Need to Borrow? Consider a Credit Union Loan
Credit unions offer a variety of loan products to their members. If you need to borrow money, a credit union loan can be an option worth considering.
If you need a loan, your options extend beyond high street banks or building societies. A credit union could be a useful option, particularly if you only need to borrow a small amount of money or have a less than perfect credit score.
What is a credit union?
A credit union is a community organisation which offers certain financial products, such as savings accounts and loans.
The union is run by and exists for the members of that union, and operates on a not-for-profit basis. Money held in savings accounts is used to fund loans for borrowers and any money made by a credit union is used to reward members or spent on improving services.
One important feature of a credit union is that members need to have something in common. It may be that the union’s membership and services are only available to people who live in a specific area, or who work in a particular type of job.
What types of loans do credit unions offer?
The types of loan on offer will vary depending on the individual credit union.
Some credit unions offer a single type of loan, with interest rates varying based on the size of loan you go for. These can range from small loans of up to £250 to tens of thousands of pounds.
Others will provide a range of different loans, such as child benefit loans for those with children, key worker loans for those who work in specific jobs, and homeowner loans for people with equity in their property.
Some credit unions offer their own form of payday loans, crucially with much more affordable interest rates than those offered by some of the best-known payday lenders.
How do I get a loan from a credit union?
Crucially the products offered by credit unions are generally only available to members, so you will need to sign up before you can take out a loan.
You can use the Find Your Credit Union tool from the Association of British Credit Unions to establish which unions operate in your area.
You may need to open a corresponding savings account before you can go ahead with a loan application.
A big selling point of credit unions is that their loan products don’t tend to come with any additional fees or charges to take into account ‒ you simply need to consider the interest rate being charged.
How do credit union loans compare?
If your main priority is getting the best possible interest rate on your loan, then a credit union is unlikely to be your top choice. The loans with the absolute smallest rates tend to come from more mainstream lenders, though there are times when credit unions can challenge them.
However, credit unions can be a worthy option if you don’t qualify for the leading rates. This may be because you have a patchy credit history due to a few missed or late payments.
The pros and cons of getting a loan from a credit union
- Small amounts available. Credit unions will offer loans for small amounts, for those occasions when you only need to borrow £100 or so. Those loans are too small for mainstream lenders to consider, so your only other options are likely to be payday lenders or overdrafts, both of which can be costly.
- Life insurance. Another unique perk is that credit unions will provide you with a form of life insurance alongside the loan. This means that should you pass away before you reach the end of your loan, the loan is paid off for you. In other words, your loved ones won’t be chased to pay off your outstanding debt ‒ it is simply cleared.
- Community By being part of a credit union, you are helping to support other people in your local area, providing an alternative to a traditional bank or building society.
- Membership: You will have to be a member of the union before you’re able to take out a loan. That’s an additional hoop to jump through ‒ you can’t just go directly to the union and apply for credit. Some unions even insist that you save with them for a certain period of time before you can borrow.
- Not the cheapest: A credit union is rarely going to be the absolute cheapest place to borrow. Credit unions aren’t there to top the best buy tables ‒ that isn’t their function. As a result, if you have an impeccable credit score, then it’s inevitably going to cost you more to borrow through a union than through a regular lender.
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more