Credit Union Customers love their credit unions. They love the level of service that they get and they love the relatively low rates for loans and high rates for savings. Much of this love is not reciprocated. Credit Unions, if you are ever forced into a bankruptcy proceeding are fond of forcing reaffirmation agreements and enforcing their nearly ubiquitous cross-collateralization and future advances clauses. These are things that you almost never have to worry about if you get your financing elsewhere.
Customers must beware. If you take out a loan with a credit union because they offer you a great rate, beware of the details. You will likely be signing a loan document that includes language allowing them to hold on to your title until you pay any other loan that you have with them. If you are a credit union customer and you have a credit card through the credit union the credit card agreement may include language allowing them to secure that card to any future security interest that they hold. For example, you get a credit card, you happily use it and are happy with the rate, you then decide that you want to get a car loan through the credit union because they are offering a great rate. Now the car loan is obviously secured by the car, what is not obvious to almost everyone is that the credit card is also secured by the car. This means that after you have paid off your car loan, the credit union can withhold your title until the credit card is paid off. The same goes for personal loans with credit unions.
Now if something bad happens to you financially, and believe me it happens all the time, whether you suffer an injury, a job loss, get divorced, or have to support a relative, you could be forced into a bankruptcy. If that happens and you have a car loan with a credit union you will end up having to pay off debts that otherwise would have been discharged in the bankruptcy if you want to keep the car.
To protect yourself, if you insist on using a credit union to get a car loan, do not take out any credit cards with them, do not take out any personal loans, and do not take out any lines of credit. Keep your other finances fenced off from the credit union’s dragnet.
If you find yourself needing to file a bankruptcy and you have a car loan through a credit union and a credit card, a personal loan, or a line of credit, speak to a bankruptcy attorney right away and see if there is anything that can be done to protect your interests. Your best bet is to stay clear of them altogether.
Best of Luck,
Steven M. Palmer
Licensed in WA and OH
Edited by Justin Vorhees