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A Critical Examination of Credit Unions

Disclaimer: This work has been submitted by a student. This is not an example of the work written by our professional academic writers. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Tue, 04 Jul 2017

Table of Contents

Introduction

credit unoin

credit union facts

Why credit union?

Who can join?

Payday loans or credit union

Payday loans

Credit union

Key features

References

Introduction

credit unoin

Credit unions are non-profit financial institutions established on co-operative principles ground, Credit union exist to help the financial welfare of their members as well as to improve the financial State of the local community. Credit Unions is created on principle of ‘ethical lenders’, Particularly, they facilitate help to their members or the community by generating capital from the members in forms of deposits or saving in which to serve and provide loans to other members at a good interest rate.

credit union facts

There are around 400 credit unions in Britain with capital and assets of close to £1 billion.

Over one million people are members of credit union, and the goal would be to boost this by twice by 2017 throughout the credit union expansion project. The credit union sector is rising and improving rapidly, however is up till now small comparing to other nations, for example: Ireland in which 70% of the general public are members of credit unions, compared to only around 2% in Britain.

Approximately more than 90% of the British people has the ability to be a part of a credit union considering where they are living. And some people are qualify throughout their workplace.

Across the globe there are 56, 000 credit unions providing financial services to 200 million members in 101 countries.

According to the ABCUL (association of British credit union limited) at year end September 2012 there are 22 credit unions across the UK now offer current accounts, and more than 35,000 people have their current account with a credit union, never to mention some credit unions offer mortgages, cash ISAs and insurance products. And in just between September 2012 and March 2013 there has been steady growth in the sector, not only the number of members increased by 3.2% but also in term of assets recorded rise 6.7%, beside, growth of loan by 2.4%.In fact only for the last decade between 2002 and 2012 Britain has witnessed growth in membership and loan in the credit union sector more than double by 125% and 146% in that order, and treble times in deposits along with assets by 196% and 199% respectively (abcul, 2013).

Now-days over than 68,400 individuals benefit from the services by 21 credit union in wales alone.

Why credit union?

Credit unions appear to be very competitive and actually happens to demonstrate one of the best value in Britain current market for loans up to as much as about £2, 000, and many which will compete with bank rates for considerably higher value loans too.

Credit union can be beneficial to people who can’t have access to regular standard bank or financial products like; struggling communities or people with financial difficulties. Besides, they usually a better option to pay-day loans or lending sharks.

However, they’re not only just for people with financial problems, but also they attract people who desire to deal with ethically financial institution to enhance and helping out their local community. What is more some large credit unions deliver products which could be better and outdo popular traditional banks. Their main services are savings and borrowing, but also various other more services that can be offered include things like current accounts or ISAs, mortgages.

Who can join?

Since January 2012, the requirement for membership in credit union are at ease to some extent, and now is easier than before. its more choice instead of obligation, however, there still some criteria to be met for instance common work place, living or if belonging to trade union or an organisation, and even individuals now can be members.

Now for someone working for the Royal Mail Group and a member of the main trade union for postal workers; the Communication Workers Union (CWU), surly he’s qualify to join credit unions, and it would be the best choice for him to join credit unions such as; and Penny Post Credit Union, or Commsave Credit Union Limited and 1st Class Credit Union.

Key finding

Penny Post Credit Union

Commsave Credit Union

1st Class Credit Union

  • Created in 1996 through Royal Mail employees in Wolverhampton
  • Total Members: 6,000
  • Assets£8980000
  • minimum £2 a week to join with no annual fee
  • member qualify to enjoy the benefit of free bereavement fund and receiving an annual dividend as soon they join
  • Saving Account of 4.75% dividend rate
  • Plus+ Account[1]
  • Christmas Accounts receive 6.25%
  • Prime interest account- Receive monthly interest 2.25%
  • Cash ISA
  • established in 1991 in Northampton
  • Total members : 10,975
  • SAVING PER YEAR £23,575,996
  • Total loans £11,409,796
  • Last dividend 3.25%
  • Regular saving account
  • Holiday savings
  • Child benefit savings
  • Stamper children’s saving account
  • Christmas savings
  • 1st Class Credit Union was established in 1992 in Glasgow
  • Total members : 5,000
  • 4% dividend rate[ii]
  • Current Accounts
  • Junior Accounts
  • Christmas Savings

Payday loans or credit union

If you decided to take a loan from payday Loans Company, it’s wise to fully understand the term payday loan also really essential to compare some payday loans with other loans provider such as: credit unions.

Payday loans

  1. Pounds to pocket payday loans

It’s a company that provides payday loans, unsecured loans usually for short time, which the interest rate depending on the amount of the loan and the payment dates, they provide loans up to £2000.

Highlights

  • Fixed interest rate of 172% per year
  • 14.3% Monthly Interest Rate
  • 399% APR Representative[2]
  • £12 late fee per missed payment
  • Quick approval
  • Instant funds

Pound to pocket highlights 1

  1. 1st Stop Instalment Loans

Limited company offer unsecure loans up to £1000 for terms sometime weeks or from 3 to 12 months.

Highlights

  • 173.49% Fixed Annual Interest Rate
  • 361.3% APR Representative
  • £12.00 Missed Payment fee
  • Easy access

Credit union

Credit Union provides its own members with competitive loans rate for long term, and shorter term as well, the long term may go up for 5 years, and loans up to £10,000 with no hidden fee. However, few requirement has to be met.

In case you are in a situation which you think you may need to get a loan from a payday loan company, make certain you have looked at the comparison and the review between payday loans and loans provided by credit union, so you can to make sure that you’ve considered all options.

The table below will show how payday loans are in comparison to credit union loans

Company Name

Loan Type

APR

Per year

Total Amount Payable

In 12 months

Monthly Repayment

Pounds to pocket

£1000 Personal loan

172%

£2151.12

£179.26

1st Stop Instalment Loan

£1000 Personal loan

138%

£2081.88

£173.49

Penny Post Credit Union

£1000 Personal loan

With no saving account

26.8%

£1151.04

£95.93

Commsave Credit Union

£1000 Personal loan

minimum saving £200 for £1000 loan

12.7%

£1066.19

£88.85

There are a number of key differences between the payday loans and credit union loans for example first thing you would notice here that the APR [3] rate is extremely high with the payday loan in comparison to credit union, which means you would have to pay the percentage rate amount over the loan period as well the original loan, and that’s sometime could be double or triple the original amount you barrowed, another thing for example in the table above with pound to pocket payday loan, the original amount of the loan is £1000 and the annual percentage rate is very high 172% more than double and you end up paying £2151 , moreover if you miss any payment they would charge you even more, as the penalty fees applied for the missing payment and that is more likely to cause additional financial difficulty for the troubled borrower, turning to credit union loans the APR fairly low Compared to payday loans, in addition the credit union often give lower APR loan if you are a member with saving account. As the above table shows that £1000 loan with commsave for 12 months period will cost £151.04 and that’s small amount in comparison even to credit card charge or other financial provider. Nevertheless the term APR Representative in payday loan are shocking for example with pound to pocket payday loan the APR representative is 399% means the loan will be around 4,000 if you couldn’t pay the original loan for a year.

As for Alex I believe it would be reasonable for him if he stay away from payday loans, as sometime they are can be fascinatingby first glance, as they are promoting on simplicity and instance funds. however the higher APR usually ending up with more debit particularly if the loan for long term, on the other hand if Alex want to borrow money to take his girlfriend to Paris he could get the money from credit union, with their low APR it would make more since, beside the credit union got more support towards the member and that would definitely benefit Alex with financial guidance, another alternative can be if Alex borrow the money from a friend or a family member this way he can avoid the interest on the loan completely and save even more. Furthermore a trip to Paris would cost more than £1000 that means Alex is likely to be trapped in a cycle of debt if he moved to payday loans, and with the living cost for his home plus the rent, So I don’t think he would be able to cover the payday loan monthly charge, again it’s wise to stay away from any payday loan company especially with Alex financial situations.

Key features

 

Commsave credit union

Cardiff and Vale credit union

Penny Post Credit Union

Name of product

Regular savings account

Adult Saver Account

Regular savings account

Last dividend

3.25%

0.75%

4.75%

Method of paying in money

Payroll deduction

Cheques

Bank transfers

Payroll deduction

Standing Order

membership card

Cheque or cash

Bank transfers

Debit or credit card by phone

Payroll deduction

Bank Standing Order

Size of credit union

7,360 members

[4]over 6000 members

6,000 members

Common bond

Employees of the royal mail group and their relatives

Members of the Communication Workers Union

For those who work or live in Cardiff or the Vale of Glamorgan

Based upon an employment bond, where members work for Royal Mail Group. (plus, members family living in the same household can also join)

Authorised and regulated by the FSA

Yes

Yes

Yes

Savings protected under FSCS

Yes

Yes

Yes

Maximum savings

£10,000

£5,000

No maximum

Life insurance

None

(Yes) up to £5000

Yes

Membership fee

£1

No

£2

Marketing slogan

Tailor made with you in mind

Ethical behaviour for the mutual benefit of all our members

“for the things you need”

It is an easy way to save.

It’s always a good time to start saving but its best to go for it right now!

Date established

1991

1994

1996

Speaking about credit union and the financial products, clearly they provide an exceptional advantages for the members, even more favourably than banks, and to compare which credit union best we have to compare their products and the advantage and the services.

First for the saving account for each credit union in the above table they all provides saving account, with no differences, now moving to the dividend rate the deference here is much wider, hence penny post credit union have the highest dividend rate means it pay more for the member with difference 1.5% than commsave, surly it’s a big difference here, furthermore penny post credit union is more than six times higher than Cardiff and Vale credit union that only just 0.75 which is negligible relating to others, additionally in term of methods of paying in money, it’s almost similar apart from Cardiff and Vale credit union with the membership card, but that doesn’t really make any difference.

For the maximum amount the member can deposit, again Penny Post Credit Union with no maximum deposit would be the best choice for Alex.

That’s being said the it’s clear that the best choice for Alex is Penny Post Credit Union as he can join easily because he’s already a member with royal mail group, plus the saving account he will get with penny post is much higher, nevertheless there is more for Alex circumstances to consider such as the loan he want to have and the fact he’s trying to save enough money to get married, as with penny post he can benefit with their saving account or maybe use their ISA saving account with no tax, and in the same time he could get his loan with low APR rate .

References

1st Class Credit Union, 2012. About Us. [Online] Available at: http://www.1stclasscu.co.uk/content.asp?section=1 [Accessed 9th March 2014].

abcul, 2013. Facts and Statistics. [Online] Available at: http://www.abcul.org/media-and-research/facts-statistics [Accessed 9th March 2014].

Cardiff & Vale Credit Union, 2014. about us. [Online] Available at: https://www.cardiffcu.com/index.php [Accessed 9th March 2014].

commsave, 2014. [Online] Available at: https://ssl.commsave.co.uk/about/history [Accessed 8th March 2014].

findyourcreditunion, 2014. find your credit union. [Online] Available at: http://www.findyourcreditunion.co.uk/home [Accessed 9th March 2014].

Helen, S., 2014. Credit Unions. [Online] Available at: http://www.moneysavingexpert.com/banking/credit-unions [Accessed 6th March 2014].

Lewis, M., 2014. Cheap Payday Loans UK. [Online] Available at: http://www.moneysavingexpert.com/loans/payday-loans [Accessed 9th March 2014].

moneyfacts, 2012. guides. [Online] Available at: http://moneyfacts.co.uk/guides/savings/what-are-credit-unions220212/ [Accessed 8th March 2014].

Penny Post Credit Union, n.d. News. [Online] Available at: http://www.pennypostcu.com/content.asp?contenttype=News [Accessed 9th March 2014].

Welsh Government, 2013. Credit unions. [Online] Available at: http://wales.gov.uk/topics/people-and-communities/regeneration/debt/affordcredit/?lang=en [Accessed 9th March 2014].

World Council of Credit Unions, 2012. Statistical Report. [Online] Available at: http://www.woccu.org/documents/2012_Statistical_Report [Accessed 5th March 2014].


[1] Simply just two withdrawals per year allowed with this particular account and it does provide a 1% more dividend when compared with Regular Savings Account.

[2] APR representative implies 51% of successful applicants are given the stated interest rates, however, the remain 49% may have totally different rate

[3] Annual Percentage Rate

[4] By July 2013 membership was over 6000.


[i] UK tax-free savings account

[ii] Dividend rate is how much money the dividend is over the coming year.


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