Credit unions are community savings and loan cooperatives, where members pool their savings to lend to one another and might help to run the credit union. A cooperative is an organisation which is owned by and run for the benefit of the members who use its services. All credit unions offer savings and loan accounts while some (usually larger credit unions) may also offer extra products and services.
What are credit unions?
Credit unions are community finance organisations run by and for their members.
There are several main features of a credit union:
- People who save or borrow through one must have a common bond. They might live in the same area, work for the same employer or have the same profession. They can also be members of the same church or trade union.
- They’re run on a ‘not for profit’ basis. Instead of paying a profit to shareholders, they use the money they make to reward their members and improve their services.
- They can be large or small; some have thousands of members while others are much smaller.
- Like bank and building society accounts, your money is protected under the Financial Services Compensation Scheme (FSCS) – up to £85,000, or £170,000 for joint accounts.
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Credit unions operate with three main aims:
- to provide loans at low rates
- to encourage all members to save regularly
- to help members in need of financial advice and assistance.
There’s also a cap on the amount of interest they can charge on their loans of 3% a month or 42.6% a year APR. The cap in Northern Ireland is 1% a month, or 12.68% a year APR.
Find out more in our guide Credit union savings accounts
Borrowing through a credit union
Coronavirus
If you’re struggling financially because of the impact of the coronavirus, you might be able to get up to a six months payment holiday (also known as a payment freeze) on loans. These include loans from credit unions.
The money the union holds in savings and current accounts is lent out to other members who need to borrow money at an affordable rate.
In the UK, credit unions are regulated by the Financial Conduct Authority and the Prudential Regulatory Authority.
Loans
To get a loan from a credit union, you might need to have been a member for a certain period of time, or have already built up some savings in a credit union account.
In England, Scotland and Wales, there’s a cap on the amount of interest that credit unions can charge on their loans of 3% a month or 42.6% a year APR. The cap in Northern Ireland is 1% a month, or 12.68% a year APR.
There are no hidden charges with credit union loans and no penalties if you repay the loan early.
As with any lender, you’ll be expected to repay your loan as agreed.
Most credit unions can lend for up to a maximum ten years on an unsecured loan and up to 35 years on a secured loan (where they’ll lend against something like your property or car). Not all credit unions will offer longer term loans.
Apply to your local credit union to find out what sort of loans and interest rates are available.
Is your household income getting squeezed?
If you’re facing higher living costs, but have little or no extra money coming in, find out about extra sources of income and support available to help you manage your household bills and save money in our guide Living on a squeezed income
The first step is to find a credit union you can join and become a member.
You can find a credit union in your area by using the following websites:
In Britain, Find Your Credit UnionOpens in a new window
In Northern Ireland, Irish League of Credit UnionsOpens in a new window
How to pay back your loan
You can pay back your loan in several different ways, although some credit unions might not offer all methods. You can do this:
- by making payments face-to-face
- by Direct Debit from your bank account
- through you wages at work — if your employer has links to the credit union, you can pay back your loan by having money taken straight out of your wages
- through Paypoint — some credit unions issue Paypoint cards which you can use to pay back your loan at your local shops
- direct payments from your benefits – some credit unions take benefit payments such as Child Benefit directly and deduct your monthly loan repayment from your entitlement.
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