Credit unions have been around in the UK since the late 1970s and are a form of co-operative and self help organisation. They were set up to offer low-cost loans of smaller amounts for people who couldn’t get affordable credit, or who were using doorstep lenders.
Sadly, they are an underused resource, but they are a realistic alternative to payday loans [PDLs] and loan sharks. As they are not profit-making, their rates are much lower than other high street lenders or PDL companies.
There are 400 to 500 credit unions in the UK with almost a million members. As well as low-cost loans for smaller amounts, some now offer current accounts, savings and mortgages.
Who can they help?
Whilst the main aim of credit unions was to provide affordable loans to people who can’t get help from the banks, nowadays they also appeal to people who want to bank with an ethical organisation and benefit their local community.
And because their rates are attractive, credit unions are becoming a popular form of affordable borrowing.
Any member of a union can apply for a loan.
How do I find a local credit union?
The ABCUL website has a search facility to find a local credit union. Once you find one near you, you will still need to check the rules to make sure you are eligible to be a member.
There is also a helpline on 0161 832 3694..
And your local library or CAB may be able to help.
Who can join?
Each union will have its own rules, but generally you will need to live or work locally, or belong to the same employer or organisation as other members. For example, the NHS participates, along with some transport companies, trade unions, churches and other organisations.
From 2012, organisations as well as individuals are allowed to be members of credit unions.
What is the least I can save?
Credit unions will let you save as little or as much as you can afford when you have money to spare, weekly, monthly or more frequently.
You can make deposits at your local credit union branch or local collection points like shops, or have money deducted from your wages or by direct debit from a bank account.
When you save, you know you will be helping neighbours or colleagues, rather than helping to make money for shareholders. And at the end of the year, your credit union aims to pay out a dividend on your savings, depending on how well the union has done. According to ABCUL, this can be up to 8% of what you’ve saved.
Many credit unions include Life Assurance at no extra cost.
How do I get an affordable loan and how much can I borrow?
Loans are usually available up to around £3000. To borrow, you need to be a member of the credit union. They will take into account your circumstances and make sure you can afford the repayments.
Life assurance should be built into the loan at no extra cost, so if someone dies owing money, it’s paid off by the insurance.
What will it cost?
This calculator helps you work out how much it might cost to repay a loan, although you would need to check with your local union. The most a credit union is allowed to charge is 26.8% interest, compared with 4000% for some payday loans!
Can I pay the loan off early?
Yes, there is no charge for this.
If I invest, can I lose my money?
Your money is protected in the same way as other savings, by the FSCS [Financial Services Compensation Scheme].
Credit unions are regulated by the Prudential Regulation Authority and the Financial Conduct Authority [FCA].
Where do I find out more?
For other information, here is a link to the ABCUL website. Or contact your local credit union.
Here's a couple of Caggers views of Credit Unions from their own personal experience
"Many of the smaller credit unions are being combined these days, six of the small CUs (membership less than 5000) have recently combined to form a larger more efficient unit, in my local area
But there is a cost to this, many argue that the strength of the CU lies in its approachability, people used to come in for a chat and a cup of tea whilst making their weekly investment / payment, you would be able to help if some problem was looming for them, a bit like an extended family, severe arrears were rarely a problem because everyone knew everyone else, this is all changing now.
CU's at their best are far more than just a bank, they can provide an holistic service to the member and his finances, encouraging not only better financial management but also involvement in the community.
Like most volunteers I spent some time chasing arrears and I have to say that debt collecting for a CU is a completely different experience to what you would expect, and explains perhaps what I mean by holistic. In many cases you would come away from the member after giving additional finance, the only way of getting them back on track was to lend them enough to pay some other higher interest loan, can you see a bank doing that."
"I've been a member of my local Credit Union for over 10 years, they have helped me out a number of times when things are hard.
I can borrow £500 from my Credit Union over a one year period, paying £12.50 per week. (£10.48 going towards the loan and £1.66 towards savings.)
(The above is based on having savings of £250 in my Credit Union Account, thereafter, once a good payment record has been established, I can borrow up to 4 times the amount I have in my savings account)
Total interest for the loan = £63.50
Total Interest for a similar Provident Loan over the same one year period would cost £410 in Interest.
Like the majority of Credit Unions you have to be a member and have saved for a minimum of 3 months.
Most Credit Unions are (not for profit) organisations, run to serve the local community and help them avoid high interest rate lenders who prey on those who can least afford it.
Credit Unions also provide free life cover so you can rest assured your family will not be burdened if anything happened to you, as your loan will be cleared and shares doubled and paid to your estate.
Here are some examples regarding Pay Day Lenders.
(sourced from the internet on 15th February 2013)
Borrow £200 and pay back in 30 days - interest charged £50
The same loan with a Credit Union would cost £3.94 in Interest
Borrow £200 and pay back in 15 days - interest charged £29.59
The same loan with a Credit Union would cost £1.97 in Interest
Borrow £200 and pay back in 30 days - interest charged £50
The same loan with a Credit Union would cost £3.94 in Interest"
If you want more help, advice or even just some moral support then come to The Consumer Action Group website where we offer help on pretty well every consumer problem COMPLETELY FREE.