Credit unions vs. affordable loan schemes – What do you provide your employees?

Helping your employees to manage their finances has many benefits for organisations, especially in the public sector. Stress caused by having financial worries can affect employees’ performance at work, their health and wellbeing, and ultimately could lead to increased sick days and retention problems.

“68% of NHS staff are affected by financial stress, 91% of those on a salary of £30,000-£39,000 admit that they have been impacted in the past 12 months.” – Neyber: The DNA of Financial Wellbeing’ Summary Report 2016

This is why many organisations have schemes in place to help staff manage debt or afford essential purchases when they need them. Not everyone can afford to have a ‘safety net’ in place for when the boiler breaks down or their home needs essential repairs. Similarly, with austerity measures still hitting those on low to medium salaries hard, food and fuel prices on the increase, and Christmas only weeks away, many employees are struggling to make ends meet.

Therefore, credit unions and affordable loan schemes are much welcomed by employees – providing them with an alternative to expensive payday loans and other forms of credit. These schemes also help negate the side effects of staff having financial problems in the workplace – reducing stress and sick days, and having a positive impact on morale and employee retention.

5 benefits of affordable loan schemes

Many NHS and public sector bodies use the credit union model to provide employees with access to affordable credit. However, affordable loan schemes have benefits that may outweigh that of a credit union, or can happily coexist with credit unions thereby offering employees a wider range of options and fairer finance.

Here are 5 key benefits of implementing an affordable loan scheme:

1#: Speed

When something goes wrong we often need to get it fixed quickly. Can you afford to have a member of staff taking unplanned leave because their car has broken down, they haven’t got the money to have it repaired, and they cannot get to work without a vehicle? The advantage of an affordable loan scheme is that any eligible employee can access credit quickly.

Credit unions can also provide their members with loans within hours or days of a request, but often this access is not available to new members. Depending on the credit union some can only lend to members who have been saving regularly with them for some months, or may restrict the amount borrowed.

This is a good example of where the two schemes can coexist with the credit union providing a great way of encouraging staff to save and an affordable loan scheme providing access to loans quickly for those who are not members – or eligible – to apply through the credit union.

2#: Coverage: Regional and professional

Many credit unions are regional and this means that organisations with multiple sites across the country will need to create links with different credit unions. Unfortunately in some areas of the country there may be no suitable credit union, and therefore you may find that your organisation cannot offer all employees the same support and benefits.

Credit unions, when not regional, are often sector / profession specific; or belong to a particular trade union. This can be restrictive for employers wishing to provide all their staff with the same financial support.

In cases like these affordable loan schemes can be introduced alongside industry or regional credit unions to ensure that staff who do not qualify as members of the credit union can also access credit.

3#: Larger Loans and Debt Consolidation

Typically credit unions will lend their members anything from £50 to £3,000, providing them with affordable small loans and avoiding expensive payday loans. But what if your employee needs to borrow more?

Many people who have debt are looking for ways to consolidate this into an affordable repayment plan, but on average these debts are significantly more that £3,000. In fact a report from PwC puts the average amount of non-mortgage debt for UK households at £10,000 by the end of 2016. In our experience, most people using affordable loans schemes for debt consolidation have over £12,000 worth of debt.

While credit unions can go a long way to help employees avoid this level of debt – encouraging them to save as well as borrow small amounts – when a substantial debt has been accrued, generally credit unions cannot help but affordable loan schemes can.

4#: Not everyone can or wants to save

We’re told that we should be saving at least 20% of our salaries to put into pensions, investments or savings schemes, and to provide contingency funds should we need to deal with unexpected expenses. But how many of us can currently afford to save? A survey by the Money Advice Service found that 4 in 10 adults have less than £500 in savings to pay for emergencies – and many had significantly less.

While credit unions are great if you can afford to regularly save, unfortunately this is not possible for everyone.

Those employees who are finding it difficult to save at all are very vulnerable. Without a safety net they are at most risk of financial problems escalating and of stress related illness if something does go wrong. Therefore, putting an affordable loan scheme in place within your organisation could provide them with that much needed safety net, and enable you to offer practical support in difficult times.

5#: Providing employees with options

When employees face financial problems they may feel like they don’t have a vast amount of options. While you may think that their lifestyle choices and financial difficulties are not your problem, they are because left unchecked they’ll inevitably have an impact in the workplace.

While we obviously have experience setting up affordable loan schemes for organisations in the public sector, we firmly believe that credit unions also have a place. It’s about offering employees options so they can find the right way to manage their finances.

By Richard Ellis, sales and marketing director, Connected Benefits

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