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(EMAILWIRE.COM, February 17, 2012 ) Little Rock, AR -- Credit unions offer great auto loan rates. They are in fact one of the benefits to being a credit union member. However, if a member already has a credit card with a credit union, getting an auto loan from that same lender could be dangerous due to something called the cross-collateralization clause.
At its core, the clause allows credit unions to use vehicles they are financing as collateral on other forms of debt. This means if a credit union finances a new Toyota Prius purchase today, and this borrower falls behind on their credit card payments three years from now, the credit union might snatch the green vehicle in the dark of the night.
This practice turns unsecured credit card debt into secured debt.
Though banks also have cross-collateralization clauses, credit unions have them at a higher percentage. In recent years, people in Florida, Arizona and other states that have had a high percentage of bankruptcies have been hit by the clause the most.
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Source: EmailWire.com
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