When it comes to getting a loan, there are several different options however two of the most common are to either go to a high street bank or to apply for a loan from a credit union. Although both are viable options for lots of people, in many cases, a credit union represents the best choice, simply because of the attractive rates of interest which are on offer.
How Much Interest Does A Credit Union Charge?
Although credit unions do charge interest on loans, the rates are much lower than those offered by standard banks. The vast majority of credit unions only charge members around 1% interest on average per month (an APR of 12.7%) until the loan is paid off. Some will even charge less interest than this, and while some others may charge more, by law no credit union is allowed to charge members interest on their loans of over 3% per month (an APR of 42.6%).
How Much Interest Does A Bank Charge?
Unlike credit unions which are not-for-profit organisations, banks make profit from interest charged on loans. Although individuals who have a good credit score can get an APR on a personal loan from a bank at around 10%, lower than the typical APR offered by a credit union, for people who have poor credit, an APR on a personal loan from a bank will be considerably higher making a credit union loan a much more viable option. For borrowers who have no credit history or an extremely poor credit score, banks may not offer the option of a personal loan at all, and a credit union is a much better choice than a payday lender who will have APRs that are over 100%.
Credit Union Loans – The Basics
Credit union loans are an excellent option since there are no unexpected fees or hidden charges and no early repayment penalties, unlike with banks where borrowers are often hit by charges if they repay earlier than expected. Even better, a credit union loan comes with life insurance included free of charge. That means that if you were to die before the loan is fully repaid, all of the balance is paid off with no debt left for your beneficiaries to deal with.
Credit unions are able to offer unsecured loans for a maximum of a 5 year period or a 10 year maximum period for secured loans. Some can even lend money for as many as 25 years as long as it is secured. There are also no set-up fees or administration fees charged by credit unions for arranging a loan, and as the interest is charged on the loan’s reducing balance if you choose to make repayments on a weekly basis rather than on a monthly one, overall you’ll have less interest to pay.
One of the other great benefits to getting a loan from a credit union is that it is possible to get a loan for a much lower sum than would be offered by a larger bank, allowing people to affordably make smaller purchases and then repay the amounts the owe in a manageable way.