Because credit unions are member-owned, not-for-profit financial cooperatives, a financial loss can have an impact on everyone who belongs to that credit union, says Mike McLain, assistant general counsel and senior compliance counsel with the Credit Union National Association (CUNA).
The cross-collateralization clause is designed to reduce the risks associated with lending. "It's a fairly common clause in credit union loan documents," McLain says.
That means it's imperative that you read all the fine print whenever you plan to take out a loan, says Todd Mark, vice president of education for the Consumer Credit Counseling Services of Greater Dallas. Mark suggests asking if the cross-collateralization clause can be deleted from the contract.
He also recommends shopping around for both your auto loan and a new credit card. You might be able to find an auto loan at an acceptable rate at a bank or through your dealership's finance company. And there are typically an abundance of choices if you're looking for a credit card.
"This could be one of the few cases where it could be detrimental to have multiple accounts with one financial institution," Mark says. "Given the last five years in the economy, you never know when something unexpected will happen."