Definition of a Credit Union
A credit union is a not-for-profit organisation that offers financial services such as saving and borrowing to its members. It is a cooperative, owned and controlled by its members, so it doesn’t make money for shareholders.
Who does a credit union help?
Typically, these organisations are set up to serve a community of some kind. That could be a local one, where the members could be anyone who lives in that town, city, county or area. Examples are the Leeds City Credit Union and the Scotwest Credit Union. Others are focused on particular industries or associations: so for example there is a Police Credit Union, a Transport Credit Union, various trade union credit unions, and so on.
What services do credit unions offer?
These will vary, depending on the size and scope of the credit union. Usually, though, some types of savings and borrowing will be available. Small loans, such as under £1,000, are commonly on offer: and borrowing from a credit union can be much better than doing so from other lenders. There may be other services such as current accounts, child trust funds, ISAs, funeral plans, and so on.
Why would I want to use a credit union?
Because credit unions are cooperatives, the members benefit from its services – not shareholders or other parties. As a result, their services might be cheaper or offer a better deal than some high street products.
They can help people who might be struggling with their finances get access to basic banking products that might not otherwise be available. They also represent a good alternative to fringe approaches to finance such as doorstep lending and payday loans – or even worse, loan sharks or credit cards with huge interest rates. The interest rates credit unions charge can range from below 6% a year up to 26.8% APR, with around 12.7% APR being typical. Obviously, even the top rate of credit union interest is much lower than that charged by some organisations lending to people refused high street bank loans.
There are also usually no early repayment penalties or hidden charges. What’s more, most credit union loans include life assurance at no additional cost. If you die before repaying all the loan, the insurance will pay it off.
Credit unions have strict guidelines that they have to follow. These prevent them from over-lending or from investing in high-risk areas such as many large banks were doing in the last decade. And they are all protected by the Financial Services Compensation Scheme, so if yours went bust you would be safeguarded.
There is more to credit unions than just lending, as mentioned above. Saving with one not only earns you money on your savings, it also helps people within your geographical or trade community. You can benefit from bill paying services, and have your benefits paid to the credit union, withdrawing it when you like but still benefiting from its loan and saving facilities.
Credit unions also help to train and educate their members in the wise use of money and in better ways to handle their finances.
Who can join a credit union?
You can join if you belong to the community that the credit union serves. For example, if you live or work in the area it is attached to, work for the same employer or belong to the same trade union, church or other group. You may even be able to remain a member if you move away from the area or change jobs, though this will depend on your credit union’s rules.
Some credit unions will ask you to save regularly for a period before lending to you, although others have waived this requirement.
You can find a credit union near you and see what services it offers by searching on the Abcul database www.abcul.org/page/members/cfm or calling Abcul on 0800 015 3060, looking in your Yellow Pages, or asking your local Citizens Advice Bureau. We are also creating lists of credit unions in various locations throughout the UK, and these will be available shortly.