Do you need money for an upcoming project, an emergency expense, or a major life milestone but aren’t sure where to get it? You’re very likely comparing personal loan options at two different types of financial institutions: banks and credit unions.
In short, credit unions are usually a cheaper way to borrow money with more relaxed approval requirements—but eligibility to become a credit union member is typically more strict than for a bank. Here’s what you need to consider when deciding between a bank and a credit union for a personal loan.
Banks vs. credit unions: Key differences
Banks and credit unions may both seem, if you’re not paying close attention, identical for your financial needs. You can often find a wide range of deposit accounts, loan options, insurance coverage, etc.
The differences result from each institution’s structure. A bank is for-profit, while a credit union is not-for-profit—and member-run. Because of this, credit unions tend to be more customer-friendly, prioritizing things like transparency, community, and low fees (we’ll talk about that soon).
Specifically, the most meaningful distinctions between a bank and a credit union include:
- Membership eligibility: It’s typical for a credit union to enforce some sort of membership eligibility requirements. Commonly, you’ll need to either live in a certain area, work for specific companies or in a certain industry, or be affiliated with the military. Banks are generally less restrictive in terms of who qualifies to join.
- Physical branches: Traditional banks and credit unions both typically offer brick-and mortar locations where you can service your account in-person. Large banks often have exponentially more locations across a larger footprint than credit unions.
- Deposit insurance: You’ll generally receive up to $250,000 in insurance per depositor per ownership category—whether your money is stored in a bank or a credit union. But the entity that insures your money varies. Banks benefit from the Federal Deposit Insurance Corp. (FDIC), while credit unions are insured by the National Credit Union Administration (NCUA).
Similarities and differences between bank and credit union personal loans
How are bank and credit union personal loans the same?
A personal loan issued by either a credit union or a bank works essentially the same way:
- Application: Whether you apply for a personal loan with a bank versus a credit union, you’ll need to supply the same basic information. This includes personal and financial information such as your Social Security number, W-2s, and potentially tax returns. Your application will then go through the underwriting process.
- Repayment: Once your personal loan is open, you’ll immediately be enrolled in equal monthly installments lasting the duration of your loan term. Your payment includes the principal, interest, and any fees baked into your loan amount.
How are bank and credit union personal loans different?
A few key personal loan details tend to differ depending on whether you open a loan through a bank or a credit union, namely:
- Interest rates: Not-for-profit credit unions mean you can usually borrow money at a more reasonable interest rate (though this will still depend on your individual financial profile and how each institution evaluates you).
- Fees: Credit unions tend to have more relaxed minimum deposit requirements and might nickel-and-dime you less than for-profit banks.
- Loan eligibility: Only current members of a credit union can typically open a personal loan with the financial institution. Still, credit unions tend to treat you as less than a faceless application and may be more likely to consider a bigger picture than simply your income, credit score, etc.
- Customer experience: Banks and credit unions tend to shine in different areas of the customer experience. A credit union may have better customer service, but a national bank will usually offer a superior online banking experience.
- Physical branches: Again, most credit unions don’t have the physical presence of a large bank. If you value the ability to service your account in-person outside of a limited geographical area, a bank is the better option.
Getting a personal loan with a bank: Pros and cons
Pros
- Improved loan options: While not always the case, a big bank may offer higher loan amounts with a lengthier repayment term.
- More accessible: National banks tend not to have the same eligibility requirements of a credit union, such as location or affiliation.
- Better online experience: Banking technology is generally going to be better with a big bank than with a small credit union.
Cons
- Potentially higher loan costs: Banks are for-profit and thus might be prone to charging more in the way of fees and interest.
- Possibility of less customer-friendly policies: Banks are beholden to shareholders while credit unions are owned by members.
- Stricter approval requirements: Banks typically focus more strictly on details like income and credit score with less opportunity for leniency and context than a credit union when reviewing your application.
Getting a personal loan with a credit union: Pros and cons
Pros
- Lower maximum interest rates: Banks and credit unions tend to have similar minimum interest rates for the most creditworthy borrowers. But credit unions often charge a lower maximum interest rate. In fact, through March 10, 2026, the National Credit Union Administration has set the maximum loan interest rate for credit unions at 18%.
- Improved customer service: Again, credit unions are run by members in the community. Their reputation comes with enhanced customer service over big banks.
- Easier approval based on relationship: Credit unions treat you more as a person instead of a credit score. Those with lower income or less impressive credit may have better luck opening a personal loan with a credit union.
Cons
- Potentially clunky online experience: Credit unions don’t have the same financial might of a national bank. This often shows in outdated tech and a less robust online banking experience.
- Required membership: Credit unions require that you become a member before taking out a personal loan. If you don’t meet the membership criteria, you won’t be able to open a loan.
- Less impressive loan amounts: While not a hard rule, credit unions may offer lower maximum loan amounts than many national banks.
Banks and credit unions aren’t your only option for a personal loan
You’ve got more options than just traditional banks and credit unions when hunting for the perfect personal loan. In fact, your best bet may not be either of these.
Online lenders such as LightStream and Rocket Loans are extremely popular as their fully digital experience is beautiful and intuitive. They often allow for easy rate shopping, and they often aren’t as particular about things like your location and credit score as credit unions and banks. Some lenders specialize in loans for bad credit (just make sure you’re not dealing with a predatory lender).
There also exist many smaller local lenders which exist solely to provide loans. These lenders may have less rigid approval requirements, serving folks that banks do not—such as low-income borrowers or those with limited credit history.
The takeaway
Personal loans work the same no matter which financial institution you decide to use. You’ll get a lump sum upfront that you can use for virtually anything. The big difference between a loan issued by a bank and a credit union are driven by the structure of each: A bank is for-profit, while a credit union is not-for-profit.
With a credit union, you can expect lower ancillary fees and APR—and even more relaxed approval criteria. But you’ll typically need to be a member of the credit union, which can involve location and affiliation requirements.
Frequently asked questions
Is it cheaper to get a personal loan from a bank or a credit union?
There is no firm rule as to whether a personal loan is cheaper from a bank or credit union. However, credit unions tend to offer lower maximum APRs and fewer fees. A personal loan from a credit union is likely to be cheaper.
Are bank personal loans easier to qualify for than credit union loans?
Bank personal loans aren’t easier to qualify for than credit union loans. Banks are more focused on raw data like your credit score and debt-to-income ratio. While credit unions also take these things into account, they may be more willing to consider things like your relationship with the institution.
Do banks or credit unions approve personal loans faster?
Many banks and credit unions both implement an automated application system that can potentially approve you instantly. That said, it’s more common for credit unions to manually review applications, as they like to examine your profile beyond your credit.
Is it harder to qualify for a credit union personal loan if I’m not already a member?
You must be a member of a credit union to qualify for a personal loan.
Are online lenders better than banks or credit unions for personal loans?
Online lenders aren’t necessarily “better” than banks or credit unions for personal loans. But they can offer a streamlined application process, and they may better cater to your credit profile.
