If you’ve ever compared a credit union’s rates on loans in Austin to those of a commercial bank, you already realize the difference can be substantial. Here’s a look at why your local credit union in Austin can almost always outdo a national bank when it comes to interest rates.
First, it’s important to understand the fundamental difference between a credit union and a commercial bank. A commercial bank is owned by shareholders and investors, all of whom are looking for the highest possible profit. Conversely, a credit union is owned by its members. When you open an account with a credit union, you are investing in the company and this takes away the credit union’s incentive to generate big profits. The beneficiary of such profits would be the customers, so it only makes sense to deliver that benefit on the front end in the form of lower interest rates, cheaper loans, and reduced fees.
Size is another reason credit unions can cut interest rates drastically. According to the 2007 National Credit Union Administration Report, 75% of credit unions have an asset portfolio under $100M. It takes a considerable investment for a bank to expand nationally and beyond. A credit union is unlikely to face these expansion costs and it is therefore unnecessary to pass along the drawbacks of development to the customer.
Additionally, credit unions have a better track record than commercial banks. Due to the decreased risk a credit union is willing to take on in the name of profits, they experience a much lower failure rate than traditional banks. With a smaller customer base, your average credit union will offer fewer loans. Because that profit motive isn’t there, credit unions don’t have the incentive to offer risky loans to those who may be inclined to default.
The final reason credit unions can offer much lower rates than commercial banks is in their staffing. While tellers, managers and other employees are all paid just as they would be in any other company, the board of directors is usually staffed with volunteers. This alone saves the company a significant amount of money, which is passed along to the members. For more information about local credit unions, contact or visit us at Velocity Credit Union today.
Velocity Credit Union 