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Credit Union Loans[edit]

Credit unions are organisations that provide cheap loans to their members. Before you can get a loan from your local credit union you need to become a member, and might be required to save a small amount each month for several months before getting a loan. Credit unions are able to help people who have had negative credit in the past, and are not allowed to charge interest over a certain amount due to government restrictions. If you have had CCJs or defaults in the past, it might be worth finding your local credit union when looking for a loan.
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What is a Credit Union

A credit union is a non-profit financial institution that is owned and run by its members. They provide credit and other financial services to its members at reasonable rates. The members who have accounts in the credit union are the owners of the credit union and they usually have a board of managers that are voted onto the board. Credit Unions are there for the local community so only the members will benefit, not any outside shareholders.

You need to become a member before you can save with them or borrow from you. To become a member, you will need to be included in their “common bond” (see below for details of a common bond). Their loans are reasonably cheap usually charging an interest rate of 12.7%. By law, they cannot charge you any more than 26.8% on a reducing balance. Their loans have absolutely no hidden charges or penalties for early repayment.

Life insurance is also offered at no extra cost to the borrower so if you die before you pay off the loan, the insurance would repay it. You can also carry on savings so by the time you have repaid the loan, your savings will have increased too.

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What is a Common Bond

A common bond determines which credit union you can become a member of. This usually is a geographical area that you must either work, live, study or volunteer in. Some credit unions allow you to also be a family member of someone that lives, works, studies or volunteers in the geographical area.

There are also credit unions that are dedicated to people that work for a particular company. For example, there is a credit union solely for Royal Mail employees (and Royal Mail employees' families).

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Financial Services they offer

Some credit unions will offer more financial services than the next, this is usually dependent on how big of a credit union they are. They may offer any or all of the following services: savings accounts, current accounts, loans, mortgages, home owner loans, lotteries, benefit schemes and insurances.

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Advantages of credit unions loans

  • Low cost loans on a reducing balance
  • No hidden costs or fees
  • Their loans are tailored to your needs
  • Very personal service
  • You continue to make savings whilst repaying your loan
  • Free insurance on your loan so if you die your family don't need to worry
  • Borrowing from them can help build your local economy
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The problem with credit union loans

  • If you miss repayments they take it very seriously as you are borrowing the money off other members
  • They have very few branches with limited opening times
  • It can be quite a long and drawn out process obtaining a loan
  • They are regional so you won't be able to get if a loan if you don't live in the common bond
  • You may need to save for a long time before you can apply
  • If you don't repay your loan there is a chance people in the local community may find out
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Is a credit union loan right for you

A credit union is a fantastic way of getting a loan if you are unable to approach your bank or other good credit lenders. You will need to consider your income and outgoings to see if you can afford the loan first. They only charge a small amount of interest so will be better than going to a sub prime lender.

They lend the money to you based on your proven ability to repay so if you have repaid something responsibly in the past such as a credit card or another loan, this will help greatly with your application. If you haven't got the best credit history and you have a credit union local to you, it is definitely worth joining.

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