When choosing a lender for your loan, you have two general options: community lenders or large national banks. Community lenders are smaller local banks and credit unions, while large national banks are the well-known names almost everyone is familiar with, like JP Morgan Chase and Bank of America. While both of these options offer their own distinct advantages, we’ve found that most borrowers benefit from working with smaller community banks and credit unions. Here’s why:
Most people save money when they work with community lenders because of the way these institutions are set up. For example, credit unions are member-owned and not-for-profit organizations that exist solely to help people in the community. As such, they are able to offer low interest rate loans and high interest rate savings programs to their members.
Likewise, community banks know they have to compete to earn your business, so they’re also able to offer more competitive rates than larger financial institutions when you refinance debt, take out a private student loan, or open up a savings account. Plus, you’ll save money on fees. The overdraft fees and balance requirements at community banks tend to be lower, and 63% of small banks offer free checking.
Big banks aren’t able to offer personalized services like community lenders can, precisely because of their size. When you work with a small bank or credit union, you’re much more likely to feel that you’re a valued and important client during each interaction. In addition, community lenders with local roots tend to focus on building lasting relationships with their customers. This works in your favor when you want to take out a loan or refinance student loans, because the smaller bank or credit union has a vested interest in understanding your unique needs and ensuring you’re happy with the outcome.
Local lenders are able to offer you the same services as the large national banks, including online banking and access to credit and debit cards – often at a much lower cost. In addition, you can now go online to take out a loan with a local lender. For example, rather than walking into the local bank or credit union to refinance student loans, you can use a service like LendKey to compare rates from different lenders and choose the best one for you.
When you work with a small bank or credit union, you’re directly supporting your local community. While large national banks use their deposits to lend money throughout the country, community banks and credit unions use their funds to grow their community and ensure it’s a flourishing area for their members.