There are many places that we can go to, to borrow money. Often a credit union is recommended as being a cheaper option than some alternatives but is it really the best place to go? Many of us do not know much about them but it is worth finding out as they could be a useful option.
What is a credit union?
A credit union is a local organisation which will provide banking services for its members. They can be run by business or often by churches and they will often lend to people even if they have a poor credit record. Their interest rates on loans tend not to be as high as some alternatives particularly payday lenders or doorstep lenders. They will offer smaller loans, like these people do but may also be prepared to lend higher amounts of money. Their interest rates are legally capped at 42.6% APR which may seem expensive but is a lot cheaper than some poor credit lenders. They have insurance tied into the loan so it is automatically paid off if you die and there are no charges for early repayment. As well as offering loans, they offer savings accounts and some offer current accounts. The current accounts tend to be basic and without an overdraft or chequebook so you cannot get into debt but you will usually get a LINK cash card for use at ATMs. The savings accounts are ethical as the money you save is lent to other members. You will often be paid in dividends rather than interest but this will vary depending on the credit union. You can normally set up direct debits and standing orders. It is a type of co-operative so everyone is a member. Credit unions are authorised by the Financial Conduct Authority meaning that you can get protection for the first £85,000 that you have saved with them.
Will they lend to me?
You will have to be a member in order to set up an account with them. Whether you will be accepted may depend on certain criteria such as where you live or it could be part of a trade union or club or you may have to belong to a certain industry. These criteria will vary between credit unions and so you will need to check whether you can join any. Start by looking locally as local ones may accept local members, then consider whether you are in a business that might have one and you could ask around at work about this. They tend to be happier to lend to those with a poorer credit rating compared with standard banks, but they may have criteria. They may, for example, expect you to save with them regularly first, so that you can prove that you are capable of making regular payments. It is worth looking on the website of your local credit union or going to visit them to find out more.
How do they compare?
As they all differ then it is not easy to just compare them with other lenders by grouping them together. You will need to look at your local one and then look at how they compare. There are a few general things though that could apply to them all.
Firstly, they will be able to give you impartial financial advice. They are not profit making and so they do not take on loans for the sake of it. They will be able to talk to you about whether a loan is a good idea for you or whether there are any other solutions they feel will work better. They also will look at the loan types and amounts and advise you on which will suit you.
It is worth being aware that they may not have the same opening hours as high street banks. It might be that they just open a few days a week or just mornings. Do check on their website as this could impact you if you are hoping the visit them, perhaps on a Saturday or whatever, when they may not be open. They may not offer online banking and so this may mean that the only way that you can organise a loan is to go in and talk to them. You may have to therefore take time off work to do this. Repayments will probably be able to be done by direct debit though which will mean that you can do this without having to go into the branch and so you may only have to visit once.
Their rates of lending tend to be good, particularly if you do not have a good credit record. They may still lend to you even if you cannot get a loan from a bank and the rates are likely to be better than you will get from a payday loan. You will need to check this though as it may not be the case for all of them.