Could a credit union help you improve your finances?

In the first of a series of guest articles about credit unions, Sheenagh Young, chief executive of South Manchester Credit Union explains to Mouthy Money what credit unions are, how they work, and if they could be helpful to those struggling with debt.

What are credit unions?

Credit unions are part of the Community Finance sector. They are not-for-profit, member-owned organisations whose mission is to serve the best interests of their members.

They offer financial services that mirror traditional mainstream financial services like savings accounts, loans, and in some cases, current accounts.

They have actually been around for decades, and nearly 1.5 million people in the UK are members of the nearly 400 credit unions in the UK.  

Traditionally, credit unions have been more focused on providing savings and loan services, but over time there has been a significant increase in the range of products available.

This is set to change further with planned changes to the law that will allow more credit unions to provide insurance products among other things. Credit union accounts are flexible, and enable people to save what they can, when they can.

Due to the current cost-of-living crisis and the mass closure of local bank branches, demand for credit unions is growing. 

In order to join a credit union, you must share something called a ‘common bond’ – which can be anything from where you live and where you work to who your employer is. 

If you want to become a member, usually the first step involves opening a savings account and depositing a small amount of money into it. This can be done online, which is also where you can check the approval criteria to ensure you’re eligible to join. 

Find Your Credit Union can help you find a credit union available to you. 

Nearly 1.5 million people in the UK are using credit unions. Many people who use them love them because of their not-for-profit, member-owned nature. This means they put their members first and are driven by their founding purpose, which is to help people build and retain financial resilience.

Now, let’s turn to how credit unions can help you with your finances. 

Nearly 1.5 million people in the UK are using credit unions. Many people who use them love them because of their not-for-profit, member-owned nature.

This means they put their members first and are driven by their founding purpose, which is to help people build and retain financial resilience.

Now, let’s turn to how credit unions can help you with your finances. 

Financial support

Credit unions are passionate about helping people save. 

Credit unions help people save by providing a range of savings accounts, often with competitive interest rates. They also offer financial education and support, helping their members to improve their money management skills and make better financial decisions. 

As well as this, they’ve developed initiatives that enable employers to form partnerships with them. These partnerships enable staff to become members and access their services, as well as set up a process whereby a chosen sum of money is directed from their salary to their credit union savings account every month. Just like how pensions work.

Referred to as the ‘Payroll Schemes’, people can save from £, as little as £15 per month and it’s not all about how much you save, it’s that you do save, and regularly.

Credit unions also support people who struggle to access traditional financial services due to having a poor or limited credit history.

They offer products and services to people at much better rates than payday loan lenders and have a responsible approach when they do, making sure that the individual can repay the money they borrowed without getting into financial trouble. 

But where a CU can’t help a member directly, they will point them in the direction of other sources of support. 

Loans 

Loans can start from as little as £50 and are administered so that borrowers save at the same time as repaying the loan. This means you start to build your own savings pot whilst borrowing.

Credit unions will check if a loan is right for you. They want to make sure you can afford repayments without putting you under financial strain.

In England, Scotland and Wales, there’s a cap on the amount of interest that credit unions can charge on their loans, set at 3% a month or 42.6% a year APR.

They will be as open-minded, fair and transparent as they can be and may be able to help even if you have been turned down by other mainstream providers.

One of the other benefits is that their teams will help you if you run into trouble with repayments and will be as flexible as possible to help you get back on track.

If you find yourself in debt from multiple providers, you may be able to take out a ‘consolidation loan’ from a credit union, by restructuring your existing debts into a single, more affordable loan. 

Photo by Mikhail Nilov from Pexels.