What is a Credit Union?
Credit Unions are member owned co-operatives usually managed by volunteer members. They are community savings and loan co-operatives.
Credit unions do not need to pay profits to shareholders so all of the Credit Union money is used to run their services and to reward their members. They are non profit making social enterprises.
Why do people become members of credit unions?
1. The interests of members are served and no-one else as there are no outside shareholders or borrowers.
2. Members run the credit union through elected committees.
3. As many tasks are performed by unpaid officers, costs are kept low.
4. There are no management charges on savings.
5. There are no arrangement fees or management charges on loans.
6. Currently the rate of interest cannot legally be more than 2% charged each month (APR 26.8%) on the reducing balance.
7. Life assurance can be provided on both savings and loans for each member, with the premiums paid by the credit union.
8. After the running costs have been met, a dividend can be paid on the shares held by each member.
9. Members’ savings are protected up to certain limits by law.
10. Credit unions can organise activities to educate members in the use of money which gives them greater control over the management of their financial affairs.
11. Credit unions are a practical example of people helping people in a community
How can a Credit Union help me?
- Do you need a way to pay off high interest debts which are keeping you poor?
- Do you need to get into a regular savings habit at an amount you can afford?
- Do you need to be able to access a low cost loan when you need to borrow?
A Credit Union can help you do all of these things
- You may be able to save and borrow with a Credit Union even if you have difficulty opening a high street account due to low income or poor credit history.
- Credit unions usually lend various amounts for many purposes, from gap year travel to household goods, paying off high interest debts to the cost of Christmas or car repairs.
- When you borrow from a credit union, you normally get free life insurance to the value of the loan, so your loan would be repaid if you die before paying it back in full (subject to conditions)
- You will normally receive an annual dividend on your savings, paid at the end of the year at the same rate for all savers.
- You may also receive a rebate on any interest paid on any borrowings, which is also paid at the end of the year.
- In joining a credit union you will be supporting a local co-operative that supports its members and encourages financial inclusiveness.
- Credit Unions are not just for people on low income – they are also a lifestyle choice and often the best financial choice.
How do I know my money is safe?
Credit Unions are run locally and organised as co-operatives. Once you save, you are a member and can have a say. They are regulated by the FCA and your savings up to £85,000 are protected under the Financial Services Compensation Scheme. Credit unions have to put members’ savings into bank deposit accounts and other secure investments such as government bonds. This ensures members can withdraw savings when needed.
How much can I borrow?
Members can borrow up to £15,000 in addition to their share balance, over a maximum term of 5 years. The amount you can borrow will depend on how much you have saved, your ability to repay and whether or not you have had previous loans.
How can you make your loans so cheap?
Credit unions do not have shareholders to pay, (our members are our shareholders) and most are run by volunteers.
Credit unions cannot charge more than 2% interest a month on loans (APR 26.8%) but often charge less – Ballinascreen Credit Union only charge 1% per month (APR 12%). So the maximum a loan of £100 from BCU over 12 months will cost is £1 per month in interest on top of the repayment amount.
What if I can’t pay it back?
If you don’t make your repayments, credit unions can, if necessary, get back any money you owe them by using debt collection agencies, However if members are struggling with repayments we are very understanding and will try and make arrangements to enable the member to continue to make regular affordable payments. If you are struggling with repayments, we would encourage you to talk to a staff member who will do their best to resolve the situation.
What is the difference between this borrowing and just getting a credit card or bank loan?
- Credit Cards are designed for short term borrowing, and unless you pay off the full balance every month, become a very expensive way to borrow.
- Banks charge set up costs for loans and have penalty clauses for early repayment or changes to monthly payments.
- Credit Union loans are often cheaper than bank or building society loans.
- Credit Union loans do not charge to set up loans and do not have any penalties for early repayment.
- Credit Union loans allow greater flexibility in both the initial repayments and in the case of any arrears.
- Credit Unions will not try to sell you other related products such as payment protection insurance because we are run by our members, for our members,
Can I have my Wages / Benefits paid directly into my credit union account?
This facility is not currently available although a licence has been obtained for credit unions to provide a payment facility which is expected to be in place by late 2014.
Can someone make a withdrawal on my behalf?
If you would like someone to make a withdrawal from your credit union account on your behalf, you must complete a withdrawal slip, which MUST be presented to the teller when the transaction is being made. These slips are available from the credit union or can be downloaded Here.
