Credit union loans

What is a credit union?

A credit union is a not-for-profit financial co-operative that offers savings accounts, loans and mortgages to its members.

Unlike traditional banks, credit unions prioritise service over profit and are owned (and run) by their members. They’re designed to support communities by offering fair and affordable financial services, especially to those who might struggle to get credit elsewhere.

Credit union members usually all share a common bond, such as:

• Living or working in the same local or regional area

• Working for the same employer or in the same industry

• Belonging to a trade union or religious group.

Credit unions are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

What is a credit union loan?

Credit union loans are typically personal loans that can be used to help you meet a financial goal, from covering unexpected expenses and consolidating debt to funding home improvements or buying a car.

Some credit unions also offer specific types of loans – such as starter loans or family loans – aimed at supporting members with a lower income or in receipt of benefits.

Who can get a credit union loan?

To be able to apply for a credit union loan, you normally need to be a member of the credit union. Joining is usually quick and simple, provided you share its common bond.

You can open a savings account and make a small deposit – sometimes as little as £1. Some credit unions ask that a minimum amount (typically small) is kept in your account to keep it active. Others charge a small annual fee.

Many credit unions allow you to borrow as soon as you join, especially if you’re applying for a smaller loan or a specific product, such as a family loan.

How much you can borrow will depend on the individual credit union and your financial circumstances, such as your income and credit score. Some credit unions may only offer loans based on the amount you have in your savings account with them.

Are credit union loans cheaper than usual loans?

In some cases, yes. By law, UK credit unions can’t charge more than 3% interest per month (around 42.6% APR). In Northern Ireland, the cap is 1% a month or around 12.68% APR.

This means credit unions are generally a cheaper and safer alternative to payday lenders or some emergency loans, especially if you have a poor credit history and don’t typically qualify for the best rates from lenders.

But if you have a very good credit score, it could cost you more to borrow from a credit union than from a regular lender.

Find out more about APR on loans.

Credit union loans for bad credit

If you have a poor credit history, it might be easier for you to get a loan from a credit union rather than a traditional bank. While a credit union will still assess your ability to repay a loan, they tend to look at your overall situation rather than relying solely on your credit score.

Many credit unions offer loans specifically for people with bad credit and will often provide guidance to help you improve your financial position.

Can I get a credit union loan if I’m unemployed?

Credit unions will typically lend to you if you’re unemployed, but you’ll need to show that you have a regular income from benefits, such as Universal Credit. There’s also likely to be a limit on the amount they’ll lend to you.

Some credit unions might ask you to have one or more of your benefits paid directly into your credit union current account, so your loan repayments can be taken automatically each month.

Why might a credit union reject me for a loan?

Any rejection would depend on the credit union you belong to. But it might decline your loan application if:

• There’s not enough evidence of your income. The credit union will need to be sure you can make the loan repayments

• Your outgoings are too high to afford the loan

• You have debts elsewhere and borrowing more could cause you to struggle financially

• You’re not a member

• You don’t meet the credit union’s lending criteria.

What are the alternatives to credit union loans?

If a credit union loan isn’t suitable for you, you could consider these alternatives:

• Family and friends: this could be an interest-free option, although it’s a good idea to agree on clear repayment terms to avoid potential arguments

• Salary advance: lets you access some of your wages before payday, if your employer is signed up to a salary advance scheme

• Budgeting loan: interest-free loan available to those on certain benefits, for essentials, such as clothing or household items

• Local welfare assistance schemes: run by councils to help with emergencies

• Guarantor loan: guaranteed by another person – often a close family member or friend – who agrees to pay back the loan if you can’t.

Always explore all your options before considering a payday loan or doorstep lenders. Penalty fees and interest can quickly add up if you can’t pay back the loan, and you risk getting trapped in a debt cycle.

If you’re already struggling with debt but need money urgently, take advice from a debt charity. Organisations including Citizens Advice, StepChange and National Debtline offer free financial advice.

How do I pay back a credit union loan?

Many credit unions allow you to repay:

• Through a direct debit or standing order

• Via a deduction from your wages or benefits

• In person at the credit union

• At a PayPoint (if a credit union issues a payment card).

Depending on the credit union, you can pay back the loan weekly, fortnightly or monthly.

If your circumstances change and you’re struggling to pay back the loan, credit unions are often more flexible than traditional lenders. They could:

• Temporarily lower or pause your loan payments

• Stop charging interest on your loan for a set period

• Help you work out a payment plan that suits you.

How to find a credit union

The Association of British Credit Unions (ABCUL) has more information and can help you find a credit union.

In Scotland, you can find information about credit unions from the Scottish League of Credit Unions.