Loans
It pays to check out the small print and get the facts before you borrow money from any company, including a credit union. If you borrow money from a doorstep lender, pay-weekly store, catalogue, pawnbroker or payday loan company, you will be paying a higher price for your loan.
All credit unions offer savings products and low-cost loans to members. The rate of interest varies between credit unions and also depends on the loan policy of the individual credit union. For more details contact your local credit union.
Loan Types
There are two different types of loans offered by credit unions and CDFIs - Loyalty Loans and Quick Loans. Loyalty loans are usually cheaper than Quick Loans and the amount you can borrow is related to the amount of money you have saved with the credit union. 'Quick Loan' is a general term and your local credit union may call these type of loans by another name, for example 'Bronze Loans' or 'Instant Loans'. Quick Loans are usually arranged within 7-days and members don;t need to have saved first to apply for one of these loans.
'Loyalty Loans' from your local credit union
Loyalty Loans are usually one of the cheapest ways of borrowing from a credit union. They are available to members who save regularly, and the amount you can borrow is based on the amount of savings you have with the credit union. The typical rate of interest for a savings-based Loyalty Loan’ is usually between 12.68% and 20%APR (Annual Percentage Rate).
'Quick Loans' from your local credit union
Some credit unions are able to offer loans to members who haven’t saved first, if they live in an eligible postcode area and qualify for one of these types of loan. Click here to find out which credit unions offer ‘Quick Loans’ in your area.
'Quick Loans' from Fair Finance
People who live or work in London can apply to Fair Finance for a personal loan. Click here for more details about Fair Finance.
How long do I have to be a member before I can apply for a Loyalty Loan from my credit union?
This varies between credit unions but, it's likely you would need to save regularly for between 6 and 13 weeks to be eligible to apply for a Loyalty loan. Using the 'postcode search' on the London Money website will help you to find out which type of savings and loan products are offered by your local credit union.
How much can I borrow?
The amount you can borrow depends on the amount of money you have saved. Every credit union has a different policy so you need to check the details with your local credit union. As a general guide, the amount you can borrow for your first loyalty loan is normally between from 1½ -3 times your savings. The rate of interest you pay may also depend on the amount you borrow. If you have no problem making the repayments and you manage your loan account well, it is likely that second and subsequent loans can be 2, 3 or 4 times your savings balance (depending on your ability to repay). So, if you wish to borrow larger amounts in the future it's important that you continue to save while repaying your loan.
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As an example, if you are a new member and save £10 a week for 10 weeks, you will have saved £100. If your credit union has a policy to lend a maximum of 2 times your savings for your first loyalty loan, the maximum amount you can borrow is £200. When you have paid this money back, you'll be able to borrow more. If your credit union has a policy to lend a maximum of 3 times your savings on a second loyalty loan and you've got savings of £150 in your account, the maximum amount you could borrow for your second loan is £450. |
What if I need a loan now?
If you need a loan quickly, some credit unions can give a loan to people who have not saved first with the credit union. This will generally be at a higher rate of interest than a savings-based loyalty loan. Sometimes, credit unions call these 'Bronze Loans' or Instant Loans ' but in reality it is likely to be about seven working days before the loan application is processed, approved and payment is made.
If your local credit union doesn’t offer Quick Loans to people who have not saved first, Fair Finance may cover your postcode area..
What is the most I can borrow?
The credit unions all have varying loan policies with different maximum amounts. Contact your local credit union to talk through your options.
What about insurance for members – to protect loans etc?
Credit union members are usually eligible for free life cover. Credit unions are affiliated to an organisation which provides free Death Benefit cover for all members, subject to a set maximum age limit.
What is the interest rate on loans?
The law currently states that the credit unions cannot charge more than 2% per month or 26.8% Annual Percentage Rate (APR). Most credit unions charge a lot less than this for savings-based loyalty loans, usually around 1% each month or 12.68% APR . Each credit union has their own loan policy and members agree their own rate of interest. Credit unions charge “simple interest”, which means that interest is only charged on the outstanding balance.
For example, the more money you pay off your loan, the less interest you will be charged. Unlike other financial institutions, there are no penalties for early settlement (i.e. paying off your loan in full more quickly than expected).
Just how much could I save if I borrowed money from a credit union instead of a doorstep lender?
If you want to see an example of what a credit union loan could cost, click here to use the London Money loan calculator. Please note that the Annual Percentage Rate (APR) varies between credit unions. 26.8% APR is the maximum amount that a credit union can charge and most Loyalty Loans have a much lower APR, so your weekly payments could be even lower than the example suggests.
Other sources of low-cost loans
Click here to find out more about Budgeting Loans from the Social Fund from the Direct Gov website
Budget planner
You can use this planner to work out how much money you have coming in and what you're spending it on.
The Money Advice Service
The Money Advice Service website has lots of quick and easy tools to help you make an informed choice about borrowing money, including an online 'Money stretcher calculator'.
The Money Advice Service provides a free, impartial service that can help you with everything from budgeting to borrowing, savings to mortgages. Call 0300 500 5000 to talk to an adviser over the phone.
Money stretcher calculator
Are you worried you will run out of money before you next get paid? This Money stretcher will help you to work out how much you have left and how to make it last.
