Ryan Consumers who use credit unions to get loans are urged to do so because they are less likely to be turned down for a higher interest rate and better service. Many credit unions even offer incentives to existing customers. And unlike banks, credit unions are more flexible in the underwriting process and are more likely to work with you if you hit a rough patch. These factors make credit unions more attractive to borrowers and may even convince consumers to switch to them in the first place.
Credit unions offer incentives for existing customers
The latest suit against the auto loan markup practices of large banks focuses on how credit unions reward existing customers with lower rates and lowered fees. Credit unions are not-for-profit organizations owned by their members. These savings accounts are available at lower interest rates and are often offered by smaller financial institutions to attract customers. In addition, members of credit unions typically enjoy better rates on their savings accounts.
The new lawsuit also targets the way dealerships markup auto loans. In the past, consumers were charged higher interest rates for the same loan. In response, credit unions began offering incentives to existing customers. In some cases, these incentives aimed at new customers were waived or substantially reduced. In some cases, borrowers may even be able to recover the interest rate if they financed their vehicle with a credit union that offered lower rates.
They are more flexible in the underwriting process than banks
As the number of consumer loans decreases, so do the risks associated with the mortgage market. Increasing exposure to mortgage credit risk is an issue for all financial institutions, including banks. However, banks and credit unions differ in their approach to risk management. Banks, on the other hand, must adhere to prudential net worth requirements to protect their depositors from excessive losses. Credit unions, on the other hand, are much more flexible in their underwriting process.
In addition to offering lower interest rates, credit unions are more willing to consider customer stories. They will consider emergencies and extenuating circumstances before dismissing your application. In addition, credit unions are more flexible in their underwriting processes, and they are also more likely to work with you to tailor the loan product to fit your needs. However, it is important to note that the process for applying for a car loan is very similar for both types of institutions.
They are more likely to work with you if you hit a rough patch
A credit union will be more willing to work with you if you encounter a rough patch while repaying a loan. Banks are usually more inflexible and less willing to help you in a tough time. A credit union is more likely to work with you, and you may be able to negotiate a loan payment that suits your needs.
They charge higher markups for cars sold to low-income borrowers
This case has become a national discussion as the credit unions face pressure to lower their interest rates on car loans. Many auto lenders have a practice of charging higher markups for cars sold to low-income borrowers, but car dealers do not have to disclose their interest rates. They can simply increase their markup by charging a higher rate because they have no risk. But the credit union auto loan markup lawsuit is a slap in the face of these discriminatory practices.
While these markups are a part of the car loan process, they can be unfair. A study published by the National Consumer Law Center found that dealerships often charge low-income borrowers higher interest rates. This discriminatory practice is particularly troubling for low-income borrowers of color. While it’s not clear why the dealerships would charge more for cars sold to low-income borrowers, the study indicates that a higher percentage of borrowers of color will pay higher interest rates.
