What is a credit union?
Credit unions are member owned financial cooperatives. Credit unions are “not-for-profit” organisations, which means that they work for their members rather than to turn over a large profit (they are still profit-driven, however). This enables them to provide competitive rates to their customers, as the revenue made is distributed amongst the credit union owners, aka its members and customers.
There are roughly 75 credit unions Australia-wide.
How do I apply for a personal loan from a credit union?
In order to get a personal loan from a credit union, you must first become a member of the credit union. Typically, joining a credit union requires you pay a one-time membership fee, as well as making a small deposit.
Credit unions come in all shapes and sizes, so depending on the institution, the application process and the loan eligibility criteria will vary. Some credit unions will accept online applications, but others may require you to come into a branch to sign any necessary paperwork in person.
Credit unions offer secured and unsecured personal loans at fixed rates. This means that the interest rate charged will remain the same for the duration of the loan period. As always, it’s advised that you talk to a financial planner to work out which suits your needs best.
Is a credit union personal loan better than a personal loan from a bank?
Credit unions, like banks, assign their rates based on your income, credit history, credit score and existing debts. Banks usually reserve their lowest rates for people with excellent credit scores, which makes them harder for most people to acquire. Credit unions tend to have lower rates and fewer fees than banks, even for people with less than perfect credit histories. Having a good credit score will still bag you a lower rate with a credit union, but they tend to be more forgiving of bad credit borrowers, as they take into consideration your standing in the union and your whole financial picture.
Like banks, credit unions are registered under the Banking Act as Authorised Deposit-Taking Institutions (ADIs), which means that they are as safe to borrow from as any other bank.
Customer satisfaction is rated higher amongst credit unions, scoring 90 per cent satisfaction rate in 2015, according to Roy Morgan research. Banks, specifically the big four, Commonwealth Bank, NAB, Westpac and ANZ, scored just 81.5 per cent. (It’s worth bearing in mind that not all institutions were included in this survey).
On the downside, you may find that there are fewer loan options with a credit union than with a bank. Banks have the monopoly of the market and are therefore able to offer a wider range of financial products.
Also, the requirement of some credit unions to come into branch can be an inconvenience for many people in an era where almost everything is available electronically.
- Fewer fees or no fees
- Lower interest rates
- Better customer service
- Flexibility for people with bad credit
- Fewer products
- Less branches in fewer locations
- Fewer online services