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Borrowing from a credit union

Credit unions are community savings and loan cooperatives, where members pool their savings to lend to one another and help to run the credit union. A cooperative is an organisation which is owned by and run for the benefit of the members who use its services. Interest rates can vary up to a legal maximum of 3% per month (42.6% APR). In Northern Ireland the cap is 1% per month (12.9% APR). All credit unions offer savings and loan accounts while some (usually larger credit unions) may also offer additional products and services.

What are credit unions?

Credit unions are community organizations run by and for their members.

There are several key features of a credit union:

  • People who save or borrow through one must have a common bond. That means they might live in the same area, work for the same employer or have the same profession. They can also be members of the same church or trade union.
  • They are run on a ‘not for profit’ basis. Instead of paying a profit to shareholders, they use money they make to reward their members and improve their services.
  • They can be large or small; some have thousands of members while others are much smaller.
  • They are regulated by the Prudential Regulatory Authority and the Financial Conduct Authority. The FSCS savings protection limit for consumers is £85,000. If you have more money than the limit, some of your money will be at risk if your bank, building society or credit union fails.

Why go to a credit union?

Credit unions operate with three main aims:

  • to provide loans at low rates
  • to encourage all members to save regularly
  • to help members in need of financial advice and assistance.

Credit unions act in the interests of all members and so try to ensure they don’t let their members take out loans they cannot pay back by assessing their income and, in some cases, how much they’ve been able to save.

There’s also a cap on the amount of interest they can charge on their loans of 3% a month or 42.6% a year APR. The cap in Northern Ireland is 1% a month.

Borrowing through a credit union

The money the union holds in savings and current accounts is lent out to other members who need to borrow money at an affordable rate.

In the UK, credit unions are regulated by the Financial Conduct Authority and the Prudential Regulatory Authority.


You will need to be a member of a credit union before you can get a loan from them and some will require you to build up some savings first.

Most credit unions will charge you an average of 1% interest a month as you pay off the loan.

Some will charge less, others will charge more, although by law they can’t charge more than 3% a month (or 42.6% APR).

The cap in Northern Ireland is 1% a month.

There are no hidden charges with credit union loans and no penalties if you repay the loan early.

As with any lender, you’ll be expected to repay your loan as agreed.

Credit unions also include free life insurance at no extra cost – so if you die before repaying the loan, the balance would be paid off for you.

Most credit unions can lend for up to five years on an unsecured loan and up to ten years on a secured loan (where they will lend against something like your property or car).

However, a few can lend for up to 25 years on a secured basis.

Apply to your local credit union to find out what sort of loans and interest rates are available.

How to borrow from a credit union

The first step is to find a credit union that you can join and become a member.

When you join, you might need to provide some forms of identification (although if you’re joining one run by your union, you might not).

Find a credit union in your area on the Association of British Credit Unions website

In Northern Ireland – Irish Federation of Credit Unions

Ulster Federation of Credit Unions

How to pay back your loan

You can pay back your loan in several different ways, although some credit unions might not offer all methods.

  • by making payments face-to-face
  • by Direct Debit from your bank account
  • through you wages at work: if your employer has links to the credit union you can pay back your loan by having money taken straight out of your wages
  • through Paypoint. Some credit unions issue Paypoint cards which you can use to pay back your loan at your local shops
  • direct payments from your benefits – some credit unions take benefit payments directly, deduct your monthly loan repayment and pay you the rest.

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