Credit Unions operate on a very different model to banks and other financial institutions. As profit sharing, democratically run financial businesses, credit unions offer convenient savings and low interest-loans and credit cards to its members, as their members own and manage their credit union themselves.
Credit unions work by “pooling” the resources of its members. The idea is for each member to save regularly – as much or as little as they wish – so that everyone’s savings combine to form a large common pool of funds, from which loans can be made to members.
In order to join a credit union, you must belong to what is known as a “Common Bond”. This could be as simple as living and residing in a particular area, or it could be that you work for a certain employer or within a specific industry. Alternatively, it could mean that you are a member of a sporting club or association.
Credit unions encourage memberships from all kinds of Common Bond categories to join, regardless of income, employment or age. As such they are supported by a range of community groups, including churches, police and emergency services, taxi drivers, councils and other community-related organisations.
According to the
Association of British Credit Unions Limited (ABCUL), as of March 2009, credit unions in England, Scotland and Wales were providing services to over three quarters of a million people. This figure is more than double the amount of credit union members in 2000, when there were just 325,000 credit union members. These statistics show that credit unions are becoming increasingly popular with everyday British banking customers.
If you wish to join a credit union, your best bet is to phone or visit a branch of the office in person. You’ll need to work out whether you are eligible based on the Common Bond of that particular credit union, and this can usually be ascertained within a few questions.
The benefits of joining a credit union are plentiful, as these organisations are established and operated within the community’s best interests.
Generally, credit unions loans will be much more affordable than the loans you’ll apply for with your local bank or financial institution.
To begin with, they come with no hidden charges or penalties for paying the loan off early. Life insurance is also built in at no extra cost to the borrower, so if you were to die before the loan is fully repaid, insurance would kick in to repay the remainder of the loan for you.
Usually, loans issued via credit unions are attached to interest rates of no more than 1% a month on the reducing balance of the loan, which equates to an annual percentage rate (APR) of 12.7%. By comparison, average credit card rates in the UK are around 15-22%.
Many credit unions charge less than this amount, while a few may charge a little more, but according to the law, credit unions must not charge any more than 2% per month on the reducing balance of your loan (an APR of 26.8%). You can find out more about the loans and interest rates on offer at your local credit union by contacting them directly.
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