Credit unions are a bit like banks in terms of the services they offer but they’re very different when it comes to who can use their services. Credit unions are members-only organizations and members put in their savings that in turn allow for lower interest rates on loans and credit cards for all members. In addition, using credit union products can mean higher interest rates on savings accounts.
With around 1.3 million people belonging to credit unions in the UK, they offer a more flexible and low cost way to borrow money compared to other high street banks and lenders.
What Makes Credit Unions Different from Banks?
There are several differences between credit unions and banks since some are small and some are large and credit unions are regulated by the FCA too. Here is a direct comparison:
|Locations||National||Usually More Localized|
|Who Can Use||Anyone||Members-only|
|Products & Services||Wide range||Loans, Checking, savings, and credit cards|
|Type of Organization||For-Profit||Not-for-profit|
|Regulatory Boards to Protect Deposits||Federal Deposit Insurance Corporation (FDIC)||National Credit Union Administration (NCUA)|
A few more differences:
- Credit unions have members. That means you have to join a credit union
- They can offer better interest rates
- It can be easier to get a loan from a credit union versus a bank
What Can a Credit Union Do?
Credit unions can offer you low cost loans, which do not take your credit score into consideration, whilst offering low cost penalties if you cannot repay. There are also savings products and benefits for members. Credit unions are popular with lower income groups and particularly those working in the public sector.
How Can You Join a Credit Union?
Joining a credit union is a little more difficult if you are not associated with an organization that has its own credit union. For instance, many companies have credit unions as do social clubs, churches, associations and trade unions.
Sometimes if one of your family members is already a member you may be allowed to join.
In addition, you may belong to an organization or be able to easily join one that can participate in a credit union. Check online or ask your association organizers if this is an option.
What Are The Benefits of a Credit Union?
- Credit unions, because of their size, can offer services that are more personalized in a time when banks continue to cutback customer service
- Lower interest rates on loans and credit cards can really make a difference, especially when compared to other loan types
- Interest bearing accounts enjoy higher interest rates.
Are there Disadvantages of Credit Unions?
Yes, and they include:
- Their structure leans toward fewer branches that are more localized for their members
- If you’re not associated with a group that has a credit union it can be more difficult to join one
- As a non-profit entity their budget for more support and high-tech services can be limited
What Happens If You Don’t Pay Back Your Credit Union Loan
Your credit union could take back your membership if you don’t repay your loan. As soon as you realize you may have problems repaying your loan, contact your credit union so you can work together to change the terms i.e repay back over a larger number of months. Keeping them informed is the best way to go. They want you to be able to repay your loan.