If you’ve been researching ways to borrow money, or you’ve been turned down for a credit card or a loan, you might have come across credit unions. Credit unions are nonprofit, community-based organisations, which lend money to members. If you’re not familiar with credit unions, here’s a useful guide
This guide was written from research on the article: What is a credit union and how can I borrow from them on Lending Expert by Jane Wardle.
What are credit unions?
Credit unions are community providers, which offer loans to members. They are often recommended for those who find it difficult to secure a loan or get credit on the high street. Credit unions are not designed to generate profits. If a credit union does make a profit, the money is used to reward members and invest in better services. Credit union members must have bonds that connect them to each other. In many cases, this applies to living in the same community, but unions can also be formed by people from the same religious group, those who work for the same employer or members of a trade union. Credit unions vary in size from a small number of members to thousands of members, and they are regulated by the Financial Conduct Authority.
How do credit unions differ to other lenders?
Credit unions are often thought of as lenders with a human touch. They usually offer lower interest rates than banks and building societies, and members can also benefit from financial advice and measures that are designed to help them save money. In most cases, credit unions don’t charge penalties and fees for early repayment, and they include life insurance with every loan.
Borrowing money from a credit union
To borrow money from a credit union, you have to be a member. You can find details of local credit unions in your area by visiting the Association of British Credit Unions website. When you apply, you may be asked to provide identification documents to confirm your personal details. Some credit unions ask you to build up savings before you can apply to take out a loan. When you take out a loan, you’ll agree to pay back the sum over a period of time. Interest rates tend to be significantly lower at around 1%. The monthly interest rate is capped at 3% for credit unions in England, Scotland, and Wales, and 1% in Northern Ireland. The majority of credit unions offer unsecured loans up to five years and secured loans up to 10 years. A secured loan is a lump sum that is secured against an asset, such as a car or a house.
If you’re looking to borrow money, and you don’t want to be hit by soaring interest rates or hidden charges or fees, why not research credit unions in your local area? You may find that you’re able to get the money you need without increasing your debt to cover interest fees and penalties. Credit unions can also help out in cases where individuals have been refused credit by high street lenders. If you’re struggling to borrow money from a bank or a building society, this is an option worth exploring.
