a credit union has a real stake in offering members the best deal possible in order to retain their business. 

To see what kind of rate you can get, reach out to a credit union in your area. 

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