Credit unions are not for profit cooperative financial organizations that are owned and managed by volunteer elected members who are also account holders in respective credit unions. Unlike banks, they do not aim to maximize profits, but focus on serving its members via low rates of interest on loans, high savings rates, and low fees for its varied financial services and products. All the members pool in their assets and resources which are then used as funds to provide loans at low interest to one another. It may also be noted that the lending practices at credit unions are very stringent, which in turn results in fewer charge-offs as compared to traditional banks and other financial institutions. All the above discussed factors allow credit unions to offer better rates than banks.
Some of the advantages of credit unions are listed below:
Higher interest rates: Credit unions usually offer higher rates of interest on all deposit accounts such as checking accounts, money market, and savings. The interest rates can vary between 4 to 10 times more than the traditional local bank.
Lower credit card and loan rates: Credit unions offer almost all the financial products provided by banks but at a lower interest rate. Credit union car loan rates are usually one or two percentage points lower than banks. Comparatively low ARPs on personal loans, mortgages, and credit card services are also given by credit unions.
Lower fees: The service fees of credit unions are also lower than commercial banks. Most of them provide checking accounts that have no monthly charges or requirements of a minimum balance. Most credit unions also provide free withdrawals, checks, and electronic transactions. They however levy fees for overdraft and bounced check, but such charges are nominal.
Better service: Credit unions usually have small braches which allows them to offer personalized and fast service. A number of credit unions also designate one individual to work with you. Members who frequent a particular branch can develop an amiable relationship which can often lead to a more customized service from the same individual. This is often lacking in large commercial banks.
Member focused banking: Banks work towards profit maximization which is contradictory to a customer's goals of low interest rates and fees and better customer service. However, the distinctive membership organization of credit unions means that every member gets an equal say in its decisions. Also, each member works towards serving the needs of other members. Thus, the goals of the management are the same as the needs of the consumer members. Hence, credit unions are inclined to offer lower fees, better interest rates, and excellent customer service.
Additional flexibility: Banks look at your credit score, bank balance, and employment history before working with you. Credit unions will however try to cater to the needs of even those with a bad financial past. Good members will also be given some leeway in case issues arise with their ongoing loans.
Less complications: Maintaining zero balance accounts in banks are tedious and complex. However, credit unions accounts have fewer rules and are less complex.
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