The first credit union was started in 1964 to help people save money and access loans when they need to borrow.
A credit union is a member-owned and run service aimed at helping people financially – whether that’s tips to help you save money, a small loan in an emergency situation or even a mortgage. Like other unions, a credit union is a co-operative with the commonality usually being location although some are linked by profession. They are not-for-profit services which means the service doesn’t generate any money – they make just enough money to run the service and cover their resources.
One of the main functions of a credit union is to help its members save money. Whether it’s weekly, monthly, or even yearly, a credit union will help educate and guide its members on ways to save, and they’ll keep your savings safe under the Financial Services Compensation Scheme. The FSCS protects up to £85,000 per person per account, although most credit unions will only let you save up to £10,000 so your money is definitely safe.
In addition to providing an accessible and helpful saving service, credit unions also provide loans to their members ranging from as small as £50 all the way up to potentially £3000. It used to be the case that you had to save with the credit union in order to access their loan service, but as credit unions evolve and adapt to meet the ever-changing needs of its members, loans are becoming more and more accessible.
One of the main benefits of being part of a credit union is simply being part of a community. A credit union is a community of people all working towards a common cause: helping people to manage their money well, face unexpected cashflow problems and protect themselves against future financial difficulty.
There are no real disadvantages to being part of a credit union, although some are better than others. The bigger the union, the more services it will be able to offer – some provide basic bank accounts and even cash ISAs and mortgages, while others will solely help you save and offer financial advice, so it depends what you are looking to get out of your credit union as to whether it’s the right choice to join one.
Plus, not everyone is eligible to join a credit union, so you might find you are unable to partake in the services they offer. The criteria will vary between unions so it’s best to get in touch with your local credit union and see if you are eligible to apply.
Credit unions are standalone services, but it doesn’t mean you can’t find financial advice, saving help and loans from elsewhere. There are several types of credit available, including:
Each loan is quite different – credit cards, overdrafts and credit lines, for example are revolving credit products which means you can borrow and repay on a continuous basis. Bank loans tend to be for larger amounts than a credit union would offer, but they normally come with a relatively low interest rate, so if you need to make any big home improvements or perhaps purchase a car, then a personal bank loan might be more suitable.
Payday loans on the other hand are of much smaller value, and although the interest rate tends to be higher, the application is quick, the funds are transferred on the same day and the amounts are much more suitable for the typical cashflow issues you might experience like a tyre puncture or washing machine repair than the amounts you can borrow from a bank.
There are also plenty of debt charities and advice services that will help you navigate your income and expenditure and form a budget to tackle any outstanding debts or save money towards future cashflow shortfalls, so not being part of a credit union isn’t the end of the world. As with anything though, make sure you do your research first and you know exactly how your savings will be managed and how any pay-outs are received.
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