Buying a Car? Some Credit Unions’ Interest Rates Beat the Banks’
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Here's your Money Briefing for Thursday, January 5th. I'm J.R. Whelan for The Wall Street Journal. Car prices are way up, and anyone in the market for a new ride lately has probably gotten hit with some sticker shock. Sure, you can probably haggle with the dealer a bit, but when it comes to financing, you're not likely to catch a break with a lender on those constantly rising interest rates. So many car buyers are turning to credit unions, whose rates can be a lot lower.
that can be a big difference for somebody. We all know that interest rates are rising a lot these days, but that translates into much higher expenses on a monthly basis for someone who's taking out a loan.
On today's show, our banking reporter Ben Eisen will run through the numbers on car loans and explain how to go about joining a credit union. That's after the break.
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Between rising sticker prices and much higher interest rates, it's a lot more expensive to buy a car now than it was a year ago. But many car buyers are getting some of the lowest rates around by financing through a credit union. So how sweet a deal is it? WSJ Banking reporter Ben Eisen looked into that and joins us with more.
How are rising prices and interest rates affecting car affordability?
Hey, Ben, thanks very much for being with us. Thanks for having me. So first of all, Ben, refresh us as to what a credit union is and why would somebody want to join one?
A credit union is sort of an alternative financial institution. It is a not-for-profit cooperative. It's owned by its members. It doesn't pay federal income taxes. In recent years, they've really grown very rapidly. And in some corners of consumer finance, they're going toe-to-toe with banks. And you're really seeing that in the auto lending market. People are often attracted to credit unions because they funnel the profits back to their members rather than giving them to shareholders. They come in the form of lower interest rates for the borrower.
Yeah, and speaking of the rates, how much lower are the interest rates that credit unions are offering as compared to banks?
So credit unions kind of always tend to offer lower interest rates than banks, but that difference has grown a lot. It's the widest it's been in at least half a decade. On a used car in the third quarter, the average rate charged by a credit union was 5.94% compared to 8.36% for banks. And for new cars, credit unions were at 4.43% versus banks at 6.06%.
Wow, that's a sizable difference. What does that mean for somebody who wants to buy a car?
That can be a big difference for somebody. We all know that interest rates are rising a lot these days, but that translates into much higher expenses on a monthly basis for someone who's taking out a loan.
Why are car buyers turning to credit unions for auto loans?
So if you can get a rate that's a point or two or three lower than what someone else is charging, that can be substantial savings for the borrower.
By the way, who dictates how high or low credit unions set their rates?
Credit unions are the ones who are adjusting their rates, but they're kind of slightly different institutions than banks or even finance companies or the lending arms of automakers.
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