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.