Overview

Credit unions and banks both make personal loans but have different structures that commonly affect price, speed, and service. In my 15 years advising borrowers, I’ve found credit unions often deliver lower interest rates and fewer fees, while banks typically win on convenience and product breadth. Authoritative guides from the Consumer Financial Protection Bureau (CFPB) and the National Credit Union Administration (NCUA) explain these structural differences (CFPB: https://www.consumerfinance.gov/; NCUA: https://www.ncua.gov/).

Quick comparison (typical differences)

  • Rates and costs: Credit unions often offer lower APRs on unsecured personal loans and fewer account fees. Banks may charge higher rates but can bundle products or offer promotional pricing.
  • Eligibility: Credit unions require membership; many now have broad or online-based eligibility. Banks are open to any qualifying applicant.
  • Service: Credit unions tend to be community-focused and offer more case-by-case flexibility. Large banks offer standardized underwriting and faster online approvals.
  • Technology & access: Banks generally provide more advanced mobile apps and wider ATM/branch networks.

Rates, fees and total cost

  • Compare APR, not just interest rate. APR includes fees that affect the real cost of borrowing. CFPB materials stress looking at APR when comparing loans (CFPB).
  • Example: a $10,000 3‑year loan at 5% APR vs 7% APR costs about $1,585 vs $1,880 in interest — a $295 difference. Small rate gaps matter.

Membership and eligibility

  • Joining a credit union often requires a common bond (employer, community, or association). Many credit unions now offer open membership or allow joining by opening a savings account.
  • Check NCUA insurance (NCUA) to confirm share insurance coverage for federally insured credit unions.

Underwriting, speed and flexibility

  • Credit unions may use more flexible underwriting that benefits borrowers with thin or damaged credit histories. That can mean better rates or approval for people banks decline.
  • Banks, especially large national banks and online banks, usually have faster decisioning and fully digital applications which can be important when time matters.

When to choose a credit union

  • You want the lowest possible rate and low or no origination fees.
  • You prefer a lender willing to consider your full, local financial picture.
  • You value member service and are comfortable with smaller branch/ATM networks.

When to choose a bank

  • You prioritize fast, fully digital funding or advanced account integrations (e.g., card-linked or automatic repayments with other bank accounts).
  • You want access to a wide range of credit products (credit cards, HELOCs, business lending) under one roof.
  • You prefer dealing with a nationally recognized brand or need large borrowing limits.

Practical steps to compare offers (my recommended checklist)

  1. Prequalify with both lenders using a soft pull to see rate ranges without hurting your credit.
  2. Compare APR, loan term, origination fees, prepayment penalties, and monthly payment.
  3. Ask about discounts (e.g., autopay, relationship pricing) and membership requirements for credit unions.
  4. Read the loan contract for late fees, returned-payment fees and acceleration clauses.
  5. Consider customer-service signals: online reviews, complaint history on ConsumerFinance.gov, and whether the lender is NCUA- or FDIC-insured.

Common mistakes to avoid

  • Comparing only headline rates and ignoring fees or loan terms.
  • Assuming all credit unions are closed groups; many have open membership options.
  • Overlooking non-rate costs such as late fees and forced insurance.

Short example from practice

A couple I advised compared a credit union 5.25% APR vs a bank 7.10% APR on a $12,000, 36‑month loan. The credit-union offer lowered total interest by roughly $425 and reduced the monthly payment — enough improvement to make the credit-union loan the clear choice for them.

Related FinHelp resources

Sources and authority

Professional disclaimer

This article is educational and not individualized financial advice. For a loan decision based on your unique finances, consult a certified financial planner or a trusted loan officer.

Author note

I’m the senior financial content editor at FinHelp.io with 15 years helping borrowers compare loan offers. The guidance here reflects best practices for comparing unsecured personal-loan offers as of 2025.