A credit union is a not-for-profit co-operative, providing loans and savings accounts to its members. To become a member you must belong to a ‘common bond’. For example, living in a paricular area or working for a specific employer.
One of the aims of credit unions is to help lower income households. Because of this, they tend to be sympathetic to people who’ve had repayment difficulties in the past. On the other hand, they offer great rates on larger loans.
Furthermore, with interest charged on a daily basis and no fees or early repayment charges, they can be cheaper than the bank.
Credit unions worldwide
Credit unions are relatively unknown in the UK. However, there are 85,000 credit unions across the world. Operating on six continents and 118 countries they serve 250 million members. In Ireland and the United States, 2 out of 3 people are members of a credit union.
All savings are protected by the Financial Services Compensation Scheme.
Benefits of saving and borrowing with a credit union
- Credit unions tend to offer smaller value loans that you can’t get from banks or building societies. Therefore, if you need to borrow a little, they are a great option. You can still borrow larger amounts. But as specialists in smaller sized loans, they can’t be beaten.
- Through their Save as You Borrow schemes, a proportion of any loan repayment is allocated to a savings account. This cannot be accessed until the loan is repaid, reducing your need to borrow in the future.
- Interest rates tend to be lower for smaller loans. Moreover, their interest rates are capped by the regulator.
- Loans do not have early repayment fees or hidden charges.
- They are approachable. Credit unions focus on your current financial circumstances. As a result, they may lend to you, even if you’ve been in financial difficulties before.
- If you die, your next of kin could get up to double the value of your savings and any loan would be repaid. This doesn’t apply to every credit union and terms and conditions apply.