Credit Unions
A Credit Union is a form of financial co-operative owned and run by its members
Borrowing
Credit unions are by law limited to charging a maximum interest rate of 1% per month on money they lend to members. This works out at 12.7% APR, which seems high in comparison to the much-advertised personal loans available from banks, but many union members will not be able to apply for those, and the rates charged by a union are much lower than those charged by many bad credit lenders, particularly doorstep lenders.
Credit unions are also a good way of borrowing small amounts for a short period, and with many payday loan companies charging up to 25% a month, 1% a month starts to look very attractive.
Also, there are no hidden charges or early repayment penalties, and life insurance is built in automatically at no extra cost so that your debt will not be passed on to your relatives if you die before clearing it.
Are credit unions safe?
In theory, anyone can set up a credit union, but you'll need to demonstrate to the regulators (the FSA) that you have a sound business plan, that there's a need for the union, and that your proposal meets all the necessary standards.
The Credit Unions Act 1979 ensures that credit unions only benefit their members, and that unions will only be approved if the people setting it up are properly trained and accept the necessary regulation. They came under FSA regulation in 2002.
Credit unions come under the Financial Services Compensation Scheme, so if a union fails the scheme will repay the first £2k per person in savings, and 90% of any extra savings up to £30k. In this respect, credit unions are treated the same as banks and building societies, so your money is fairly safe in the event the union goes under.
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