When you need to borrow money, you might think of high street banks or other lenders online. However, there's another option that focuses on community and affordability: the credit union. Credit union loans can be a great choice for many people, but how do they work? This guide explains the application process, the benefits for members, and the types of loan available.
The information in this article is provided for general educational purposes only and should not be taken as financial advice. Everyone’s financial situation is different, and you should always consider seeking guidance from a qualified independent financial adviser or free, impartial organisations such as MoneyHelper or Citizens Advice before making decisions about credit or borrowing
What is a Credit Union?
A credit union is a financial co-operative, owned and run by its members. Unlike profit-driven banks, their main goal is to serve their members and community. To join, you usually need to share a “common bond” – for example, living in a certain area or being a member of a specific trade union.
How Do Credit Union Loans Work?
To apply for loans at a credit union, you typically need to be an existing member and have a savings account. The application process is often more personal than with other lenders.
The loans team will look at your individual circumstances to make loan decisions, rather than just focusing on your credit history. They will want to ensure you can afford the monthly repayments. To do this, they might ask to see bank statements or use Open Banking to assess your finances.
“We get it, credit unions have always been there for their communities, and that’s something really special. But here’s the thing: debt looks totally different now. People are managing multiple accounts across different apps and platforms, and they need something that actually keeps up with their busy lives. That’s exactly why we built Updraft to be that straightforward, modern tool that helps you take control and clear your debt, all from your phone.”
Aseem Munshi
Updraft Founder & CEO
Types of Loans at a Credit Union
Credit unions offer various types of credit, often considered low cost loans because of their fair interest rate caps.
- Personal Loans: This is the most common type of loan. Members might use them to pay for a new car or to consolidate multiple debts into one manageable payment.
- Secured Loans: Some larger credit unions may offer a homeowner loan or other types of secured loans. However, specialist products like mortgages are less common.
- A Better Alternative to Payday Loans: With their competitive rates, credit union loans are a much safer and more affordable option for borrowing money than high-cost payday loans.
Repaying Your Loan and the Benefits of Savings
One of the unique benefits of a credit union is its focus on encouraging members to save. Even while you repay your loan, you’ll likely be asked to continue putting a small amount into your savings account. This helps you build up a savings balance by the time you make your last repayment.
Repayments are often flexible. Many members make fixed repayments and some credit unions offer payroll deduction, where the agreed repayments are taken directly from your wages.
Final Thought
Want to take control of your money? If you’re looking to consolidate credit card debt and cut down on high interest, download the Updraft app today.
Representative example
26.5% APR representative based on a loan amount of £10,000 over 60 months at a fixed interest rate of 21.9% p.a. This would give a monthly repayment cost of £286.65 per month, with a total cost of credit of £7,198.74 (includes loan fee of £400) and a total amount repayable of £17,198.74.
All figures are representative, the rate you are offered will depend on an assessment of credit worthiness and affordability. Terms and conditions apply.
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