Credit union loans

Credit unions are co-operative financial institutions that are controlled by their members, the members are bound by something they have in common; a 'common bond' e.g. living in the same area or working for the same organisation. This common bond is what determines who can join.

They are an alternative to banks and other financial institutions, offering services such as loans and savings accounts. As a source of credit, they have advantages but there are also downsides that prevent them from attracting more people:


1. Lower interest rates
Credit unions are by nature co-operatives; a group of people lending to fellow members of the union. Their emphasis is not so much on maximising profit but rather on helping out fellow members. As such, credit union loans are amongst the cheapest loans you can find. What's more, the interest rate is not based on one's credit rating, this should especially benefit those would otherwise only qualify for bad credit loans which have very high interest rates.

2. No penalties for early payment
With a credit union loan you're allowed to repay the money early without facing any penalties, this is convenient as early repayment would mean you pay less interest.

3. Benefit the people you know
When you take a loan from a credit union, the money you're lent is most likely savings from other union members, therefore the interest you're charged goes to those members who deposited their savings.
This means besides getting a cheaper loan, you're also helping the people you know or share a common interest with earn an interest on their savings.

4. Support and advice
Credit unions make an effort to get to know their customers and one of their goals is to help their members manage their finances better, as such, you can seek financial advice on top of applying for a loan. And because they’re not motivated by a need to maximising profit, they will focus on what is best for you when giving advice.


1. They are regional
Because credit unions operate within small geographic areas, most people are unaware of their existence. It is also possible to be in an area that has no credit union or one where their 'common bond' is a criterion you cannot meet; for instance, if the common bond is membership of a particular church and you do not attend that church, you would not be able to join.

2. They require prior membership
Before you can borrow from a credit union you have to be a member of it, it is likely that each union will have rules as to how long you have to be a member before you can borrow.
For someone who needs a loan soon and isn't already a member, this would be a problem; it might take months before you're eligible to borrow from a newly joined union.

3. Perception of financial difficulty
As outlined above, a credit union is made up of a group of people who have a common bond, if the bond relates to an employer or a small neighbourhood, it is likely that some of the other union members will be your friends or people you interact with regularly.
Should you fail or have difficulty paying back a loan you took out, there is a chance that your friends in the union will find out about it. Some people would find the idea of friends knowing about their financial difficulties uncomfortable.

How to find one

Because credit unions don't operate on a national level nor advertise themselves widely, they can be difficult to find. However, the Association of British Credit Unions has a tool that makes it easier to search for one near your area. You can find the tool here: ABCUL Search