Consultant

Which Is Best for Taking Out a Personal Loan?

March 18, 2025

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Banks may have more advertising dollars to spend on promoting personal loans, but the loans they offer are not necessarily better than those offered by credit unions. Many credit unions offer more favorable borrowing terms like lower interest rates and fewer fees. However, you do have to qualify for credit union membership in order to apply.

Key Takeaways

You have options when it comes to taking out a personal loan—you’ll find them from banks, credit unions, and online lenders.
Banks offer more branches and in-person customer service, while credit unions have fewer locations and are limited to specific regions.
Credit unions typically require you to be a member in order to get a personal loan.
Credit unions may offer lower rates and fees, while banks may offer more convenience.

Banks vs. Credit Union Loans

A bank is a financial institution authorized to offer services and accounts like checking and savings or loans like personal loans, auto loans, and mortgages. Banks operate in order to generate a profit and they are regulated by the federal government.

Although credit unions operate similarly to banks and have many of the same credit products and financial accounts, they do not operate to generate revenue. Credit unions are usually established as a network of nonprofit financial institutions that operate within a geographic region or a community. Because of this, they usually have membership requirements and might charge a small fee to join.

In order to get a personal loan from a bank, one simply has to submit an application. The bank will review the application, pull your credit score, and issue a decision. Getting a personal loan from a credit union follows the same process, but the credit union will also usually check that you’re a member. If you aren’t and you meet membership requirements, you can apply, pay the membership dues, and become a member. The process may only take a few minutes.

Tip

Many credit unions extend membership eligibility to anyone who is a member of an affiliate group, and you can typically join those affiliate groups for a small fee to gain access to credit unions. One such organization is the American Consumer Council, which partners with many credit unions nationwide. Check with your local credit union to see which organizations it partners with.

Personal Loans From Banks

Almost all major banks offer a variety of loans like mortgages, auto loans, student loans, and personal loans. If you already have a home bank, you may have received pre-approval offers for loans for which you’re already qualified.

Pros of Personal Loans From Banks

Convenient to work with your current bank: If you already have a bank that you have a checking or savings account with, you might be more comfortable working with them. After all, you already have a relationship with the bank and know your way around the website and app.
Wide access to a number of locations: Banks are known for their established brick-and-mortar branches, in case you need to visit a location in person.
More customer service availability: The larger the bank, the better the chances it has customer service available via phone, web chat, or mobile app for more hours per week. Some banks operate 24/7 customer service lines.

Cons of Personal Loans From Banks

More challenging qualification requirements: Lending money is risky for any type of financial institution. Since banks lend larger sums of money, it’s in their interest to ensure the debt will be repaid. To manage that risk, banks may require borrowers to have a higher credit score.
Higher interest rates and fees: Again, banks try to manage risk when it comes to lending, and they usually have higher interest rates and more fees compared to credit unions, especially if you don’t have other banking products (like checking or savings accounts) with the bank.

Best Banks for Personal Loans

Lender	Best For	Loan Amounts	Repayment Terms	APRs
Citibank	Overall	$2,000 to $30,000	12 to 60 months	11.49% to 20.49%
Discover	Debt consolidation	$2,500 to $40,000	36 to 84 months	7.99% to 24.99%
Santander	Fast funding	$5,000 to $50,000	36 to 84 months	7.99% to 24.99%
Wells Fargo	Large loan amounts	$3,000 to $100,000	12 to 84 months	6.99% to 24.49%
U.S. Bank	Repayment terms	$1,000 to $50,000	12 to 84 months	7.99% to 24.99%
American Express	Amex cardholders	$3,500 to $40,000	12 to 60 months	6.90% to 19.97%

Personal Loans From Credit Unions

Credit unions have many of the same banking products as banks, but they don’t operate for profit. Instead, the credit union is made up of members who pay small fees to access financial services.

Pros of Personal Loans From Credit Unions

Less rigorous lending requirements: Credit unions often pride themselves on working with all members, including those with poor or average credit. If you don’t qualify for a loan at a bank, you might be able to get one through a credit union.
Lower interest rates and fees: Because credit unions operate to assist their members, they can offer competitive interest rates and might not charge fees like those imposed by big banks (like origination fees). Even though differences may be minor percentage points, this can add up to hundreds or thousands of dollars in savings for a personal loan.

Cons of Personal Loans From Credit Unions

Membership is usually required: Unlike a bank where anyone can apply for a loan, you usually must be a credit union member before opening an account with one. You usually can join the credit union and apply for a personal loan at the same time, but you’ll have to submit an application and possibly pay a fee.
It might take longer to get the funds: Large banks can quickly transfer the personal loan funds to you, but credit unions might take longer to issue them. Credit unions also might place more restrictive limits on how much you can borrow, although most people probably won’t run into the upper limit. But if you need a very large sum of money fast, this could be a deal breaker.
Not as many credit union branches: Credit unions can’t compete with the number of physical branches that big banks have. For this reason, you may have to go out of your way to find a credit union in your area.

Best Credit Unions for Personal Loans

How to Choose a Personal Loan Lender

Before you start requesting quotes for a personal loan, check your credit and determine how big of a loan you’d like to take out. This can help you narrow down your options, since some credit unions might not offer large personal loans. And although your credit score and history are significant factors in your creditworthiness, there are a few instances when a bank or credit union makes more sense.

In general, it’s a good idea to shop around with several lenders to see what rates you can get. In general, banks may offer more convience, while credit unions may offer better rates and lower fees.

Here are a few basic examples:

Bank: You want to take out a $100,000 loan to complete a home renovation project, but your credit union only lets you borrow up to $50,000.
Credit union: Your credit score is below average and you can’t qualify with a bank, or you pre-qualify for a loan with a lower rate when rate shopping.
Bank or credit union: You want a small loan that’s easy to take out, so you choose the bank or credit union you already have a relationship with.

How Do People Use Personal Loans?

To give you an idea of how personal loans can be used, take a look at this national survey commissioned by Investopedia in 2023. The survey revealed that debt consolidation was the primary reason people took out personal loans, followed by home improvement and other large purchases.

Are Credit Unions Better Than Banks for Personal Loans?

Whether credit unions or banks are better depends on your needs and personal finances. For instance, a bank might be a better option if you need to borrow a large amount of money and you have good credit. On the other hand, you might pay less in interest and fees if you take out a loan from your local credit union. That’s why it pays to check your potential rates with a few lenders.

Is It Easier to Get a Personal Loan From a Bank or a Credit Union?

Banks may have more rigorous lending standards, which means they might require higher credit scores. If your credit score needs work, consider applying for a personal loan at a credit union.

Are Interest Rates on Loans Higher at Credit Unions or Banks?

Because banks are looking to generate a profit, they may charge higher interest rates (and often more fees) than credit unions, which are owned by the credit union members and aren’t trying to make a profit.

What’s Best for a Debt Consolidation Loan—a Bank or a Credit Union?

Credit unions tend to offer more competitive interest rates for loans, including debt consolidation loans, but that’s not always the case. Every circumstance is different and rates change regularly, so it’s important to shop around.

The Bottom Line

The best thing you can do before taking out a personal loan is to shop around and check your rates with a handful of lenders. By requesting quotes from banks and credit unions, you can compare interest rates, terms, and fees. Pay attention to added fees and potential discounts before you submit your application to find the best possible offer for your credit and financial situation.

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