Credit unions are special types of financial institutions that are owned by and pay dividend to their members, and that share many similarities with banks, such as the provision of loans. Credit union loans are usually very good options to consider – the loan lending conditions available with credit unions are usually much more convenient that the loan conditions offered by banks. Here are some things to know about how credit unions and their loans work.
Some Credit Union Basics
Credit unions and banks are similar in many ways – they are both financial institutions, they both provide similar products and services, such as deposit accounts, loans, mobile banking and access to cash through ATMs.
Despite the similarities, there are many important differences between the two types of organizations. One of the most important differences is the profit status of the two types of institutions. While banks are privately owned or publicly traded and the principal goal of their activities is to generate profit, credit unions are organizations owned by their members and have a not-for-profit status, which means that all the profits they make are distributed to their members in the form of dividends.
Another important difference between the two types of institutions is the conditions that come with loans. The loans offered by credit unions are usually much more favorable in terms of interest rates and repayment conditions than the products offered by banks.
The Types of Loans Available from Credit Unions
Most credit unions, including a local Parker credit union, offer a wide range of loans, the types being the same as the loan types available from banks. Here are some:
- Credit cards – the credit lines offered with the credit cards issued by unions work the same way as the lines offered by banks;
- Secured and unsecured personal loans – the loans that are or are not backed by a collateral are also available from credit union;
- Mortgages – credit unions offer loans used by the borrowers to purchase property and secured against the property purchased;
- Auto loans;
- Home equity lines of credit – credit unions also offer credit lines secured against a home’s equity (the market value of a homeowner’s interest in their property).
Who Can Borrow Money from a Credit Union
Credit unions are financial institutions provide loans only to their registered members. To be allowed to join, aspiring members need to share the union’s “common bond” – the feature that is common to all members, such as membership in the same community, employment with the same employer, working in the same profession. The registration process is usually simple, requiring only a copy of some type of proof of identity, such as a passport or a driving license, and a proof of address, such as the copy of a utility bill issued on the name of the person who wants to register. Many credit unions also offer children’s account, case in which the requirements include a copy of the child’s birth certificate or passport and the proof of ID and address for the guardian or parent.