Credit unions are a type of co-operative which accepts deposits and offers loans to individuals in need of financial assistance. These options are generally established by people who have common interests surrounding where they live and work, and can offer low-interest lending, and sometimes even bank accounts. Credit unions have been around for many years, but over the last decade or so they have become increasingly popular with borrowers and savers alike.
The key features that can often be used to establish a credit union are:
– A company or organisation which is regulated through the Prudential Regulatory Authority and the Financial Conduct Authority, or FCA. The protection limit for consumers at this time is £75,000. If you have money that goes above this limit, your money may be at risk if your building society or bank fails.
– Credit unions can be large or small. Some are very limited whereas others have been known to have literally thousands of members at any given time.
– Credit unions are run through a “not for profit” basis. This means that instead of paying shareholders a profit, they use their money to help reward their members and ensure that their services remain to be competitive.
– People who save or borrow through credit unions generally need to have a common bond. This means that you might have to live in the same area, have the same profession, or work for the same employer. Credit unions can also be made up of people that are part of the same trade union or church.
Why Consider a Credit Union?
There are a number of benefits when it comes to borrowing from a credit union. Most credit unions operate with three significant aims in mind. They want to encourage all of their members to engage in regular saving, provide loans to people at low rates, and assist members who feel that they need financial assistance or advice.
Credit unions are designed to act in the interests of all the members involved, so they try to make sure that they do not allow their members to take out any loans that they would not reasonably be able to pay back. This means that a credit union will often need to evaluate your finances and assess your income before they will offer you a loan opportunity. There is also a cap on the amount of interest that a credit union can charge on their loans. Credit unions can only ask for interest levels of 42.6% per year or 3% interest per month.
How Do Credit Union Loans Work?
The money that is held by a credit union in current accounts and savings can be lent out to other members who need to borrow money at affordable rates. In the United Kingdom, a credit union will be monitored and regulated by the Prudential regulatory authority and the financial conduct authority.
In most cases, you will need to be established as a member of a credit union before you will be able to access a loan from them. In some situations, your credit union may also require that you build up a certain level of savings too. Most unions will charge you an interest level at an average of 1% per month until your loan is paid off, and some charge even less. There are no hidden charges involved with credit unions, and as with any lenders, you will simply be expected to repay your loan exactly as you agreed to do so.
Credit unions can also offer free life insurance at no extra cost, so that if you die before you repay the full loan, the balance will be paid on your behalf.
Most credit unions will be willing to offer loan periods that extend up to a maximum of five years with unsecured loans, and ten years through secured loans. In secured loans, however you will need to put up an asset as security in case you cannot make repayments. However, certain credit unions have been known to lend for up to 25 years on a secured basis. You will need to speak to your local credit union to find out more about their conditions.
Paying Back your Loan
There are a range of ways in which you can pay back your credit union loan. For example, you could simply make direct debit payments from your account, or give a portion of your wages at work to the money you owe. In these circumstances your employer will need to have links to the credit union that you are borrowing from. You should also find that some credit unions are willing to let you make repayments from direct payments through your benefits.
When you are finding out the details associated with lending from credit unions you should discover how they expect you to pay back the money owed.