Membership of credit unions increases as the British struggle to obtain credit through ordinary lenders

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The number of adult members of British credit unions has risen to 1.9 million, the highest level ever.

Research from the digital lending platform Freedom Finance showed that the number of adults who were members of a credit union has increased by at least 200,000 since the end of September 2021.

Total loans to members granted by credit unions were £ 1.74 billion at the end of 2021.

Borrowing from a credit union was most popular in Northern Ireland, where a third (32 per cent) of all credit union members live in the UK.

Credit unions are cooperatives that are able to offer smaller, shorter loans to borrowers who may have trouble getting credit through traditional lenders.

They also charge lower interest rates than specialist or subprime lenders because credit unions charge less than the maximum interest rate, a ceiling of 42.60 cents APR set by the government.

In March, a report by the Center for Social Justice (CSJ) revealed that 1.08 million people were victims of loan sharings and called for reform of the Credit Union Act of 1979, including the creation of a new Credit Union Mergers Fund.

Brian Brodie, CEO of Freedom Finance and a member of the CSJ Debt Policy Advisory Board, said the bank’s recent figures testify to both the growing strain on household finances and the difficulties many people face in obtaining affordable credit.

“Increasing membership of credit unions and lending volumes in the UK show that more and more people are looking for affordable lending products amid rising cost pressures. With many short-term lenders withdrawing from the market, credit unions are now playing an important role in serving people. left by established lenders.

“CSJ’s recent report on loan sharks identifies credit unions as important financial lifeboats for many people, while helping build people’s economic resilience by linking borrowing with savings. Raising awareness of credit unions will be an important first step in giving those struggling to break into the credit market another opportunity to explore. “

What is a credit union?

The first credit union in the UK was established in 1964, and worldwide there are 217 million members of a credit union in 105 countries.

A credit union is a financial union that provides savings, loans and a range of services to its members who own and control it.

Each member has one vote and honorary directors are elected from among members by membership.

Credit unions are owned by the people who use their services and not by external shareholders or investors.

Membership is based on a common bond, such as B. working for a specific employer or in a specific industry, or simply living or working in a specific geographical area, which can be as small as a village or as large as several municipalities areas.

What do credit unions offer?

Credit unions offer savings accounts and loans. This can include junior savings accounts, holiday savings accounts, prepaid debit cards, insurance products, cash ISAs and even mortgages in some cases.

Members can pay directly via salary deductions or direct benefit accounts; through retail payment networks such as PayPoint and PayZone; by standing order or direct debit or cash at the local offices and collection points.

As the credit union’s sole shareholders, members will receive dividends from their savings in a successful year – which in some cases can be as high as 3 percent.

All deposits in a credit union are protected by the Financial Services Compensation Scheme up to a value of £ 85,000 per. person – exactly the same level of protection as savings in a bank or a construction company.

Cheaper loans

The maximum a credit union will ever charge for a small loan is 3 percent per month on the reduction balance, which equates to an APR of 42.6 percent. This means that the most expensive loan from a credit union in the UK is still eight times cheaper than a payday loan intended for their ceiling.

Of course, the vast majority of credit unions borrow well below the maximum interest rate. A government commissioned study from 2013 showed that credit unions offer consumers the best value for money on loans up to £ 2,000, and some credit unions charge rates of 5 per cent APR or even less for larger loans over £ 5,000.

Source: Association of British Credit Unions, findyourcreditunion.co.uk

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