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What are credit union loans and how do you get one?

admin by admin
January 25, 2022
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If you’re in the market for a personal loan, you might consider a credit union, a not-for-profit financial institution owned by its members.

Credit unions offer an alternative to banks, which are for-profit institutions. Unlike banks, you need to be a member of a credit union to use its services — but credit union loans can come with lower interest rates and flexible terms. Keep reading to learn how credit union loans work and how to get one.

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Credit union loans work the same way bank loans do: You borrow money from a financial institution that you must repay, with interest, according to the terms of the loan. You’ll need to join a credit union in order to qualify for a credit union loan, which may come with a lower rate and lower (or no) fees. It may be possible to qualify for a credit union loan even if you get turned down at a bank.

Credit unions offer many of the same services banks do, only they have a people-helping-people philosophy. Their not-for-profit status means that any profits generated are returned to members in the form of lower interest rates, lower fees and higher savings rates.

But these small, short-term loans are a very expensive way to borrow money. They typically come with fees that equate to annual percentage rates, or APRs, in the triple digits and can trap borrowers in a cycle of debt. For this reason, payday loans should only be considered as a last resort.

A payday alternative loan, or PAL, is a less costly option. You can find PALs through some federal credit unions. The fees associated with a PAL are generally much less than payday loans, but they serve the same purpose — getting you fast cash when you need it. With a PAL, you might be able to borrow more money, have longer to pay it back and pay a lower interest rate than you’d likely pay with a payday loan.

You need to be a member of a credit union that offers PALs and generally be in good standing for at least a month before you can apply for a PAL, but you can sometimes apply for one right away.

You need to be a member of a credit union that offers PALs and generally be in good standing for at least a month before you can apply for a PAL, but you can sometimes apply for one right away.

Each credit union can set its own standards regarding the approval process for a PAL. For that reason, a PAL might be more difficult to get than a payday loan, but a PAL is a better product. In fact, because of their predatory nature, payday loans are banned in some states. It’s worth it to shop around with various credit unions to get a PAL versus getting a payday loan.

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