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Did you know that around the world, there are over 40,000 credit unions spread across 80 countries, and according to the Association of British Credit unions over 70% of people in Ireland belongs to one? But what exactly are they, and when are they useful? In this guide, we explain what credit unions are, and how it works to borrow money from one.
A credit union is an organisation that is a community-run for and by the members that they have. Anyone who saves or borrows with the credit union in question must have something that links them together, for example, this may be:
Since 2012, credit unions have been able to extend membership to those who are outside the common bond, should they want to do so. Nevertheless, it is important to note that this is simply a choice – no credit unions are obligated to do so, therefore you should always check the eligibility criteria of credit unions.
Some credit unions may just have 50 or so members, others may have thousands, but they are all run on a ‘not for profit basis’ and are regulated by both the Financial Conduct Authority and the Prudential Regulatory Authority in the UK, with any savings up to £85,000 protected by the FCA for those who have money in a credit union. The ‘not for profit’ organisation of a credit union means that profits are used to reward the members of that community, or to improve the services that they provide, instead of paying this profit to shareholders.
Money held in currents account or savings through credit unions is used to help other members borrow money in an affordable manner.
There are a number of reasons as to why you may choose to belong and borrow from a credit union. For example:
First things first, if you are looking to borrow money from a credit union, it is essential that you are a member of one before you try to get a loan. Depending on the union, you may need to have been with them for a certain amount of time prior to being able to borrow or to have built up a certain level of savings with the union first.
When you become a member you may need to provide identification to verify that you are who you say you are, unless you are becoming a member of your trade union.
You can find credit unions in your local area through the following links on the Association of British Credit Unions website, in Northern Ireland – Irish Federation of Credit Unions as well as the Ulster Federation of Credit Unions.
In Scotland, you can find out more by looking at the Scottish League of Credit Unions members website www.scottishcu.org.
One of the advantages of borrowing from a credit union is that you are able to make repayments through a number of different channels. However, it is important to note that this may vary as it will be dependent on the credit union in question.
If you find yourself in a situation where you are unable to make repayments on a credit union loan, the union may decide to terminate your membership. Or, alternatively, they may try to take you to court in order to get the money back.