LoansIt pays to check out the small print and get the facts before you borrow money. If you use a doorstep lender, pay-weekly store, catalogue, pawnbroker or payday loan company to borrow money, you will be paying a high price for your loan. Talk to your local credit union to find out how they can help you cut the cost of borrowing.
It pays to check out the small print and get the facts before you borrow money from any company, including a credit union. If you borrow money from a doorstep lender, pay-weekly store, catalogue, pawnbroker or payday loan company, you will be paying a high price for your loan.
If you borrow from an illegal lender ('loan shark') the consequences will be high, as illegal lenders trap people in a spiral of debt and resort to extreme methods to enforce payback. Click here to watch a You Tube video on the Stop Loan Sharks channel. If you are a victim of a loan shark, or know someone who is, call the England Illegal Money Lending Team in confidence on 0300 555 2222.
o check out the small print and get the facts before you borrow money. If you use a doorstep lender, pay-weekly store, catalogue, pawnbroker or payday loan company to borrow money, you will be paying a high price for your loan. Talk to your local credit union to find out how they can help you cut the cost of borrowing. There is ThTtThere IS an alternative to high-cost credit and illegal lending in your local area. All credit unions offer savings products and low-cost loans to members. The rate of interest varies between credit unions and also depends on the loan policy of the individual credit union. For more details, contact your local credit union, but take a look at this comparison table as a guide.
There are two different types of loans offered by credit unions and CDFIs - Loyalty Loans and Quick Loans. Please note that 'Quick Loan' is a general term and your local credit union may call them 'Instant Loans' or 'Handy Loans'.
'Loyalty Loans' from your local credit union
Loyalty Loans are usually one of the cheapest ways of borrowing from a credit union. They are available to members who save regularly, and the amount you can borrow is based on the amount of savings you have with the credit union. The typical rate of interest for a savings-based Loyalty Loan’ is usually between 12.68% and 20%APR (Annual Percentage Rate).
'Quick Loans' from your local credit union
Some credit unions are able to offer loans to people who haven’t saved first, if they live in an eligible postcode area and qualify for one of these types of loan. Click here to use the postcode search to find out which credit unions offer ‘Quick Loans’ in your area.
'Quick Loans' from a CDFI
Five Lamps, Handy Loans and Places for People also offer the same type of ‘Quick Loans’ Click here for more information about Five Lamps, Handy Loans and Places for People.
How long do I have to be a member before I can apply for a Loyalty Loan from my credit union?
This varies between credit unions, but it is likely you would need to save regularly for between 6 and 13 weeks to be eligible to apply for a Loyalty loan (sometimes called ‘Member Loans’). Using the 'postcode search' on the Northern Money website will help you to find out which type of savings and loan products are offered by your local credit union.
How much can I borrow?
The amount you can borrow depends on the amount of money you have saved. Every credit union has a different policy so you need to check the details with your local credit union. As a general guide, the amount you can borrow for your first loyalty loan is normally between from 1½ -3 times your savings. The rate of interest you pay may also depend on the amount you borrow. If you have no problem making the repayments and manage your loan account well, it is likely that second and subsequent loans can be 2, 3 or 4 times your savings balance (depending on your ability to repay). So, if you wish to borrow larger amounts in the future, it is important that you continue to save while repaying your loan.
As an example, if you are a new member and save £10 a week for 10 weeks, you will have saved £100.
If your credit union has a policy to lend a maximum of 2 times your savings for your first loyalty loan, the maximum amount you can borrow is £200.
When you have paid this money back, you will be able to borrow more. If your credit union has a policy to lend a maximum of 3 times your savings on a second loyalty loan, and you have now got savings of £150 in your account, the maximum amount you could borrow for your second loan is £450.
What if I need a loan now?
If you need a loan quickly, some credit unions can give a loan to people who have not saved first with the credit union. This will generally be at a higher rate of interest than a savings-based loyalty loan. Sometimes, credit unions call these 'Instant Loans or 'Handy Loans', but in reality it is likely to be about seven working days before the loan application is processed, approved and payment is made. If your local credit union doesn’t offer Quick Loans to people who have not saved first, Five Lamps, Handy Loans or Places for People may cover your postcode area.
What is the most I can borrow?
The credit unions all have varying loan policies with different maximum amounts. Contact your local credit union to talk through your options.
What about insurance for members – to protect loans etc?
Credit union members are usually eligible for free life cover. Credit unions are affiliated to an organisation which provides free Death Benefit cover for all members, subject to a set maximum age limit.
What is the interest rate on loans?
The law currently states that the credit unions cannot charge more than 2% per month or 26.8% Annual Percentage Rate (APR). Most credit unions charge a lot less than this for savings-based loyalty loans, usually around 1% each month or 12.68% APR . Each credit union has their own loan policy and members agree their own rate of interest. Credit unions charge “simple interest”, which means that interest is only charged on the outstanding balance.
For example, the more money you pay off your loan, the less interest you will be charged. Unlike other financial institutions, there are no penalties for early settlement (i.e. paying off your loan in full, more quickly than expected).
Just how much could I save if I borrowed money from a credit union instead of a doorstep lender?
If you want to see an example of what a credit union loan could cost, click here to use the Northern Money loan calculator. Please note that the Annual Percentage Rate (APR) varies between credit unions. 26.8% APR is the maximum amount that a credit union can charge and most Loyalty Loans have a much lower APR, so your weekly payments could be even lower than the example suggests.
Other sources of low-cost loans in the region
If you need a larger loan, particularly to carry out repairs to your home, you can find out what's available from your local council by visiting www.helpinghandnortheast.org.uk
The Money Advice Service provides a free, impartial service that can help you with everything from budgeting to borrowing, savings to mortgages. Call 0300 500 5000 to talk to an adviser over the phone. The Money Advice Service website has lots of quick and easy tools to help you get into the savings habit, including a Savings Calculator, Budget Planner and Cut Back calculator.
You can use this planner to work out how much money you have coming in and what you're spending it on.
Are you worried you will run out of money before you next get paid? This Money stretcher will help you to work out how much you have left and how to make it last.
Want to make the most of your money?
It’s easier than you think, just click on the Money Advice Service logo on the left. Answer some straightforward questions about you and your money and the free confidential health check will set out what you can do in easy steps. It takes just 5-10 minutes, doesn’t involve any paperwork and your answers are confidential.