Have you heard about credit unions but aren't sure if they can help you? Let's talk about these friendly financial helpers and how they can save you money when you need to borrow!
Credit unions help you save and borrow money. Members own and run these special financial organisations to benefit everyone who joins. Think of a credit union as a financial club where everyone helps each other.
Credit unions started by giving local people a safe place to save money and borrow responsibly. Many credit unions now offer extra services like current accounts, mortgages, and cash ISAs.
Your money stays safe in a credit union. The Financial Services Compensation Scheme (FSCS) protects the first £85,000 you put in, just like at regular banks. Credit unions don't try to make profits for themselves. Instead, they use any extra money to make their services better or pay it back to members as interest.
Members elect a board of directors who run the credit union. When you borrow money from a credit union, you're actually borrowing from the pool of savings that all members contribute to.
Like other authorised lenders, credit unions have to lend money responsibly. They only approve loans for people who can afford to pay them back. They also encourage members to save and offer helpful financial advice.
When you join a credit union, you become an owner! This means you get to vote on important decisions and attend meetings - if you want to.
To join a credit union, you need to share a ‘common bond’ with other members. This might mean:
If someone in your family already belongs to a credit union and you live at the same address, you can often join through them too.
Most credit unions let you borrow between £500 and £15,000, though some might offer up to £25,000 for home improvements or buying a car. The amount you can borrow depends on your savings, how long you've been a member, and what the credit union's rules say.
In addition to your loan, credit unions will often also provide free life insurance or loan protection for the duration of its term. This means if you were to pass away, the insurance would cover the outstanding loan balance so the debt isn’t passed on in your estate.
Most credit unions ask you to be a member for at least one month before you can get a loan, but this time can vary widely. Some credit unions let you apply for a loan right away when you join, while others might want to see 3-6 months of membership first.
Your chances improve when you keep money in your account and show good banking habits. If you need money quickly, call your credit union directly and ask about their specific waiting period – many offer special programs for new members who need loans right away.
Credit unions can offer many advantages if you want to borrow smaller amounts over a short time frame. However, there are still drawbacks to consider:
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Benefits |
Drawbacks |
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Lower interest rates - Credit unions charge much less interest than payday lenders. The interest for a credit union loan is capped at 42.6% APR. Compare that to payday loans, which can charge up to 1500% APR! |
Possible fees - Although interest rates may be lower than their equivalent payday loan options, there may be other fees involved which can increase the overall cost. |
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No early repayment penalties - You can pay back your loan early without any extra fees. |
Waiting for approval - These small loans might take longer to approve than instant cash options, so not ideal if you need money urgently. |
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Affordable small loans - Need to borrow a small amount for a new washing machine or car repair? Credit unions excel at these types of loans. |
Smaller loan amounts - The lower interest rates often mean credit unions can only offer smaller loans. If you need to borrow a large sum, you might need to look elsewhere. |
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Non-profit organisation - They exist to help members, not to make money for shareholders. This means they can offer better deals. |
Membership requirements - To benefit from these better deals, you need to qualify for membership, which might mean living in a specific area or being part of a certain group. |
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Personal service - Staff often get to know you and can give advice that fits your situation. |
Limited opening hours - The personal touch means fewer automated services, so you might only be able to discuss your loan during limited opening hours. |
Yes, credit unions do perform credit checks when you apply for loans, just like banks do. They look at your credit history to decide if they can lend you money and what interest rate to charge.
Credit unions might be a bit more flexible than big banks when reviewing your application, especially if you're already a member. They often consider your entire financial situation, not just your credit score.
Yes, credit unions often work with people who have bad credit. Credit unions look at your whole story, not just your credit score. They might check your job, how long you've lived in one place, and if you pay bills on time.
Some credit unions offer credit builder loans to help people improve their credit. While you might pay higher interest rates than someone with good credit, the rates are usually lower than payday loans.
Ready to borrow from a credit union? Follow these steps:
Each credit union has its own joining process, so contact them directly to learn about their specific requirements.
You can pay back your credit union loan in several easy ways:
The available payment methods may vary between different credit unions.
Looking for more money tips? Check out our article on funding your retirement beyond your pension.
Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.
Zubin is a personal finance writer with an extensive background in the finance sector, working across management and operational roles. He applies his experience in customer communication to his writing, with the aim of simplifying content to help people better understand their finances.
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