Lower Fees and Better Rates

One major advantage credit unions have over traditional banks is offering more affordable services by minimizing fees and providing higher interest rates on deposits. As member-owned non-profits, credit unions pass savings from efficiencies and profits back to customers in the form of reduced fees or better returns rather than enriching shareholders.

Surveys show households with credit union accounts save annually on fees compared to other banks. Credit unions also offer interest rates on deposits that are, on average, 0.2 percentage points higher than competitors. These direct financial benefits stem from credit unions structuring around member needs, not shareholder returns.

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Top-Tier Customer Satisfaction

Credit union members consistently rate the customer service and satisfaction significantly higher than traditional bank customers do. This heightened satisfaction comes from credit unions’ mission to put member needs first as member-owned organizations.

Their localized member-elected board structure also ensures consumer perspectives directly inform decision-making instead of focusing solely on driving profits. By empowering members to guide offerings, credit unions better align products and services to match unique community needs and expectations. The member-first mentality pervading credit unions translates to exceptional service when it matters most.

Encouraging Financial Inclusion

Unlike big banks that aim products at prime borrowers, credit unions actively expand access to affordable financial services for disadvantaged groups through flexible underwriting, customized offerings, and widespread financial literacy efforts. These measures encourage inclusion and provide options for new members who may not qualify with strict bank requirements.

Many credit unions have special first-time buyer programs for auto loans, personal loans, or mortgages with modified qualification standards that help people establish credit. Through prioritizing accessibility and financial literacy, credit unions like US Eagle FCU enable more community members to access essential services and grow long-term wealth.

Innovating on Member Values

Most big banks create new offerings to drive profits first and foremost. Credit unions instead innovate to solve community needs and align with member values. The environmental sustainability movement provides a prime example of this focus on shared values driving innovation.

Long before most traditional banks, many progressive credit unions implemented environmentally conscious improvements such as financing solar installations and EV purchases, ditching free single-use plastics in branches, or investing member deposits in green funds. Credit unions essentially leverage shared mission-driven innovation versus profit-seeking innovation.

Promoting Community Development

Credit unions’ commitment to improving local communities fuels financial literacy initiatives, small business mentorship programs, charitable giving, and other public services traditional banks rarely match. They see enabling community development as integral to their mission while big banks centralize community-building budgets to save costs.

Credit unions also use their lending muscle to finance affordable housing initiatives, small business loans, local infrastructure projects such as parks or roads, and other efforts that specifically enrich where members live and work. Traditional banks simply do not invest in communities at the level credit unions consistently demonstrate.

Conclusion

The structuring principles and member-first vision that credit unions follow allows them to provide better fee structures, service quality, community development, and value-based innovation compared to profit-driven big banks. Credit unions ultimately beat traditional banks in savings, satisfaction, accessibility, and aligning offerings with local needs. Putting people before profits means credit unions create far more mutually beneficial relationships with account holders.

The post From Fees to Features: Why Credit Unions Beat Traditional Banks appeared first on Banking Decision.

It is a legitimate question. If hard money lenders are private lenders, why would banks and credit unions not be public lenders?

First and foremost, the term ‘public lender’ is rarely used in financial circles. The financial sector prefers the term ‘institutional lender’ to describe banks and credit unions. Both types of lenders are financial institutions rather than companies or firms.

On the rare occasion that ‘public lender’ is referenced in financial circles, it generally refers to a government owned lender – whether it be an actual bank or some other sort of entity. The term is used very little for obvious reasons.

Funding Source Is the Key

Naming differences between private and institutional lenders is all about funding sources. When looked at it from the funding angle, the explanation becomes clear.

Private lenders like Utah-based Actium Lending source their funds from groups of private investors. Investors pool their money and entrust it to Actium to loan out on their behalf. By the way, Actium Lending is a hard money lender. I mention that because there are other ways investors can pool their money for landing purposes that don’t involve the hard money business model.

Institutional lenders, like your local bank or credit union, source their funds from depositors. You could be one of thousands of depositors that keep your local bank alive. And if you bank with a national brand, you could be one of millions. Your combined deposits provide at least some of the money your bank lends out.

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Advantages of Private Lending

Whether you are looking for a hard money loan to fund a real estate transaction or a commercial bridge loan to expand your business, there are definite advantages to private lending. Here are just a few of them:

• Speed – Institutional lenders often require from a few weeks to several months to get a loan approved and funded. Private lenders can generally take care of things in a matter of days. That’s a significant difference, especially if you’re pressed for time.

• Loan Criteria – Institutional lenders based their lending criteria on creditworthiness. They strictly adhere to it by law. Private lenders are not regulated by the same laws. Therefore, they base lending criteria on asset value.

• Regulation – Institutional lenders do business the way they do because regulations compel them to. On the other hand, private lending is more lightly regulated. This gives private lenders a lot more flexibility.

There are downsides to private lending as well. Higher interest rates are at the top of the list. Rates on private loans can be several percentage points higher. Private lending also tends to offer shorter terms, ranging from 6-36 months. But there is a silver lining: shorter terms ultimately mean lower total interest payments.

Typical use cases for private lending include business expansion, real estate acquisition, and debt restructuring. Meanwhile, small business loans and mortgages are pretty typical in institutional lending.

Both Have a Purpose

One final thing to note is that both private and institutional lending have a purpose in the grand scheme of things. Each has its pros and cons. Each has its typical use cases as well. Just remember that the key to why private lenders are referred to as such is the source of funds. It has nothing to do with private vs. public ownership.

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