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There are lots of borrowing terms that can be confusing – APR, CCJ, ERC, to name a few – and credit union definitely earns its place on that list.
So, what on earth is a credit union?
A credit union is a collective of people – usually neighbours or families – that pool their savings together to provide each other with credit at a low interest rate, when they need it. Think of it like a community pot – everybody contributes to the pot, and if somebody needs a helping hand, they borrow from the pot and repay it with a little bit of interest.
Everybody who contributes to the pot then gets a little slice of that interest as a thank you.
What’s the point of a credit union? Can’t I just go to the bank?
Credit unions – a little bit like us here at Bamboo – were established to help those who can’t always access regular products from a high street bank. They were set up out of a sense of communal duty, an almost Christian sense of helping your neighbour out in times of need. Plus, as they’ve developed, they’re a perfect alternative to payday loans or loan sharks.
How can I join a credit union?
Each credit union has different criteria, but they’re usually formed around a common bond or link – for example: you all live or work in the same area, you work for the same company or employer or you belong to the same church or union. Alternatively, because credit unions are based on relationships and bonds – to ensure trust between the members – if you’ve got a family member that’s a part of a credit union, then you can probably join too.
To find out if there’s a credit union near you, head to The Association of British Credit Unions Limited (ABCUL) website. You’ll be able to search a whole host of criteria – from your postcode to profession – to see if there’s a credit union you can join.
How can I borrow from my credit union?
A key appeal of credit unions is a willingness to make small loans of £50 to £3,000, which most high-street banks won’t do. They’re a much cheaper alternative to payday loans, and some credit unions can even get cash to you the same day. In the old days, a union kept a strict rule that it would only lend to those who already had savings but this is changing; some will now lend to those who are new to the organisation.
Can I save with my credit union?
Credit union tend to be quite flexible, allowing you to save large or small amounts weekly, monthly or whenever you can. Bigger credit unions may have online banking meaning you can pay in online, and have branches and collection points such as local post offices; some smaller unions will have just a couple of opening hours a week and likely be based in a community centre or church hall.
You can also save with a credit union, with most unions offering a dividend rate rather than an interest rate. This sounds confusing, but all it means is that you’ll get a bit of what the union earns in a year. If it’s a lot of money, you’ll get a lot of money. If it doesn’t do so well, you might end up making no money, but you won’t lose it, either.
Does that make a little bit more sense? (Hopefully it does.) If you’re still baffled by borrowing terms, make sure you check out our glossary of confusing terms!
- Author The Bamboo Team
- Posted 26 February 2018