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Credit Unions: Loan alternatives?

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When it comes to borrowing money, there are quite a few options open to you. Personal bank loans and payday loans tend to be the most commonly selected forms of credit, but there are cheaper options. Borrowing from credit unions could save you quite a lot of interest.

What is a credit union?

Credit unions are a co-operative where members help each other. People within the union pool their savings so that credit can be offered at low rates to other members. There are certain requirements you have to meet before you can become part of a credit union and they include:

  • You need to work or live within the same area
  • Have the same employer
  • Belong to the same organisation, trade union or church

You only have to meet one of the above to become part of a local credit union. If you live with somebody who is already part of the credit union you’ll usually be able to join too. Some unions will require that you’ve saved with them for a while before you can borrow from them. However, not all credit unions will require this.

Personal loans are provided by the credit union for up to five years, but if you’re securing the loan on your property then this term may be extended to 10 years. Some credit unions will provide unsecured loans for 10 years, so it’s often a case of looking around the local area to see which ones offer the best rates and options to suit your needs.

The benefits you can expect

The main benefit of borrowing from a credit union is the money you save. The amount you can borrow is usually up to around £3,000, but members are typically more than happy to lend much smaller amounts too. Interest on credit union loans is usually charged on the reducing amount. This is a big advantage to those who are looking to pay their loan off weekly. You’ll end up paying a lot less interest if you do pay it back weekly rather than monthly. Legally credit unions aren’t allowed to charge any more than 2% each month on the reducing balance. Most tend to charge around 1% a month. What this means if you borrow say £1000, is that you’ll only have to repay £1067 over the course of a year. As you can see from that figure, the interest rates are really low in comparison to banks and other lenders.

Repayments

Another great benefit of credit union loans is the fact you can repay them in a number of ways. You can choose to have the repayments taken straight from your wages. This is quite a good option as by the time you get your wage, you know your repayment has already been made and that’s the money you’re left with. The repayment can also be taken from your benefits. You simply need to pay them into the union via a PayPoint network. There’s also the usual direct debit option or through cash at a local office. You are also able to pay the loan back early without any penalties. Whereas traditional lenders usually charge you a fee for paying the loan back early because they end up missing out on interest.credit unions loan alternatives

No hidden surprises

There are no hidden charges with a credit union either. They encourage you to make payments into savings as you repay the loan so that by the time it’s paid off, you have some money built up. One worry some people have is what will happen if they die while they have a loan with a credit union. Will the debt be passed onto the family? With many lenders that’s exactly what happens. However, credit unions have life insurance built into their loans. Therefore this would repay any money you owed.

It’s generally a much more responsible, cheaper way of lending the money you need. There are so many benefits of lending via a credit union compared to a bank or payday loan company.

Finding a credit union

As you have to typically live within the same area as a credit union, you’ll need to find one nearby. If you’re in employment your work is likely to have a credit union that you can join. It’s definitely worth enquiring about. If not, you can look on the website of the Association of British Credit Unions. The site will provide you with information on all of the credit unions within your vicinity. Overall, it really is worth looking into joining a credit union. You could save so much money and it’s a less pressurised way to borrow the money that you need. When you borrow from a bank you don’t receive much support.

redit unions keep their costs low to make the loans much more affordable. If you fail to make your repayments however, your membership will likely be cancelled and you may be taken to court. Keep this in mind before you borrow any money from the union.

 

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About Jemma Porter

About Jemma Porter

Jemma Porter is an experienced content creator who has written for a number of online publications. A self-confessed penny pincher; she's often found seeking out the best personal finance deals.

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