Credit union loans are a great option for some people, offering competitive rates and no penalties for such things as early repayments. However, most people do not even know of their existence. We took a look.
Credit unions are community savings and loan cooperatives. Members pool their savings to lend to one another and help to run the credit union. Thus costs are kept down, and there is no desire for personal profit and gain. It is run for the benefit of the members who use its services. Interest rates can vary up to a legal maximum of 3% per month (42.6% APR). All credit unions offer savings and loan accounts while some may offer additional products. These are usually the bigger credit unions.
People who save or borrow through a credit union must have a common bond. That means they might live in the same area, work for the same employer or have the same profession. They can also be members of the same church or trade union. So as you can see, not everyone can simply join one and use their services. It is not that simple.
They are not run for profit. They use money they make to reward their members and improve services.
Unions are regulated by the Prudential Regulatory Authority and the Financial Conduct Authority.
Credit unions operate with three main aims, which are to supply loans at ultra low rates (esp compared to the high street), to foster an environment conducive to saving, and to help members with any financial needs or problems. They exist act in the interests of all members and so try to ensure they don’t let their members take out loans they cannot pay back. Thus an application for a loan will be assessed thoroughly. The cap on loan interest is 3% a month or 42.6% a year APR.
You will need to be a member of a credit union before you can get a loan from them and some will require you to build up some savings first.Most will charge you an average of 1% interest a month as you pay off the loan. If you can find a union that suits you, as you have a common bond with other members, then this could be the best route to borrowing.