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CREDIT UNION LOANS ON THE RISE AMID CAP ON PAYDAY LENDERS

Published on:November 17, 2014Author:The Debt Advisor

A report undertaken by The Guardian has found that the use of Credit Unions who typically offer lower interest rates than payday lenders is on the rise.

Credit Unions are gaining popularity, amid regulators clamping down on payday lenders. Loans from Credit Unions have to a degree been viewed as an outdated lending method but as detailed below, strategic relationships with banks, are helping Credit Unions offer a viable alternative to the much higher cost pay day loans.

Credit Unions are better placed to assess an individual’s affordability plus they look to build a long term relationship which requires customers generally to save with them for a number of weeks, typically 13, before a loan is sanctioned. Building a relationship with a credit union is likely to develop better money management skills.

Credit Unions are receiving a lot of support for expansion, with the Government pledging £38 million of investment. Banks are also contributing, with Lloyds Bank pledging 4 million pounds of investment and Barclays one million. This has allowed for continued growth and Barclays have also developed in-store hubs for Credit Unions to set up to speak to prospective consumers. This typically would include customers turned down by the bank but who can now turn to Credit Union’s as an alternative.

Credit Unions are also offering more services now, straying away from their traditional saving and loans facilities to incorporate modern day cash ISA’s, current accounts, mortgages, insurance and foreign currency. However, this is a sector that they are playing catch up in comparison to banks. Credit Unions at present simply do not have the resources available or infrastructure in place to be able to compete at the same level as banks. This is evidenced by the lack of features available to some Credit Union current account holders who don’t have access to online banking or have to pay a charge for the feature.

Bev Budsworth, MD of The Debt Advisor Ltd and an Insolvency Practitioner adds, “An area of concern for consumers looking to use a Union is stability. Whilst some Unions are established with thousands of members contributing, smaller Unions don’t have the same level of security and rely on their member’s cash flow to lend. Attracting adequate savings for these unions can be a struggle and if they suffer a higher level of bad debt, this can affect the survival of the union”.

There are stipulations to joining a Credit Union and concerns about the eligibility criteria for joining. To apply to join you must meet ‘common bond’ criteria that can differ from Union to Union, making it complicated to access.  Unions will also generally require a customer to save for a number of weeks before accessing the credit system. This could tempt consumers who need instant cash to continue to use payday lenders.

Bev Budsworth adds, “It is important that Credit Unions are able to balance their books to ensure their long term future and stability in the marketplace. Developing their business model to make it easier for consumers to save and access credit with them is a challenge but one which some of the larger unions seem to be tackling with some success”.

If you are struggling with debt issues, whether these are business or personal debts, The Debt Advisor Ltd which incorporates The Business Debt Advisorcan help.  There are a range of solutions available which include both formal and informal solutions such as Debt Management Plans (DMP)Individual Voluntary Arrangements (IVA),  Bankruptcy as well as solutions for Businesses.

There is also free debt help and advice available through a variety of debt charities. For more information, we recommend you visit www.moneyadviceservice.org.uk.

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