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This February, the Consumer Financial Protection Bureau (CFPB) published some pretty damning statistics on just how much big banks are squeezing from their customers these days.
The CFPB’s “Terms of Credit Card Plans” may not sound like a bombshell by its title – but here’s what we learn:
- Interest rates are eight to 10 points higher at the largest credit card companies.
- Even if you have a good credit score (in the 620-719 range), you’re still looking at around 28% annual percentage rates (APR). That compares to the 18% you could get at smaller banks and credit unions.
- This alone can take an extra $400-$500 out of the average customer’s pocket each year.
- Rates can climb over 30% on cards from the biggest issuers nowadays, especially when banks partner with retailers to provide store cards.
And if you already have one of those — look out. Lowe’s Advantage Card customers, for example, are starting to see their APR jacked up to “loan-shark rates” of 31.99%.
But what if your washer/dryer has stopped spinning? Or your freezer has decided to defrost for good? And the repair guy has done all he can do?
There are all kinds of reasons why we reach for these cards and credit lines. The good news is, there are plenty of credit unions out there where credit card rates are averaging just 12.86%…and you can get better rates on other loans, too, not to mention better yield on your savings.
Do I Qualify for a Credit Union?
By far the biggest and best-known credit union is the Navy Federal Credit Union, which serves the U.S. military and their families.
But there are tons of credit unions out there that you can join based on:
- Where you live.
- Your employer. There are credit unions for teachers, realtors, state employees, and people who work for Boeing, NASA, and Chevron, to name a few.
- Some churches even have credit unions.
- Fraternities and other large membership organizations, too.
Find one through the official Credit Union Locator, run by the National Credit Union Association (NCUA), by typing in names of organizations you’d like to try — or just your ZIP code. Credit unions tend to extend eligibility to families, as well, if a relative might fall into one of those categories above.
Credit Unions Can Really Shrink Your Debt Payments
Have you kept up with how the APR may have changed on your credit card? If the 12.86% average APR at credit unions sounds high, just compare that to 15.29% on the average bank card.
If you tend to carry a balance of, say, $2,000, the higher interest rate can really add up:
| APR | Balance | Minimum Monthly Payment | How Long to Pay It Off? | Total Interest if Paying the Minimum | Fixed Monthly Payment | How Long to Pay It Off? | Total Interest With $100 Payments |
| 12% | $2,000 | $40 | 14 years | $1,545 | $100 | 2 years | $242.70 |
| 15% | $2,000 | $45 | 14 ½ years | $1,979 | $100 | 2 years | $315.89 |
How about if you need to trade in your car and take on a new auto loan?
Credit unions are averaging about 6.5% on auto loans these days, versus 7.5%I from banks. That’s good for another few hundred bucks you can save on interest over the life of that loan.
Credit Unions Can Save You from Payday Loans (or BNPL Debt)
Talk about “loan sharking” — payday loans are the most notorious example. If you’ve never been tempted by one, consider yourself lucky. Because once you go down that path, it’s very easy to “roll” into another one… then another one… paying a huge fee each time.
These days, Buy Now, Pay Later (BNPL) is another slippery slope that many of us fall down.
If a purchase gives you “sticker shock,” it’s all too easy to split that up and “Pay in 4,” instead, with companies like Affirm and Klarna. Problem is, those upcoming payments are always looming, and it’s typically an autopay that will hit your debit card every couple of weeks. So, we can end up hitting “Pay in 4” again and again.
There are other – better — small loans available at credit unions.
Many of them are “federal credit unions,” which are obligated to offer payday alternative loans (PALs). You typically borrow $200 to $1,000, much like you would with BNPL or a payday loan. Yet you’re not necessarily committing to pay the whole thing in just a few weeks – or face a (sometimes hefty) fee.
With PALs at a credit union, you can stretch it out over one to six months, if you need to. The credit union might charge interest, which you would otherwise avoid with a Pay in 4 program. However, they are also designed to break the cycle of repeated small loans. You can only do one PAL at a time, and oftentimes the loan amount is split in two. You’d get half upfront (to spend on what you’re looking to pay), while half is deposited in a savings account. So, instead of having nothing left once you’ve repaid, now you’d have funds available to face the next round of expenses with cash (not more debt).
To help navigate these decisions, the credit union often has financial counselors to help you choose the right product before taking on debt (however small it seems).
There are other perks, too. For those of us who diligently save that rainy-day fund, then look to buy a certificate of deposit (CD) to earn the best interest on our money. Credit unions tend to pay better CD rates, too. At my local credit union, they have checking accounts with insurance benefits, like cell phone and roadside protection — or a student checking account where you earn $10 for every A grade on your report card.
Again, there’s a handy Credit Union Locator at this link to see what’s available for you.
Sources
U.S. Consumer Financial Protection Bureau. (2024, Feb. 16). CFPB Report Finds Large Banks Charge Higher Credit Card Interest Rates than Small Banks and Credit Unions. Retrieved from https://www.consumerfinance.gov/about-us/newsroom/cfpb-report-finds-large-banks-charge-higher-credit-card-interest-rates-than-small-banks-and-credit-unions/.
National Credit Union Administration. (2024, March 29). Credit Union and Bank Rates 2024 Q1. Retrieved from https://ncua.gov/analysis/cuso-economic-data/credit-union-bank-rates/credit-union-and-bank-rates-2024-q1.
Donohoe, Ashley. (2024, April 16). Largest Credit Unions in America (2024). Retrieved from https://www.marketwatch.com/guides/banking/biggest-credit-unions/
Bankrate.com. (n.d.) Minimum Payment Calculator. Retrieved from https://www.bankrate.com/finance/credit-cards/minimum-payment-calculator/.
National Credit Union Administration. (n.d.) Payday Loan Alternatives. Retrieved from https://mycreditunion.gov/life-events/consumer-loans/payday-loan-alternatives.
Veridian Credit Union. (n.d.) What is a PAL loan? Retrieved from https://www.veridiancu.org/faq/12569/what-is-a-pal-loan.
ServiceOne Credit Union. (n.d.) Fast Cash Loans. Retrieved from https://www.socu.com/fast-cash.
