As prices for smart gadgets, household electronics, cars, and medical procedures continue to grow, more and more people are finding themselves forced to take out loans. Traditional lenders such as banks have seen this price growth as an opportunity to reduce the requirements for their products. However, even with the increased amount of accessibility of currently available loans, many cannot access them.
The main reason behind this is usually that some individuals’ credit scores are too low for the loan that they want to get. In other cases, potential borrowers are turned down because they have no financial history that the lenders can use to calculate a credit rating. Regardless of the reason, many individuals either cannot take out loans from banks, or they can’t afford them.
This is where credit unions come into play. These organisations have been around for quite a while. However, most of their services are rarely advertised, which means that most are not aware of their existence.
What Are Credit Unions?
Credit unions are community savings or loan cooperatives. The organisations that are built around groups of people that have certain things in common. Some of these are created by individuals who live in the same area, while others are the product of co-workers who want to help each other. For example, the workers from a factory often create credit unions and pool their resources to enable each other to borrow money regardless of their credit score.
From a technical point of view, credit unions are run solely for the benefit of its members. This brings us to the second defining feature of any credit union. These organisations are always non-profit enterprises. In other words, they do not generate profit for the shareholders but use the money produced to reward members.
The Advantages of Using Credit Unions
Banks are the most popular lenders in the world. However, they do not always offer the best terms and conditions. Furthermore, banks are designed to generate profit, which means that they do not always have the best interests of the borrowers in mind. On the other hand, credit unions are more borrower-friendly and are designed to help their members, not the shareholders. This enables them to offer several advantages when compared to other lenders:
- Lower Interest Rates – All the loans that borrowers get from credit unions will have considerably lower interest rates than those offered by banks;
- Long-term Saving Incentives – All credit unions actively encourage their members to save regularly and have a healthy financial life. This can be done through regular contributions to collective savings accounts or other means;
- Financial Support for Members – Credit unions offer free financial advice for all its members, as well as assistance in case of emergencies;
Borrowing and Repaying Money Using Credit Unions
Getting loans from credit unions is as simple as contacting them and asking to borrow money. However, it is important to keep in mind that only members of the organisation can get loans. This means that you either have to already be a member or be eligible to become one. Furthermore, it is worth noting that some unions require that individuals contribute to a certain number of months before they can borrow money.
This is designed to help build trust between the union and its newer members, which enables the organisations to offer lower interest rates and larger credits. For borrowers, it may seem like an unnecessary step, but once it is essential because credit unions do not perform credit score checks.
Repaying the money is done through monthly instalments, the value of which is established when signing the loan agreement. Lastly, credit unions do not typically offer secured loans.