What Your Credit Union Failed To Tell You...
It's no secret that consumers tend to prefer credit unions over traditional banks. Most consumers lean toward credit unions because they are known to have more favorable loan terms and lower interest rates.
Unfortunately, what most credit unions don't mention is a nasty clause called cross-collateralization.
Cross-collateralization is a method used by lenders to use the collateral of one loan, such as a car, to secure another loan you have with the lender. Although this seems super simple, most borrowers don't realize how much control the credit union has when it comes to their finances. This clause can prevent you from selling your car if they require that you keep that vehicle for collateral for your other loans. Falling behind on a credit card that you obtained from said credit union can also pose as a problem because they can now reposses that vehicle to recover those funds on the past due loan amount. Even under a bankruptcy you could also be required to give up possession of the vehicle until you satisfy your other obligations with the credit union.
The sad thing is, most consumers have no idea that this clause even exists until its too late.
So how can you protect your self when borrowing or banking with a credit union?
1. Refrain from taking out more than one loan at a time from a credit union
2. Do not establish a credit card account where you also have an auto loan established
3. Do not bank & borrow at the same institution. In other words split up your money & obligations. Don't keep everything in one place.
As with any loan it is the consumers responsibility to understand every aspect of the agreement before they sign on the dotted line. Next time you are looking into getting a new loan, or even credit card, be sure to protect yourself against future losses by thoroughly reading the loan terms ahead of time.