All About Borrowing from Credit Unions

Credit unions are a kind of “co-operative” that accepts deposits from members and can also give out loans. These unions are developed by people that share a common interest, such a geographical area where they work and live, and they often offer low-interest solutions for borrowing. Credit unions can also deliver great low-interest bank accounts too. Though these organisations have been around for several years, they have recently grown more popular among borrowers and savers.
The features of a credit union you might need to be aware of include:

The people who borrow or save money through a credit union must share a common bond. This means that that credit union individuals may live in the same place, or have the same employer.

Credit unions are non-profit entities. Rather than paying profits to shareholders, money that is made is used to improve services and reward members.
Credit unions can be small or large. Some can have only a few dozen members, while others have thousands.

UK credit unions are regulated through the financial conduct authority and the prudential regulatory authority. The savings protections limit for customers set by the FSCS is around £85,000. People who have more than that limit could risk some of their cash if their credit union, building society, or bank fails.

The Benefits of Using a Credit Union

Credit unions typically operate under three primary aims. The first aim is to offer low-rate loans, the second is to ensure that all members are encouraged to save money, and the third is to help any members that are in need of financial assistance or advice.

Generally, credit unions act in the interests of their members and attempt to ensure that their members are not permitted to take out loans that they can’t pay back. This means that your credit union will look at your income and make sure that you’re ready to take out a loan. Credit unions also have a cap on the amount of interest that can be charged. This cap stands at 42.6% per year, or 3% per month.

In a credit union, borrowing works because the money that the union keeps hold of for other members in current and savings account can be lent out to other members who are in need of borrowing opportunities that are given at an affordable interest rate. Within the United Kingdom, credit unions can be regulated by the FCA, and the Prudential regulatory authority to make sure that they are following the guidelines required to protect members.
Credit Union Loans

Before you can take out a loan from a credit union, you will need to be a member of that union, and some organizations also require their members to start building up some savings before they can access financial services. The majority of credit unions will charge an average of around 1% on interest per month as you pay off your loan, and some will charge less, or more, depending on the union in question. By law, your union cannot charge you any more than 3% interest per month.

Many individuals feel that lending through a credit union is highly effective, as there are no hidden charges to worry about and no penalties that come with repaying the loan ahead of time. Additionally, as with many other lenders today, you will be able to repay your loan as per the requirements of the financial service. However, credit unions can sometimes offer free life insurance without any extra cost. This means that if you die before the loan is repaid, the balance is paid on your behalf.

Most unions can lend money for a period of up to five years, on unsecured loans. This amount can increase up to ten years on secured loans. In rare circumstances, your credit union may be able to lend for up to 25 years through a secured loan. You will need to apply to your local union to determine what’s available to you.

Borrowing from a Credit Union

The first step in borrowing money from a credit union is tracking down a union that you can get a membership with. When you do this, you might need to provide some additional forms of identification. You can then pay back the money borrowed in a range of different ways, though some unions will not offer all options. For instance, you could:

Make direct payments from your benefits
Make payments through Paypoint cards which can be used at a range of local shops
Make payments through your work wages. If your employe5r is linked to the credit union, you can have payments taken straight from your wages.
Make payments through direct debit
Make payments face-to-face
Speaking to your credit union about the details of your possible lending opportunities will allow you to prepare for the best way to pay back the money you owe.

Understanding Peer to Peer Lending

During the last few years, a new area of lending has begun to emerge and increase in popularity. This “peer to peer” or social lending allows for the connection between people who are willing to lend money, and people who need to borrow money.

Peer to peer lending is a form of borrowing that exists between people, or individuals, without the need for a traditional financial institution such as a building society or bank becoming involved. If you need to borrow cash, the lender’s website for your peer to peer company will put you in touch with the people who are willing to lend for you. This means that the companies associated with these services act as intermediaries between lenders and borrowers.

Often, peer to peer lending can allow for lower interest rates than most traditional loans. However, whether this is true for you will depend on numerous factors, including your credit score. If you apply for loans, you will need to pass a credit check, and also move through specific tests of the peer-to-peer company.

The Benefits of Peer to Peer Lending

If you need to borrow some cash, peer to peer lending can be a lot cheaper than building societies and banks – particularly for people with good credit ratings. Additionally, some peer to peer websites come without any minimum loan amount requirements, which is often a problem with big mainstream lenders. This might mean that this form of borrowing is perfect for anyone who only wants to borrow a small amount.

Peer to peer lending is a useful option for people who have trouble getting the loan that they need from building societies or banks. Additionally, these options mean that you can pay off the amount that you owe early, often without incurring any extra penalties.

What to Remember with Peer to Peer Lending

Although peer to peer lending can be very useful for a lot of people, the interest rates of these loans can be higher than those given by high-street building societies and banks, depending on the credit rating you have. Usually, you will need to pay a fee to the company for arranging the complete loan. Additionally, this will still be an issue if the loan isn’t completely funded by one lender.

If you have a poor credit score, you might also need to work on improving your credit history before you can get access to the lending solution that you need. Remember, there are lots of companies out there that offer peer to peer lending, but the more you try and fail to apply for a loan, the more likely you are to end up with black marks on your credit report.

Applying for Peer to Peer Loans

How much you’ll need to pay out on a peer to peer loan can vary according to your position as a “risk”. For example, if you have a very respectable credit score, then you might be able to borrow at a lower interest rate, though that rate might be variable, which means that it can go up and down each month. On the other hand, if your credit history is bad, your interest could be very high, or you could be rejected from the loan completely.

To apply for a peer to peer loan, you’ll need to visit one of the lending sites that offer this form of finance, and register your information. During this time, you will be able to select the amount that you’re interested in borrowing, and the term that you’d like to borrow for.

Ideally, the lending website will be able to show you quite quickly whether you qualify for a loan, and whether you’ll need to pay significant interest rates. Most peer to peer lenders will parcel the loans between a range of different people to reduce the amount that each has to pay. Depending on your credit rating, you may end up being offered less than you wanted to borrow initially, or you might be offered one amount at a particular interest rate, and then the rest you want to borrow at a different rate of interest.

Regulations and Rules of Peer to Peer Lending

Remember, peer to peer lending is classified as loan-based crowdfunding, and it’s regulated by the financial conduct authority. In other words, this means that you can make a complaint and the business will have 8 weeks to respond. If you’re not happy after that eight weeks, you can connect the financial ombudsman service.

If you default on peer to peer loans, the company will have the right to pass your loan onto a debt collection company that could chase you on the behalf of the lenders. In last resort cases, you may also be taken to court. It’s also worth noting that defaulting on a loan or missing payments can also impact your credit rating.

Reducing the Cost of your Personal Loans

Many lenders are often surprised to learn just how much they can save on the cost of their loans by simply repaying costs early, or moving their debt. Even if there’s an extra charge for making changes to your loan, you might be able to save a lot of money in the long run.

For example, if you don’t have savings, you may still be able to pay off the loan you owe in full using a different loan. For instance, this might include switching to a provider that offers a shorter deal or a cheaper rate. If you go for shorter-term loans your monthly repayments might increase, but you’ll save a lot in interest.

Repaying your Loans with Savings and Consolidation

It usually makes sense to pay off any of your outstanding loans using savings, and considering any early charges for repayment. If you have additional savings that you can use, you will need to think about paying off the most expensive loan debts that you have first.

If you don’t have savings, and you want to reduce the overall amount that you need to pay to get rid of your debts as quickly as possible, then you might want to consider debt consolidation loans. Some loans are specifically advertised as solutions that are intended to help you consolidate your debt. These financial solutions are all about helping you to merge numerous loans that you might have into a single loan instead.

Because debt consolidation loans are usually secured against your home, or another important asset, it’s important to make sure that you have a good plan of action in place if you think that a debt consolidation loan might be right for you. For many people, these solutions can appear to be an attractive option thanks to their lower repayments and interest rates. However, they can also cost you more in the long-term if you’re unable to keep up with thee repayments.

For a debt consolidation loan to be effective, it’s important to make sure that you know how you’re going to repay the money that you owe in advance. If you can create a plan for debt repayments and stick to it, then you can reduce your chances of encountering any problems. Remember, free debt advice agencies exist to help you with your money management.

Super Balance Transfers on Credit Cards

If you have a lot of discipline when it comes to repaying the debts that you owe, and your credit score is reasonably good, then you might be able to enjoy the benefits of an interest-free, or low-interest balance transfer credit card that will allow you to transfer your money to be used for repaying loans and overdrafts.

The problem with these deals, which are sometimes known as super balance transfers, is that they can come with a fee. However, that doesn’t make them a bad choice for some people. All it means is that you will need work out whether using a super balance transfer is cost effective or not. If you can, speak to your personal loan provider and find out how much it will cost to pay off the full amount of the debt, before the low-interest rate runs out.

Using Extra Payments to Reduce Loans

If you think that you can’t pay off an unsecured personal loan using the full amount, then you might be able to make additional payments to help ensure that the loan is paid off as quickly as possible, therefore reducing the amount you spend on interest. With unsecured loans that were taken out after February 2011, it’s possible to make payments of up to £8,000 in any 12-month periods without incurring penalties.

For additional payments over £8,000, there’s a maximum penalty cap of around 1%, or 0.5% on the total amount that’s repaid. That means that if you paid £9,000, you’d be eligible to pay a fee of £90.

Importantly, you’ll need to let your lender know that you plan on overpaying, unless the lender allows overpayments in their contract. Usually, the notice must be given within 28 days of when you make the overpayment. If you send a payment without any notice, then this payment can be treat as though it was received later, so that you pay interest up until that point.

For any loans that were taken out before the first of February 2011, it’s usually not possible to make any partial over-payments, but it is possible to repay in full at any time.

Additionally, it’s worth noting that you can consider claiming back payment protection insurance. Many lenders have sold PPI alongside their credit cards and loans, and you may not have been aware of it. If this policy was sold to you, then you are entitled to claim the money that you spent back.