What is a Credit Union?
Credit unions are organisations that, like banks and building societies, offer financial services to private individuals, couples, and some businesses. Unlike banks, however, credit unions operate on a co-operative basis: they are not private companies or PLCs but co-operatives in which the members have the right to elect executive officers and board members, and receive a share of the profits of the credit union.
Any decision-making by members of credit unions is usually via a one member, one vote system, with the amount of money invested making no difference to the weight of their vote: all members have the same influence.
Due to their local roots (each credit union is usually centred on a particular town, city, county or state), credit unions tend to be much more community focused than most other financial institutions. Many of them will offer credit facilities to local community organisations that might otherwise not have the ability to raise credit. In addition, many credit unions reinforce their local credentials by only offering services to those that live or work within their locality.
Further, many credit unions are formed with the express intention of offering services to those people that have trouble gaining credit from standard lenders, perhaps due to low income, past trouble with debt or a poor credit rating. This means that credit unions often have different lending criteria to banks, building societies, online lenders and the like, so if a borrower has been refused credit at another lender it may be possible that they may be able to obtain credit at a credit union. Borrowers should be cautious, however, as to get loans, credit cards or even mortgages (the latter pair of products can be offered by larger credit unions) they will usually have had to be a member of the union for a certain period, and to have saved a required amount. Any potential borrowers should check the rules of their local credit union to find out the figures that will apply to them.
Though these rules may seem restrictive, they are necessary to ensure the financial stability of credit unions: if borrowers were able to take out money quickly without first saving then credit unions may not have the funds needed to ensure continued operation.
Credit Union Savings Accounts
Part of the mission of credit unions is to encourage good financial habits among members; for this reason credit union savings accounts are one of their main financial products. These accounts are targeted both at those that have had trouble running savings accounts at other financial institutions, and those that may wish to borrow from the credit union. It is common for each member to be given a savings book or card along with their account, in which transactions can be recorded. These accounts often have fewer features than standard bank accounts (for instance, they are unlikely to offer overdrafts), but can often handle bill payments and receive money from any employment the borrower may have.
Credit Union Loans
Many people join credit unions in order to borrow, often when they have been refused consumer credit elsewhere. Credit union loans are popular with members; they can come in various sizes, but many are microloans. The reason for this is that many members of credit unions occasionally require small loans to cope with everyday expenses, rather than large loans to buy high value items, or to effect debt consolidation.
To reflect this, credit union interest rates are very competitive when compared with the rates of payday loan companies and other lenders that offer short term loans, but can be less competitive than the secured loans and unsecured loans offered by banks, peer to peer lenders and building societies. Though borrowers may have to wait a while to lend from credit unions, loans from them are a far better option than obtaining same day loans from doorstep lenders, payday loan companies or loan sharks.
Credit Union Online Banking
In addition to membership books, many credit unions now offer online banking. This makes it easier for each member to check their account and keep in touch with their credit union; online banking of this type can be a great help in promoting budgeting skills and good financial practice.