You need a reputable lender for your second mortgage so you can avoid scams and get a good rate with someone you know and trust. That leaves two choices: a bank and a credit union. Obviously, banks and credit unions offer a lot of overlapping services. Both banks and credit unions take in deposits, administer checking and savings accounts, issue credit and debit cards, and provide home loans in addition to consumer loans. With the two types of financial institutions being so similar, what makes one more favorable than the other? Much of it comes down to guiding philosophy and who is most willing to work in the consumer’s best interests.
Who Gets the Profits?
Banks are corporations – owned by their stockholders. Typically, and especially at larger banks, these shareholders are Wall Street institutions. Credit unions, on the other hand, aren’t owned by stockholders on Wall Street; we’re owned by our members on the local Main Streets throughout our nation’s and world’s neighborhoods!
True, neither banks nor credit unions are in business to lose money. Both need to show a healthy bottom line to stay open. The difference is this: When a bank makes money, they send their profits to their stockholders, who most often have no connection to your local community.
When a credit union shows a profit, on the other hand, they pass it on to members – who are technically the owners. This can be in the form of dividends, better rates, technological investments and a variety of actions that bring greater value to members of the cooperative. Because credit unions are not forced to focus on pleasing distant shareholders through issuing a dividend every quarter, they can frequently offer services and loans at lower costs than banks.
The mutual ownership structure of credit unions gives them another advantage too: Wall Street can’t pressure credit unions to make unwise decisions for short-term gains at the expense of their membership. Every decision made by a credit union is solely in the long-term best interest of its members.
Ease of Service
Credit unions provide easy-to-use services and real, live human beings who can answer questions, make recommendations and help you understand the complex world of finance.
For-profit banks answer to corporate owners. They expect a predictable, stable rate of return on their investments. This demand puts a straitjacket on lending and ensures those practices never deviate from a predetermined formula. However, let’s pretend you just got a new job, so last year’s tax returns aren’t a good indicator of how much you are earning. That’s not in the formula, so it doesn’t matter. Credit history ruined by an old medical bill? Credit unions are community institutions, so helping people out is part of what they do. Their rates tend to be lower than those of corporate banks. They also tend to be more willing to make exceptions for details that may not be reflected in the conventional lending formula.
Credit card companies made it hard to tell exactly how much interest you were being charged. Banks charged overdraft fees without ever telling you they were doing it. These things got so bad; Congress acted. Consumer ignorance was built into the profit model of big financial institutions. Credit unions are not-for-profits that want to make their communities a better place. Part of that mission includes financial education. If you need advice about home buying, making a budget or using credit responsibly, your credit union will be happy to help.
Home Equity Loans and Your Finances
Your financial situation is like your fingerprint, because it’s unique to you. Reading this shouldn’t replace talking to a professional, but hopefully you’re armed with enough knowledge to make that meeting go smoothly. Home equity loans can be a great low-interest way to get money when you need it. The interest is usually tax-deductible, and the alternatives are often not nearly as good. Choose the right lender, avoid scams, and you’ll be on your way to financial success. If you’ve got your team assembled and your checklists completed, you’re ready to get started. Let’s work together to take the next step!