What is a credit union?
A credit union is a not-for-profit organisation, owned and run by members. There are around 450 in the UK.
Credit Unions (CUs) offer a range of affordable, low-interest loans, funded by members' savings accounts and protected by the Financial Services Compensation Scheme (FSCS).
Can I borrow money from a credit union?
Yes, you can borrow money from a credit union if you're a member. Credit union loans are ideal if you:
- want an affordable, low cost loan
- have a poor or fair credit history
- have difficulty accessing credit from highstreet banks
- only need to borrow a small sum
How do I join a credit union?
To become a member, most credit unions need you to share a ‘common bond’ with other members, such as:
- live or work in the same area
- work for the same employer
- belong to the same trade union
- belong to the same church
- belong to a community association
The joining process depends on the credit union you've chosen, so you'll need to contact potential unions to find out what you need to do and any documents you need to provide.
How do credit union loans work?
A credit union personal loan works in a similar way to a personal loan from a high street bank or online lender. You'll borrow a sum of money and pay it back, with interest, in monthly instalments over a fixed period.
Credit union loan interest rates are generally on par with low-cost loans from traditional banks and offer an affordable, safe way to borrow.
Typically the loan term is anything up to five years for a personal loan and around 10 years for a credit union secured loan.
Credit union loans are generally more flexible so you may be able to settle the loan early without penalties. Settling your loan quickly makes borrowing cheaper, so a credit union loan can be a cheaper option for you if you think early repayment is likely.
Do all members qualify for loans?
Each application is based on individual circumstances, and each union has different loan criteria. For example, some CUs will require you to have a savings account before they lend to you.
How much can you borrow from a credit union?
Most CUs allow members to apply for unsecured credit union loans between £50 and £15,000.
If you have a mortgage, you could qualify for a secured credit union loan up to £25,000.
Credit union loan interest rates are similar to competitive bank loans, but if you have a poor credit history, you may find that credit union loan rates are lower than conventional lender rates.
This is because they'll assess your application thoroughly and consider your personal circumstances rather than just your credit score.
How do I apply for a credit union loan?
Once your membership is approved, you can apply for a credit union loan.
Many credit unions have a website which allow you to check loan rates and apply online, but the application process will differ slightly between unions.
Before you make the full application, your CU will usually show you an example interest rate based on how much you want to borrow and for how long.
You'll need to provide some personal details about where you live and your employer to check eligibility; you will also have to provide supporting documents.
Once your CU has made a decision, they'll let you know:
- how much they can lend you
- the interest rate
- the total cost of the loan
- your monthly repayments
If you’re happy to accept the offer, they'll send you a copy of a Loan Agreement for you to read and sign.
How long does it take to get a personal loan from a credit union?
It may take a little longer to get a personal loan from a credit union than an online lender or bank because they assess each applicant based on circumstances rather than just your credit score.
You may have to wait up to 10 days for a decision and payment if you are successful, but this depends on the credit union and the type of loan you’re applying for.
Can you get a credit union loan with bad credit?
Credit union loans for bad credit are possible but not guaranteed.
Credit unions generally have more flexible lending criteria than traditional lenders because they assess your whole financial situation rather than just your credit rating.
However, they'll check your credit history and won't lend to anyone who is declared bankrupt or has entered into a:
- Debt Arrangement Scheme (DAS)
- Individual Voluntary Arrangement (IVA)
- Debt Relief Order (DRO)
Credit union loan interest rates can sometimes be lower for bad credit borrowers, compared to direct lender rates.
What are the pros and cons of credit union loans?
Credit union loans are ideal for borrowers with an imperfect credit history or who are in a difficult personal or financial situation because they're flexible and sympathetic to individual circumstances. However, there may also be some downsides to consider.
Here's the advantages and disadvantages of credit union loans:
- Typically lower interest rates
- Individual lending criteria
- Flexible loan terms
- Member benefits
- Build savings as you repay
- CU membership is required
- May need a savings account
- May have specific requirements
- Fewer loan choices
- If you've been made bankrupt you won't be eligible
Are there any alternatives to credit union loans?
If you're unable to join a credit union or don't qualify for a credit union loan, you could consider these alternative borrowing options.
Flexible personal loans
This is an unsecured loan from a bank with flexible repayment terms, which means you can repay it when you can without incurring early repayment fees or extra charges.
In some cases, interest rates are higher than standard loan rates but cheaper than a short-term loan.
Debt consolidation loans
This type of loan allows you to borrow a fixed amount to settle all your debts in one go, e.g. credit cards, store cards, and overdrafts, which you then pay back with one monthly payment.
If you need help keeping track of multiple debts, this can be a helpful way to gain control over the money you owe and build your credit score.
Credit building cards
This payment card is worth considering if you want a small loan but have bad credit. These cards have low credit limits and lower interest rates than loans for bad credit.
However, you must repay the balance on time and in full every month to build your credit score; otherwise, you'll damage your rating further and face penalties.
Peer to peer
This type of loan works by allowing people to lend and borrow from each other rather than a bank or lender.
It could be easier to get a peer-to-peer loan than a personal loan from a bank, but you still need to pass credit and affordability checks. Your credit score will determine the rate of interest you're given, so loan costs could be high.
Buy Now Pay Later
This point-of-purchase credit option is available from most online retailers, travel agents and auto centres. It's ideal for spreading the cost of online purchases but less flexible than a credit union personal loan.
Interest rates are high if you can't repay within the agreed 0% time period, so you should only sign up if you know you can stick to the credit agreement.
What documents do I need for a credit union loan?
Check the website of your credit union to find out which documents they require, but typically you'll need to supply the following:
- Proof of identity
- Address history
- Recent payslip
- National insurance number
- Bank statements
Credit union loans FAQs
Yes, credit unions will check your credit report.
Yes, all regulated loan provider applications will show on your credit report.
A credit union loan won't negatively impact your credit history if you stick to the terms of your credit agreement, such as repaying on time and keeping up your monthly repayments.
It depends on the type of loan, your credit rating and how much you borrow.
If you have a good or excellent credit rating you may find a cheaper loan from your bank, but if you have a fair or bad credit rating or only want a small loan, you may find a credit union loan is your cheapest option.
Yes, many credit unions offer flexible loans so you can repay your loan early without penalty. This flexibility means your loan could be cheaper than a standard personal loan because you're paying interest on your loan for a shorter period.