Credit unions Borrowing from a credit union
How much does it cost to borrow from a credit union?
Loans from credit unions are generally cheaper than loans from most other providers for smaller amounts and do not incur set up fees, administration costs or early redemption fees.
Many credit unions loans, for example, will cost 1% a month on the reducing balance of a loan (an APR of 12.7%). This means that if you borrowed £1,000 repaid over one year, you would repay £1,067 in total.
Some credit unions may charge more than this, although by law the amount of interest charged by a credit union can be no more than 2% a month on the reducing balance of a loan (an APR of 26.8%).
In Northern Ireland the maximum is lower still at 1% a month on a reducing balance (equivalent to 12.68% APR).
Benefits of a credit union loan
- Credit unions offer very competitive rates of interest on personal loans of up to about £3,000 and are happy to offer much smaller amounts.
- Interest is charged on the reducing balance of the loan. This is important if you want to repay your loan weekly rather than monthly as you'll pay less interest overall.
- When you borrow from a credit union, you can pay back loans through various channels such as straight from your wages through payroll deduction, taken from your benefits if you pay them into the credit union through the PayPoint network, from your bank account by direct debit or with cash at local offices or collection points.
- Credit union loans come with no hidden charges and no penalties for repaying the loan early.
- When someone borrows from a credit union, they are encouraged to save too, meaning that by the time they finish repaying the loan their savings will have grown as well.
Who are credit union loans good for?
Most credit unions are happy to lend small sums, but more and more credit unions are also providing larger-sum credit for big purchases and in some cases even mortgages.
In general, credit unions will provide personal loans for up to five years and up to 10 years for a loan secured on a borrower’s property. However, some are able to lend up to 10 years for an unsecured loan, and up to 25 years for a secured one.
Traditionally, to borrow from a credit union you had to have saved with it first. These days, however, many credit unions do not insist on this.
What if I die while I've got a credit union loan?
Life insurance is built into credit union loans at no extra cost to the borrower, so if you were to die before the loan is repaid, the insurance would repay it for you.
How can I find my local credit union?
To get a loan from a credit union, you previously had to choose one that covered the area where you live or work, your employer or an organisation you belong to, such as a trade union or church.
Since 8 January 2012, the law has changed to allow credit unions to be more flexible about who they serve: credit unions still have membership restrictions, but now have the power to change their rules and expand the definition of the 'common bond'. For example, businesses and housing association members may now be able to join.
To find your local credit union visit www.findyourcreditunion.co.uk or call the Association of British Credit Unions (Abcul) on 0161 832 3694.