Credit Unions can be great – but beware of auto loans and your own account.
There’s an old saying: “a banker is the kind of person who will offer you an umbrella when the sun is shining…” On the other hand…
Credit unions sometimes offer great interest rates and other deals. But they are dangerous if you’re struggling to make payments.
Your bank account can be emptied out without advance warning.
This is true of any bank, but more so for credit unions. Wherever you have a deposit account, has the right of “off-set.” Because the bank owes you money (your own checking or savings account), but you also owe them money, they can take your account without any warning if you’re late. Credit Unions do this in a heartbeat!
Your Car can be Repossessed Even if You’re Current on the Car Payments
Credit unions almost always use “cross-collateralization” in their car loan contracts. This means they use your vehicle as collateral for your car loan AND for “any and all amounts you owe the credit union, now or in the future.” So, unlike regular banks, they can add all of your loans at their credit union onto your auto loan.
Your Car be Taken Even If Your Car Payment is on Time
When struggling with finances, you have to prioritize what gets paid and what doesn’t. That means the highest priorities are a roof over your head, a vehicle to get around in, and groceries. Credit cards have to be at the bottom of the list. However, when you have credit cards and an auto loan through a credit union, if you fall behind on credit card payments, the credit union can seize your car to satisfy your credit card debts.
Credit unions will usually apply your car payments to your credit cards if you fall more than 90 days behind. With your car payments applied to your credit cards, your auto loan is delinquent, and they can send the repo man to pick up your vehicle.
This also complicates your situation if you’re considering bankruptcy.
Although bankruptcy will discharge the credit card debt from the credit union, that debt is carried over to your vehicle. So if you don’t pay on both, your car can be taken. That’s because the credit card debt is still attached to the auto loan.
I usually try to offer a few different solutions, depending on each person’s situation. But this is why it’s so important to understand this cross-collateralization idea. There are some options to try to do this. Of course, none are as easy as if your auto loan wasn’t already tied in with other large debts in a credit union, but they may be worth discussing.
Be sure to visit my website for more articles and information, or to contact me for yourself or someone you might want to refer to me.
Thank you, and I wish you the best,
For over 30 years, listening to clients and putting them at ease, while meeting their needs and helping achieve future goals, in Marion County (Ocala, Belleview, Dunnellon…); Lake County (Leesburg, Tavares, Mt. Dora, Lady Lake, Clermont, Fruitland Park…); Citrus County (Crystal River, Inverness, Homosassa, Hernando…); Sumter County (Bushnell, Wildwood, Webster, Lake Panasoffkee…; Orlando, and The Villages.