Credit Unions are in the news just now with many financial experts extolling their virtues. What exactly is a Credit Union and what can they do for those of us who find ourselves in debt? Can we borrow money from a Credit Union? can we save with a Credit Union? How does it all work? Read on to discover whether a Credit Union may be the answer when it comes to borrowing and saving money.
What is a Credit Union?
Up until recently many of us had not heard of Credit Unions, while these institutions are fast becoming the choice of lender rather than banks, building societies, payday lenders and most definitely the loan shark! Credit Unions are not new as they have been in existence since the 1940’s.
Credit Unions offer savings accounts, current accounts and loans to their customers who are also members of the union once they sign up for one or more of these services. Credit Unions are run for their members by their members, are self-help cooperatives, while they are non-profit organisations with no shareholders to pay out to.
Credit Unions are run for members who have a common bond such as the Police Credit Union, Nurse’s Credit Union or Credit Unions who serve people of a locality, while this changed in 2012 with anyone being able to join any credit union. These unions are covered by the FCA and adhere to all their rules and regulations. Find a Credit union in your own locality in order to enquire about joining.
Borrowing from a Credit Union
Credit Union members pool their savings meaning that those wishing to borrow money from the union will be able to take out a loan at a lower interest rate. The money from the Credit Union member’s savings is used to provide funds for those who wish to borrow. In general the longest term for paying back a loan from a Credit Union is ten years if secured on property with five to ten years being the usual term.
Credit Unions prefer members to have some savings before they take out a loan. Credit Union loans have no charges plus they will not apply a penalty if you are able to pay back the loan early. Credit unions offer life insurance free of charge so that if by chance you should die before the loan is paid the insurance will pay the loan off.
Members can use the online calculator to work out how much they can borrow, while with interest rates being lower for members borrowing from a Credit Union it is far preferable than going down the path of payday loans or sharks. Consider this example
- Borrow £500
- 7% APR
- Pay weekly over 57 weeks
- Total pay back is £534.06
- Total Interest paid on the £500.00 is £34.06
Naturally Credit Unions do want their money back eventually therefore borrowers must ensure that they can afford to pay back a loan once they have borrowed the money. We think you will agree that borrowing here is far cheaper than the hundreds and in some cases thousands of percent borrowers will pay a payday loan or a loan shark in interest.
How Will I Pay the Loan Back?
- Direct Debit from your bank or building society
- Deduction through your wages if your employer agrees
- In person payments at the office
- Pay Point in your local store
- Direct payment from benefits
Why Choose a Credit Union?
The main aims of a Credit Union are
- To provide loans with low interest rates
- Encourage its members to save regularly
- Offer financial advice to its members should they require it
Anyone experiencing difficulty paying back a loan can contact the following for assistance and advice