Back to TopCredit Unions are member owned co-operatives usually managed by volunteer members. They are community savings and loan co-operatives.
Credit unions do not need to pay profits to shareholders so all of the Credit Union money is used to run their services and to reward their members. They are non profit making social enterprises.
The Financial Services Authority regulates credit unions in England, Scotland and Wales. This means credit unions have to meet certain standards and the FSA has to approve the members managing the credit union.
Credit unions have to put members' savings into bank deposit accounts and other secure investments such as government bonds. This ensures members can withdraw savings when needed.
For further information see www.moneymadeclear.fsa.gov.uk
Taken from Money Made Clear from the UK's financial watchdog (FSA)
Credit unions aim to help you take control of your money by encouraging you to save what you can, and borrow only what you can afford to repay. By saving for three months before borrowing it allows you to find out how much you can reasonably save and therefore how much you can reasonably afford to pay back. This is responsible lending.
Your first loan can be up to £1,500, dependent on the amount you have saved and your ability to pay it back. For subsequent loans the amount can vary between £100 and up to £5,000 but this would be dependent on you having a history of good saving and borrowing with the credit union.
Credit unions do not have shareholders to pay, (our members are our shareholders) and most are run by volunteers.
Credit unions cannot charge more than 2% interest a month on loans (APR 26.8%) but often charge less - Norwich Credit Union only charge 1% per month (APR 12.68%). So the maximum a loan of £100 from NCU over 12 months will cost is £1 per month in interest on top of the repayment amount.
If you don't make your repayments, credit unions can, if necessary, get back any money you owe them by using debt collection agencies, through the Department for Work and Pensions (DWP) if you are receiving State benefits or through the County Court if you are employed.
People join for many reasons - among the members of Norwich Credit Union some reasons are as follows:
Our credit union is run by our volunteer members for our members and this allows us to offer the low cost loan interest rates shown below.
| Sources of finance | Reference | Typical APR |
| Bank loan | (1) | 19.2% |
| Credit card | (2) | 18.1% |
| HP/Store card | At least 30% | |
| Provident loan | (3) | 189.2% |
| Provident store card | (4) | 222.7% |
| Credit unions | 12.68% |
Sources:
- (1) Moneyfacts Press Release July 2009. Rate quoted is for borrowing £1,000.
- (2) Moneyfacts Press Release June 2009. Rate quoted is average interest rate. Rates for people considered to be high risk will be higher.
- (3) ABCUL Newsletter March 2009.
- (4) Guardian 1 November 2008 re Provident Argos store card.
Homeowners with mortgages are more likely to be given a good credit rating, while tenants will get a lower credit rating, and therefore pay higher interest rates.