Why Borrow from a Credit Union?
There are plenty of good reasons why you should choose to borrow from a credit union.
- very competitive interest rates
- more personalised approach to their members
- staff make the loans process easier than a larger impersonal bank
- interest is charged on the reducing balance of the loan
- you can pay back your loan in several different ways
- loans come with no hidden charges
- there are no penalties for early repayment
Credit unions are not-for-profit financial organisations, traditionally set up by members with some kind of community or “common bond” – be it where they live or their profession.
In Wales alone they hold a combined membership of just under 84,000 people and loans amounting to £23 million.
As community savings and loan cooperatives, members pool their savings to lend to other members who need to borrow money at an affordable rate.
Credit unions act in the interests of all members and ensure they don’t take out loans they cannot pay back by assessing their income and, in some cases, how much they’ve been able to save.
Many credit union loans will cost just 1% a month on the reducing balance of a loan (an APR of 12.7%). This means that if you borrowed £1,000 to be repaid over one year, you would repay £1,067 in total.
Most credit unions are happy to lend small sums, but an increasing number are also providing larger-sum credit for big purchases and, in some cases, even mortgages.
In 2019 alone, loans with credit unions are estimated to have saved people in Wales £13m in interest repayments compared to going to a payday or doorstep lender
If you decide to borrow from a credit union you will need to be a member before you can get a loan from them and some will require you to build up some savings first.
Interest is charged on the reducing balance of the loan which is important if you want to repay it weekly rather than monthly, because you’ll pay less interest overall.
You can pay back your loan in several different ways, although some credit unions might not offer all methods.
- by making payments face-to-face
- by Direct Debit from your bank account
- through you wages at work: if your employer is a payroll partner with a credit union you can pay back your loan by having money deducted straight from your wages
- through Paypoint. Some credit unions issue Paypoint cards which you can use to pay back your loan at your local shop
- direct payments from your benefits – some credit unions take benefit payments directly, deduct your monthly loan repayment and pay you the rest.
Credit union loans come with no hidden charges and no penalties for repaying the loan early.
Many credit unions also include free life insurance at no extra cost – so if you die before repaying the loan, the balance would be paid off for you.
Remember that credit unions are licensed deposit-takers, authorised and regulated by the Financial Conduct Authority. Just like ordinary savings accounts, they are fully covered by the Financial Services Compensation Scheme (FSCS) up to the standard limit of £85,000 per individual.
Worldwide there are over 40,000 credit unions in 80 countries around the world. In Ireland, over 70% of the population belongs to a credit union.