4 of the best credit unions for personal loans

While personal loans are available from various financial institutions, including banks and online lenders, personal loans from credit unions can offer several benefits. Credit unions often offer lower interest rates and fees and may be more open to working with borrowers with lower credit scores.

Read on to learn about some credit unions that offer personal loans and tips for getting approved.

• What’s a personal loan?
• 1 of the best credit unions for personal loans
• Why should you consider a credit union personal loan?
• Are you eligible for a credit union personal loan?
• Pros and cons of credit union personal loans
• How to get a credit union personal loan
• Tips for getting a personal loan from a credit union
• Payday alternative loans
• Personal loan FAQs

What’s a personal loan?

Personal loans are installment loans, meaning you repay them with a set monthly payment amount for an agreed-upon number of months or years. They’re usually unsecured, meaning you don’t need to put up any collateral to get approved.

You can use personal loans for virtually any purpose, from refinancing high-interest credit card debt to paying for unexpected expenses. Personal loans may have fixed or variable interest rates and repayment terms that typically range from one to seven years.

1 of the best credit unions for personal loans

When shopping for a personal loan from a credit union, a low interest rate and no fees should be priorities.

PenFed Credit Union

• Loan amounts: $600 to $50,000
• Loan terms (years): 1 to 5
• Minimum credit score: 660
• Time to fund: 2 to 4 business days after verification
• Fees: None

Other credit unions to consider

Alliant Credit Union

• Loan amounts: $1,000 to $50,000
• Loan terms (years): 1 to 5
• Minimum credit score: Check with lender
• Time to fund: As soon as the same day you apply online
• Fees: None

Navy Federal Credit Union

• Loan amounts: $250 to $50,000
• Loan terms: Up to 5 years (up to 15 years for home improvement loans)
• Minimum credit score: Check with lender
• Time to fund: As soon as 24 hours
• Fees: None

Teachers Federal Credit Union

• Loan amounts: Up to $50,000
• Loan terms (years): 2 to 5
• Minimum credit score: Check with lender
• Time to fund: Check with lender
• Fees: Check with lender

Methodology

Why should you consider a credit union personal loan?

The primary difference between banks and credit unions is that banks are for-profit institutions while credit unions are not-for-profit organizations. Credit unions use that not-for-profit status to pass savings along to their members, which generally means they can charge lower interest rates and fees on loans.

Credit unions vs. online lenders for personal loans

Online lenders are non-bank lenders, meaning they don’t accept customer deposits or offer checking and savings accounts. They make their money by making loans.

This doesn’t necessarily mean online lenders charge higher interest rates and fees than credit unions. Since online lenders don’t have physical branches to maintain like banks do, they may pass those savings on to borrowers in the form of lower rates and fees. But that’s not always the case, so it’s essential to shop around to ensure you’re getting the best offer available.

In addition, since online lenders were built to provide loans online, they may have a more user-friendly website and offer speedier applications and approvals than credit unions. And while you often must be a member of a credit union in order to qualify for a loan there, online lenders don’t have this requirement.

Are you eligible for a credit union personal loan?

Several aspects of your personal finances determine whether you’re eligible for a personal loan. While eligibility requirements vary by lender, some standard requirements include:

• Credit score — Your credit score is one of the main factors lenders consider when deciding whether to approve your loan application. Most lenders prefer to work with borrowers with good credit — usually 670 or higher — although credit unions may offer personal loans to members with bad credit.
• Income — Income is an essential aspect of loan eligibility because lenders want to know that you have the means to repay the loan. Minimum income limits vary by lender, so if one lender denies your personal loan application based on your income, shop around for another with less-stringent income requirements.
• Current debt — Lenders will compare your total debt payments to your income. This metric is known as your debt-to-income ratio. To calculate your DTI ratio, add up all your monthly debt payments and divide the total by your gross monthly income. Generally, lenders prefer borrowers with a DTI ratio of 35% to 40% or less, but they may make an exception if you have excellent credit.
• Credit union membership — Credit unions typically require membership in order to consider you for a personal loan.

Pros and cons of credit union personal loans

Like any financial product, credit union personal loans have benefits and drawbacks. Here are a few to consider before applying:

Pros

• Flexibility — You can use a personal loan for virtually any purpose, including paying off medical bills, financing home renovations, or paying for a wedding or vacation. This makes personal loans a good option when you don’t want to be locked into how you use the funds.
• Lower interest rates than credit cards — Like credit cards, personal loans are typically unsecured, meaning you don’t need to put up collateral. But interest rates on personal loans are usually lower than those for credit cards. As of the fourth quarter of 2021, the average interest rate on a credit card was 16.44%, compared to 9.09% for personal loans, according to Federal Reserve data.
• Fast access to cash — Many credit unions can approve and fund a personal loan within just a few days, compared to two to four weeks or longer for a home equity loan or home equity line of credit. This makes a personal loan from a credit union a good option when you need to cover an unexpected auto repair or another financial emergency.

Cons

• Higher rates than some alternatives — While personal loans from credit unions typically offer lower rates than credit cards, they can be higher than some alternatives, such as a home equity loan. Home equity loans are secured by your home, so they typically come with lower rates than unsecured personal loans.
• Fees — While some lenders offer personal loans with no origination fees, some do charge fees, and those fees can drive up the cost of borrowing. Look for lenders that don’t charge origination fees or late fees on personal loans whenever possible.
• Can lead to more debt — A personal loan can be a great option for refinancing other high-interest debts, such as credit cards. But consolidating will only help you get out of debt if you stop using those credit cards. Many borrowers consolidate debt with a debt consolidation loan, only to run up credit card balances again and find themselves with both credit card and personal loan debt.

How to get a credit union personal loan

If you want to apply for a personal loan, follow these steps:

1. Check your credit

Before applying for any type of loan, it’s good to review your credit report. This gives you a chance to dispute any errors that might be dragging your credit score down. You can order a free credit report from each of the three major credit bureaus from AnnualCreditReport.com. And many credit card companies and other lenders now provide credit scores for their customers every month, so check for yours on your monthly statement.

2. Shop around

Many credit unions and online lenders allow you to get prequalified for a loan. For a prequalification, the lender reviews some basic information you provide and performs a soft credit inquiry, which doesn’t affect your credit score. The lender then gives you an idea of the loan amount and interest rate you might qualify for.

Prequalification isn’t the same as loan approval, but it can help you get an idea of which lenders may work with you and the terms you can expect.

Once you know the kinds of interest rates you may get, use a personal loan calculator to get an idea of how much your monthly payment might be, including interest.

Keep in mind, you may have to become a member of the credit union to qualify for a loan there.

3. Apply for a loan

Once you’ve compared a few offers and chosen the best one, complete your loan application online or at a branch location.

Each credit union has unique requirements, but some standard documentation requirements include:

• Pay stubs and bank statements
• Account numbers and balances for any debts being consolidated with the personal loan
• Copies of previous years’ tax returns
• Contact information
• Driver’s license
• Employment history

4. Close on the loan

If the lender approves your application, you’ll sign the final loan documents. The funds will usually be deposited into your bank account within a few business days. You’ll then begin making payments on your new loan as agreed.

Tips for getting a personal loan from a credit union

The following tips can help you find the best personal loan from a credit union:

• Prequalify. Getting prequalified allows you to get a sense of how much you’ll be able to borrow and how much it’ll cost, without affecting your credit score.
• Compare apples to apples. Some credit unions may show an interest rate on your loan offer, and some may show an annual percentage rate, or APR. Make sure you’re comparing apples to apples, because interest rate and APR are two different things. The interest rate is a percentage of the amount you’re borrowing, whereas APR is the interest rate plus loan fees. When possible, compare APRs from lender to lender, as this will give you a better sense of the loan’s true cost.
• Watch out for prepayment penalties. A prepayment penalty is a fee that some lenders charge if you pay off your loan early. Watch for these penalties, as they can negate any savings you’d gain by paying off your loan. Federal credit unions aren’t allowed to charge prepayment penalties, but some state-chartered credit unions might, so be sure to review the loan documents carefully before signing.

Payday alternative loans

A payday alternative loan, or PAL, is a short-term loan offered by some federal credit unions that’s designed to be an affordable alternative to high-cost payday loans. This loan type might be right for you if you only need to borrow a small amount of money.

Payday lenders typically charge a flat fee ranging from $10 to $30 for every $100 you borrow. That flat-fee structure leaves borrowers paying the equivalent of a nearly 400% APR. By contrast, interest rates on PALs are capped at 28%.

Two types of PALS are available:

• PAL I — These loans allow members to borrow $200 to $1,000 and offer loan terms of one to six months. You must be a credit union member for at least one month before applying for a PAL I.
• PAL II — With these loans, members can borrow up to $2,000, with loan terms ranging from one to 12 months. There’s no waiting period to apply for a PAL II.

Income is the main factor credit unions look at when determining whether to approve a PAL application. They don’t have a minimum credit score requirement.

Personal loan FAQs

Here are the answers to some common questions about personal loans.

What’s the difference between an unsecured and secured personal loan?

Many personal loans are unsecured, meaning the lender doesn’t require collateral. But if you have trouble getting approved for an unsecured personal loan, you might have better odds applying for a secured loan.

Credit unions may use the money in your savings account, a certificate of deposit, or another asset as collateral on a secured personal loan.

How much can you borrow?

How much you can borrow with a personal loan depends on the lender’s limits, your credit history and income, and other factors.

Some lenders offer personal loans of up to $100,000, but many others may cap loans at a much lower amount.

How quickly can you get your money?

How quickly you can get funding from a personal loan depends on the lender and your credit. Many lenders can provide funds within one to seven business days — especially if you have strong credit and have all your loan documentation ready.