Credit unions aim to help you save money and only let you borrow what you can afford to repay. The difference between credit unions and payday loan lenders is that they are not aiming to make profit and the money is used to simply keep the credit union up and running. The members of the credit union own it, meaning there are no outside shareholders to pay. However many people do turn to payday loans as they may not be able to join a credit union or simply have a one off unforeseen cost that they need quick cash to cover.
What is a credit union?
1. Savings and loan providers
Credit unions can be an alternative to use against the traditional payday loans. These are often small non-profit organisations set up by a group of people or community to offer financial support to its members. Often the members share common ground, for example living in the same community or working in the same profession. The police force, Navy and Army all have their own credit unions to offer financial aid to their members.
2. Have to be eligible to join
You have to be eligible to join a credit union, as there are over 500 credit unions operating within the UK there is a chance one of them will be suited to you. Have a look at this website to find a credit union https://www.findyourcreditunion.co.uk/ .
Examples of a credit union
As mentioned previously there are over 500 credit unions in the UK. To list a few;
The Credit Union is a not for profit co-operative dedicated to promoting saving and dealing with debt. The Credit Union was launched in 1997 to provide savings and loans for employees of Islington Council. Now anyone living, working or studying in Barnet, Camden, City of London, Hackney, Haringey or Islington can now become a member of the credit union.
London Mutual Credit Union is a financial co-operative that exist for the benefits of its members who live and/or work in London Boroughs of Southwark, Lambeth Westminster or Camden
London Community Credit Union (LCCU) has been running since 2000, and now has over 12,000 members and four branches. It services London Boroughs of Tower Hamlets, Hackney, Newham, Waltham Forest, Haringey, Islington and City of London.
To see a full list and to find your local credit union visit this site https://www.findyourcreditunion.co.uk/home
What are the benefits of credit unions?
1. Saving accounts
Credit unions are authorised by the financial conduct authority and individuals are covered by the Financial Services Compensation Scheme up to £85,000.
Some credit unions now offer interest on savings put towards the credit union in the same way the traditional banks offer interest on savings.
2. Cash ISA
By using a cash ISA you will be able to save £15,000 tax free per year with a credit union.
Borrowing from a credit union
Credit unions offer short term low value loans, typically between £50 – £3000 with a much lower APR. As payday loan companies can only survive by making a profit they need to have their APR higher than that of a credit union. High street banks will not do this short term lending.
The reason why an individual may choose payday loans over a credit union is that to borrow from a credit union you have to be a member. Often people do not plan on borrowing and only need to get a loan when they come across an unforeseen cost.
Payday loans can be much quicker and extremely useful in an emergency situation such as a car break down.
Advantages of credit unions
As a member of a credit union you will be a part owner, in turn granting you voting rights and a say in the operation and running of the union.
Compared to the interest rates from the banks you will get a better return on the money that you deposit.
Credit unions are very community focused and have the soul aim to benefit its members.
Disadvantages of credit unions
It can often be inconvenient to access your money from a credit union due to limited branch locations and ATM’s
Some people may struggle to find a credit union to accept them and many credit unions only lend money after the individual has been with them for a number of years.
For more information about credit unions and how to find a credit union, visit: https://www.findyourcreditunion.co.uk/