After the Archbishop of Canterbury warned that personal debt is at “epidemic levels”, he urged people to use credit unions. Canterbury Journal columnist Dave Wilson explains what they can do for you:
Need to borrow some money? Maybe just a few quid to tide you over until payday? You have a few choices to make, then.
You could always use the “bank that breaks your legs”, for starters – that nice man who wanders around your estate, offering small loans of £50 or so, and you only have to pay him £100 back the following Friday.
And if you can’t pay, well £200 the following week will do. And if you keep not paying him back as the money you owe mounts up, well, he can always arrange a “talking to” from his mates with the baseball bats.
More likely, you might think of going to one of those companies that advertises on the telly. They’re legit, after all, regulated by the FCA, whatever that is.
And to borrow £400 for three months they only charge you £200 interest – or to put it another way, £800 a year, or 1286%.
There is a better way of borrowing small sums – something that most High Street banks are not interested in helping with because it doesn’t make them enough money – and that’s your local credit union.
A credit union is a financial cooperative. That’s simply where people who have money to save put it into the credit union for them to lend out to people who need to borrow.
Credit unions are “not-for-profit”, owned by their savers, and mostly run by volunteers.
They are set up in geographical areas – ours is Kent Savers – or for specific groups of people: there’s one for NHS staff, one for the police, one for newsagents, even one for church staff.
But the key thing is that they lend at much lower interest rates – never more than 49%, often much less – compared with other small loan and short term lenders, and on a responsible basis. Simply, as responsible lenders, they check whether you can afford to repay the loan.
Credit unions don’t offer “free” money. They keep their costs down by not having high street branches or advertising on the TV but they offer a range of competitive interest rates which, even if you borrow for a short period are much cheaper than credit cards and much better than either payday lenders and loan sharks.
They can’t lend to everyone because they can’t afford to not get paid back. That’s why their interest rates are so low compared to payday lenders, who price in a substantial amount of non-payment.
The money credit unions lend out is their members’ after all, and they’re not wealthy businesses like the High Street banks.
But as a first port of call they offer a much better solution for people who need to borrow for, say, a rental deposit, or wedding, or school uniform, or an unexpected washing machine breakdown.
Credit unions also work in their local community to support other ways of helping people manage their finances. In Canterbury, Kent Savers is part of the Together Canterbury network, in which local churches offer debt advice, food banks and credit union services among other things.
In the Murston area of Sittingbourne, the local church and school use the credit union as a focal point to educate school children and their parents in saving and budgeting.
In other words, credit unions are part of the community, owned by local people for the benefit of local people.
So if you’re a saver, think about putting your money in a credit union where it will be used to help provide affordable fair loans, while earning interest or dividends comparable with what the banks pay.
If you need to borrow money, start with the cheapest, fairest and most honest solution available to you, your credit union.
And stay away from those loan sharks, whatever you do.
Canterbury Journal columnist Dave Wilson is a trustee at the Kent Savers credit union. He writes here in a personal capacity.