For many people, their local credit union is their savior. People can join credit unions because of where they work, or if they served in the U.S. Military, or for other reasons. Credit Unions offer many advantages, such as lower interest rates, and personal service.
Some disadvantages are that it is harder to become a member of a credit union, less access to the newest conveniences, and less automatic teller availability. Here is a great summary of advantages and disadvantages to borrowing from a credit union from Bankrate.com.
Probably the biggest reason I see people use credit union is for car loans. They give competitive, and lower interest rates on loans than many of the big banks. And, they offer many different kinds of loans and credit cards. They also tend to help people who might have problems getting credit at the big banks, or who might have to pay higher rates.
But, the devil is in the details. As long as you are able to make all of your payments on each loan, the credit union is your best friend. In return for the low rates for car loans, there is a catch. Almost every credit union loan that I have seen contains a “cross-collateralization clause”. This clause means that if you get a car loan, and have another loan, either before or after you got that car loan, you have to pay off every loan from that credit union in order to get the car title. And, if you have a credit card balance with the same credit union, that balance needs to be paid off too.
You might think, well, that’s not a bad trade-off, because you’ll be able to pay all of your debts anyway. But, if you run into trouble in the future, the credit union turns into a devil. The “cross-collateralization” clause will come back to haunt you. If you file for bankruptcy protection, Chapter 7, the credit union will require you to reaffirm (sign an agreement to pay back) all loans and credit card accounts for the credit union to allow you to keep your car. And, you need to be up to date on all the loans! Also, watch out for any money you have in your credit union, as that will be frozen immediately when you file a bankruptcy case. The money you set aside in the vacation fund will also be frozen. In a Chapter 13 Bankruptcy, many credit unions will fight aggressively against your plan of repayment, unless you are paying them back in full.
Consider this fair warning. There is no such thing as a free lunch, and, the credit unions can be devils if you start having financial problems. So, my advice is that you should use a credit union if you get a better deal on a car loan, but do not depend on them too much by getting further in debt with them. Use your credit union, but be careful, and do it wisely.
If you have questions about your credit union, or have troubles paying credit union loans, call us. We can help you figure out the best way to deal with them, and help you through any financial issues you might have.
Daniel J.Winter
BankruptcyLawChicago.com
312-789-9999
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois
