When it comes to finding a lender, the first step is to understand the difference between the three types of institutions: Banks, Credit Unions, and Online Lenders. Each of these has a different bottom line for their business which could make a difference in your decision. We break down each specific lender a little deeper in our post sharing the first steps to setting a budget. However, understanding what each institution is and how they work is a helpful starting point to get you on the right track.
The Difference Between Banks vs. Credit Unions
The core difference between these two institutions is that Banks are for-profit and Credit Unions are nonprofit. Being for-profit, Banks ?are either privately owned or publicly traded? whereas Credit Unions are ?owned by the members since it?s set up as a cooperative? (Forbes). Credit Unions are more like a community for their customers, oftentimes with better customer service and low fees but they also can have higher interest rates. Banks exist solely for a profit and can have lower interest rates but higher fees. Banks are also more widespread meaning it?s easier to find a branch or location to conduct business and they also tend to have the latest technological services including mobile apps.?
Breaking Down Credit Unions
There?s a misconception that Credit Unions are exclusive to members of the military or government workers. Anyone can join a credit union and the user experience is fundamentally similar to a bank. You have a checking account with debit card, savings account, and investment options. They even tend to have looser eligibility requirements compared to banks and value financial education providing a wealth of resources to clients. On the flip side, Credit Unions tend to have less product offers compared to banks. They also don?t have many physical locations making it inconvenient when you need to access an ATM or branch no matter where you are.
Breaking Down Banks
Banks have many more resources to offer clients as well as physical locations. Banks tend to be on the cutting edge with mobile and online applications and digital features taking convenience to the next level. Banks can also be quicker to resolve issues that come up because of a larger customer support staff. However, qualifying for loans can be more difficult with banks and transaction fees and overdraft fees tend to be higher compared to Credit Unions.?
What?s an Online Lender?
An online lender is simply a loan from a company that?s not a traditional bank. Popular online lenders you may have heard of include Rocket Mortgage, Quicken Loans, and Better.com. Online lenders often have convenience on their side since everything is handled digitally which can also expedite the process of applying and getting approval for a loan.?
One of the more appealing aspects of using an online lender is their approval process for loans. Banks and Credit Unions put a lot of weight behind a credit score but an online lender takes into consideration alternative information. For example, ?online lenders are more likely to approve lower credit scores and evaluate your creditworthiness with information such as utility payments, debt-to-income ratios, and data from social networks? (The Balance). This is especially helpful when you haven?t had a chance to build a credit score yet or you?re still recovering from unfortunate circumstances that affected your score in recent years.?
How do I decide which lender to go with?
It really comes down to what you need, which lender best fits your situation, and what your non-negotiables are. The fact that online lenders take into consideration more than just a FICO score could be the deciding factor for someone with a low credit score. The community aspect of a Credit Union and lower fees and rates might be most important to someone who prefers a more dedicated and personal experience. Someone who travels often, wants easy access to their accounts, and a quick customer service response would probably lean towards a traditional bank for the security, advanced technology, and speedy nature of resolving issues. We can?t make the decision for you and there is no right or wrong answer. However, a real estate agent can help you work out the pros and cons of each to make the best decision for you.?