Why Borrow From A Credit Union Instead Of A Private Lender?

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If you lead what most would consider a “normal” life, chances are you’re going to borrow money at some point. It may be a car loan, a mortgage, a personal loan or all of the above. Not too many people make it through life in modern society being able to pay for everything with cash. If you want to make large purchases, financing is just the reality.

Everyone knows about the perils of borrowing from big banks, but there are two other options that are available. These are credit unions and private lenders. Each one has its own pros and cons, but if you keep reading you’ll discover why the credit unions usually come out on top.

Private Lenders

A private lender is, just as the name suggests, a private entity that lends you money for your car or mortgage or a personal loan. This is generally an individual who you can negotiate with directly to borrow money. Sometimes, private lenders are members of your family and sometimes they are business people, looking for a high rate of return on their money.

In the quick, payday loan industry, private lenders have moved into the online world as an alternative to going to a physical location. Many people find it embarrassing to go to those minds of storefronts, so doing the whole thing online is preferable. Whatever the details, a private lender requires proof of income and a decent credit score just like any other lender. Of course, unless the lender happens to be a family member and the rules are a lot more lenient.

Credit Unions

A credit union refers to a financial institution that is a non-profit organization and is fueled by members. If you want to secure a loan from a credit union, you must become a member of the credit union first. You may have to build a certain amount of savings before you’re able to borrow, depending on the rules of the specific credit union.

Many people consider a credit union to be a more caring version of a big bank, largely because profits are not the driving force behind their actions. They seem more personal, but with the same sort of professionalism and financial knowledge of a big bank.

 

Credit Unions Over Private

When it comes to borrowing money, your local credit union probably has a lot more to offer you than going to a private lender. If the private lender you turn to is a family member or close friend, there is always the possibility of damaging the relationship if something goes wrong over the life of the loan. This could mean a job loss, unexpected illness or any other situation where you can’t make your payments. With a professional organization like a credit union, processes are in place to deal with these possibilities and you aren’t risking any personal relationships.

Much of the time, a credit union will also have lower interest rates than a private lender. Most private lenders are in it to make money, so they aim for the highest rates possible. It’s just good business. A credit union gives its earnings back to its members by offering lower interest rates.

You’ll also get a much higher level of customer service when dealing with a credit union than you will with a private lender. Joining a credit union is usually fast and easy, and you get that in-person expertise when you are searching for the right kind of loan for your situation. You’re a member and you are treated like a member.

The loan practices of a credit union are never called into question, because their profits are always recycled back to the members. With a private lender, you may wonder if a certain tactic or technique is shifty or only there because it ensures a higher profit margin, but with a credit union you won’t have to wonder. You can usually pay back loans early without fearing a penalty and hidden charges aren’t an issue either.

Basically, joining a credit union and taking advantage of all of their membership perks is a smarter way to borrow money than going to a private lender. You’re likely to hear a lot of reasons why private lenders are a great idea, but that is typically when compared to a big bank. When the comparison is with a credit union, there usually is no comparison. Borrowing money is a big deal and it will always be a big deal. If you have the opportunity to create a relationship and borrow money from an organization that is completely in it to help you, that is definitely your best bet.

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  • License: Royalty Free or iStock source: http://www.shutterstock.com/

Jonathan Baker is a businessman based in Ontario. Being a businessman he gets to travel a lot and he likes to share his travel experiences with others through blogging. Jonathan also writes about business and finance management. He can be followed on twitter at Jonatha97039368. In this article he has written about the benefits of borrowing from a credit union rather than from a private lender. He has done a lot of research into this to make this article really informative and helpful.

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