To join a credit union, you must share a "common bond" with other members. This is usually based on where you live, the industry you work in, or belonging to a specific trade union. Unlike traditional banks, credit unions are financial co-operatives owned and run by their members.
Considering a loan? Credit unions offer an affordable, community-focused option. Learn how to apply, the benefits, and the types of loans 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.
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.
Discover more practical tips to save and spend wisely. Check out our Smart Money Habits page to find even more ways to save.
Discover more practical tips to manage your borrowing. Check out our Debt Consolidation page to find out more ways to simplify your repayments.
Final Thought
Looking to pay off credit card debt? If you’re looking to consolidate credit card debt and cut down on high interest, check your eligibility for Updraft, or download our app today.
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Frequently Asked Questions
How do I qualify to join a credit union?
Are credit union loans cheaper than payday loans?
Yes, significantly. Credit unions have a legal cap on the interest they can charge, making them a much safer and more affordable alternative to high-cost payday lenders. They focus on affordability and helping members build financial stability rather than profit.
Do I need to save money before I can borrow?
Traditionally, many credit unions require you to be a member and have a savings history with them before applying for a loan. A unique benefit is that they often encourage you to continue saving a small amount even while you are repaying your loan, helping you build a safety net for the future.
How does Updraft differ from a credit union?
While credit unions offer vital community support, Updraft is designed for the modern "Smart Juggler." We provide a digital-first tool that helps you track your credit score and consolidate multiple debts from different platforms into one clear plan, all managed directly from your phone.