If you’re looking to purchase a car, kitchen or a much-needed holiday but you do not have savings to pay for it, you might be considering a loan. One of the first places many people look is their bank. But here are 10 reasons to borrow from a credit union, rather than a bank.
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Transparent interest rate
The Annual Percentage Rate (APR) quoted by most lenders is ‘representative’. Consequently it is not the definite rate you’ll be offered. For example, you might pay more if your credit score is low.
Furthermore, the advertised representative rate is only the rate that 51% of borrowers are likely to get. That means at least 49% of people will be charged more. Worse still, if you are enticed by the low rate and make an application and get offered a higher interest rate, it will already have had a negative impact on your credit score. Next time you apply you might be charged even more. Because of this, you’re left with little choice but to take the more expensive loan on offer.
With CLCU you get the rate you’re quoted. Ni ifs, no buts. If we say it’s 12.7% - that’s what you’ll pay.
Credit score doesn’t determine your interest rate
Most lenders set the interest rate based on your credit score. Consequently, the lower your score, the more you pay.
We don’t do this at CLCU. That’s because your credit score might be low, through no fault of your own. For example, if you forget to sign up for the electoral roll. Or you got a default because of a dispute with a mobile phone company. Perhaps you pay back loans weekly. Believe it or not, that’s not as good for your credit score compared to paying back monthly.
Your credit rating does not affect your application
At CLCU we do check your credit record with TransUnion. However, our focus is affordability. We know members may have had problems in the past. Your savings and repayment history with the Credit Union is much more important to us than your credit score. Every loan application is looked at by a human being. We’ll work with you to find a loan that we can be confident you can afford.
Lower interest rates for savers
We reward our savers. If you’ve been with the Credit Union for more than two years and have over £500 in savings you can choose a Loyalty Loan. The interest rate you pay is much lower. And you can borrow up to three times your savings.
Helps you to save
Through our Save as You Borrow scheme, a proportion of the loan repayment is allocated to a savings account. This cannot be accessed until the loan is repaid, reducing the need to borrow in the future. Many people find this an easier way to start saving money, while still being able to pay for things like a holiday with the loan.
Interest on the declining balance
You only pay interest on the outstanding balance. Bank loans tend to be ‘front loaded’. That is when the total amount of interest is added to the loan at the outset. For example if you borrow £3,000 and pay £500 interest the loan is £3,500 and then you repay in equal instalments until the balance is cleared.
That sounds fair but reduces flexibility. When a Credit Union charges interest on the outstanding balance. Therefore, you only pay interest on what you owe at that time. Consequently, if you repay early, you end up paying less.
More repayment options
With a credit union loan, you have weekly, fortnightly, four weekly or monthly repayment options. Because of this you can better align repayments with when you get your money. Bank loans are almost always paid back monthly. As a result, it can be hard to budget for if, for example, you’re paid weekly.
If your employer is on a credit union payroll deduction scheme, you can arrange for the loan repayment to go directly out of your wages. Most people find this is a less painful way to pay back a loan, because you never had your hands on the money in the first place. This ensures the loan repayment is made before other expenses come along. Not only does this help you budget better, it can have a positive impact on your credit score as you’ll always be on time with your repayment.
You can borrow from the Credit Union with peace of mind. That’s because up to £10,000 of borrowings are covered by FREE loan insurance. Were you to die still owing CLCU money this would be repaid in full by the insurance. Terms and conditions do apply, but this is fantastic benefit also applies to our savings accounts.
Free money tips
Credit unions do a lot of work to educate people about money. CLCU prefers to help members better manage their finances than having targets to sell loans. The Credit Union provides regular money tips and an app to help you improve your credit profile.
In 2020 we won the Consumer Credit Awards Treating Customers Fairly award. Every single member voting for us ranked the Credit Union 5/5 for fair treatment. This follows a recent survey of members borrowing since January 2020. They gave us 9.7/10 for the service received.