Why take out a loan (borrow) from a credit union?
As the mission of credit unions is to benefit the members, rates of interest are often lower than other types of financial institution.
Basic personal loans are usually offered on the basis of a multiple of the savings balance held or up to a specified figure per individual.
Because credit unions are focused on serving their members rather than maximising profits, they are able to offer smaller, shorter term loans that many banks simply do not offer - and for which other specialist lenders charge very high interest rates.
The maximum any credit union will ever charge for a smaller loan is 3% per month on the reducing balance, which works out as 42.6% APR. This means the most expensive credit union loan in Britain is still eight times cheaper than a payday loan charged at their cap.
Of course, the vast majority of credit union loans are made well below the maximum interest rate. A Government-commissioned study in 2013 found that credit unions offer the best value to consumers on loans up to £2,000, and some credit unions will charge interest rates of 5% APR or even less for larger loans of over £5,000.
The benefits of borrowing from your local credit union:
Fixed rate of interest - the borrower knows what has to be paid throughout the term, ensuring better budgeting for the whole period of borrowing
Simplicity - all credit unions use straightforward application forms and transparent decision-making processes. Their products are easy to understand
Flexibility - loans can be wholly or partially repaid without penalty
Competitive rate of interest - the rate of interest charged by credit unions is capped by law and is often lower than the maximum rate in many cases. It is significantly lower than the rate of interest charged on credit cards, store cards and many personal loans
Life assurance - in some credit unions members qualify for free life assurance cover, ensuring that the loan will be paid off in the event of death during the term (LP policies)
Poor credit rating - some members may struggle to obtain finance elsewhere; the credit union considers each case on its merits and may be prepared to lend when others will not. They will also support you to start saving and managing money better - improving your credit rating and making future loans easier and cheaper, if necessary.