Adam McCann, Financial Writer
Credit union loans for bad credit do exist, but whether you can get one depends on the credit union you select as well as your income and existing debt, among other factors. There are two main reasons why credit unions are more likely than banks to accept loan applicants with bad credit. The first is that credit unions are not-for-profit institutions with specific membership requirements. This means that they have a much more personal relationship with account holders than banks do and are less concerned with making money. In addition, since credit unions don’t pay federal income taxes, they may be inclined to charge lower rates than other institutions, according to Experian.
There are several different types of loans people with bad credit might be able to get from a credit union, including unsecured personal loans, secured personal loans and home equity loans.
Types of Credit Union Loans for Bad Credit:
- Unsecured personal loan: An unsecured personal loan doesn’t require any collateral to open the account. While banks typically require credit scores of 585-700 or higher to take out an unsecured personal loan (660+ for no origination fee), credit unions may consider applicants with lower scores.
- Secured personal loan: Secured personal loans are designed for people with bad credit. They require you to put up some kind of asset as collateral. The credit union can keep your collateral if you fail to pay back the loan. And while this causes more risk for you, it results in much less risk for the lender. So the lender is likely to approve you even if you have bad credit.
- Home equity loan: A home equity loan is a secured loan that uses your house as collateral. The credit union will let you borrow a portion of your home’s equity – the difference between the value of your house and how much of your mortgage you have left to pay off. If you default, the credit union may foreclose on your house.
If you’re not a member of a credit union yet, you can use WalletHub’s tool to find credit unions that you qualify to join. You will usually be able to join one for free based on where you live, work or go to school. But if you can’t find any good loans for bad credit from your local credit unions, you may want to search for credit unions that anyone can join instead, such as Alliant CU, Connexus CU and PenFed.
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