# I want to borrow from a credit union. How much do I need to save first?



## solstice

Recently I joined a credit union and set up a standing order to make a lodgement of a fixed amount every week. 

On the day I joined the lady who was dealing with me mentioned about loans - basically as I understood it she explained that you can take out a loan after saving for 12 weeks and she gave as an example a person who has 500 saved is able to get a loan of 500, using the 500 saved as 'security'. This bit about security confused me as it seems to mean that if you're being lent 500 then all you're doing really is withdrawing the savings!
Can someone who has experience dealing with credit unions please explain if this is what she meant or did I misunderstand? Because I would have thought you could take out twice or three times your savings?

As for my own situation I was hoping to borrow in a few months(after saving 20 weeks) for approx twice what I'll have saved. So with say 1500 saved, I want to be able to take out 3000(my savings + 1500 as loan). 
I plan to keep the standing order going for the forseeable future - next 12 months at least, whether or not the loan happens. It's just that I'd prefer to have this money sooner rather than waiting till I have the full amount saved which would not be till next summer. I've no debts and only outgoings are rent, internet/phone bill, groceries.


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## Brendan Burgess

Hi solstice

It makes no sense to pay 10% interest on a loan of €1,500 while having a deposit in the same institution which is paying 1%. 

So, if you have €1,500 saved and you want to buy something for €3,000, withdraw the €1,500 and borrow only €1,500. Stop saving after that and use the standing order to pay off the loan more quickly.

Brendan


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## solstice

Brendan Burgess said:


> Hi solstice
> 
> It makes no sense to pay 10% interest on a loan of €1,500 while having a deposit in the same institution which is paying 1%.
> 
> So, if you have €1,500 saved and you want to buy something for €3,000, withdraw the €1,500 and borrow only €1,500. Stop saving after that and use the standing order to pay off the loan more quickly.
> 
> Brendan


 Thanks for your reply Brendan. Yes exactly as you said it, this is how I would have thought it worked but what confused me was the lady in the credit union talking about 'security'. Sorry if this should be really obvious or is a silly question, but I am new to credit unions and borrowing in general so I'm just looking to understand terminology.  By 'security' then did she just mean having shown a commitment to saving every week?  It's just the way she said "the (total of saved) will be for security" which didn't make sense to me. I questioned this and she then specified that this was "just for the first loan".  I didn't want to make a big deal out of asking her for clarification there and then as I was not looking for immediate info about borrowing.  But still I would like to know this info before the time comes so that I can make plans.


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## Copper Beach

She is referring to a "Secured Loan" up to the amt of yr savings which can be granted at the counter without having to go to a credit committee or perhaps even a loans officer.
Do not withdraw your savings, Credit Unions do not usually grant loans to members who have no shares (deposits).
Think long term and not just for this loan. After you have established a track record you should be able to borrow up to a larger multiple of savings . Each CU has its own loans policy . Some Cu's will loan perhaps up to 10 times savings , each loan applicn taken on its own merits ,but with all CU's in current climate and in all cases emphasis is now strongly on ability to repay backed up by documentation eg. P.60 current payslips , 3 mths bank statements etc.. You will find that most CU's will be easier to deal with, nterest is calculated on the reducing balance and can be cheaper than the banks and finance co's when the total cost of the credit is taken into consideration.


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## fizzelina

Brendan Burgess said:


> Hi solstice
> 
> It makes no sense to pay 10% interest on a loan of €1,500 while having a deposit in the same institution which is paying 1%.
> 
> So, if you have €1,500 saved and you want to buy something for €3,000, withdraw the €1,500 and borrow only €1,500. Stop saving after that and use the standing order to pay off the loan more quickly.
> 
> Brendan


 
Brendan while sound advice in theory this is not relevant advice for Credit Union borrowing. In the case of credit unions they allow you to borrow based on how much shares/savings you have in there - so you can't withdraw all savings and then borrow an amount. Also they like to see that you are repaying the loan and still saving with them even a nominal amt (eg loan repayments €200 a month and you also put €20 into shares) The loan is secured against the shares and you can't withdraw your savings while you have the loan amount. In the case of the OP I don't believe they could withdraw the €1,500 and then ask for a loan of €1,500. They would have to borrow the €3,000. However when they have repaid €1,500 and only owe €1,500 left then they could use the shares of €1,500 to pay that remaining loan balance.


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## solstice

Copper Beach said:


> She is referring to a "Secured Loan" up to the amt of yr savings which can be granted at the counter without having to go to a credit committee or perhaps even a loans officer.
> Do not withdraw your savings, Credit Unions do not usually grant loans to members who have no shares (deposits).
> Think long term and not just for this loan. After you have established a track record you should be able to borrow up to a larger multiple of savings . Each CU has its own loans policy . Some Cu's will loan perhaps up to 10 times savings , each loan applicn taken on its own merits ,but with all CU's in current climate and in all cases emphasis is now strongly on ability to repay backed up by documentation eg. P.60 current payslips , 3 mths bank statements etc.. You will find that most CU's will be easier to deal with, nterest is calculated on the reducing balance and can be cheaper than the banks and finance co's when the total cost of the credit is taken into consideration.


Thank you for this info and advice Copper Beach. The secured loan thing makes sense I suppose if the person is looking to build up a long-term track record(but not so good for actual borrowing). I really should have started this account a lot earlier :-/ 
You mention payslips. Obviously it is better to have a full-time permanent job, but if you don't hopefully you can still be considered once you've shown you are good at budgeting and making weekly lodgements?


fizzelina said:


> Brendan while sound advice in theory this is not relevant advice for Credit Union borrowing. In the case of credit unions they allow you to borrow based on how much shares/savings you have in there - so you can't withdraw all savings and then borrow an amount. Also they like to see that you are repaying the loan and still saving with them even a nominal amt (eg loan repayments €200 a month and you also put €20 into shares) The loan is secured against the shares and you can't withdraw your savings while you have the loan amount. In the case of the OP I don't believe they could withdraw the €1,500 and then ask for a loan of €1,500. They would have to borrow the €3,000. However when they have repaid €1,500 and only owe €1,500 left then they could use the shares of €1,500 to pay that remaining loan balance.


Thanks fizzelina, you've explained this really well and I'm beginning to see how from the CU point of view this would make sense because they can charge interest on 3000 instead of just 1500. 
I have no intention of letting interest mount up and would pay every week to get the debt cleared asap and as you say I could use the basic 1500 shares to clear the 2nd half of the loan. It's good to know this in advance so I don't appear completely clueless about how it all works when I go to apply for the loan  Thanks again!


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## kelbell

I've just recently come across this too - the credit union wants me to build up a credit rating (i have never had any credit problems ever) before they'll lend to me. And I've been a member for 5yrs.

They will firstly only lend the same amount I have in savings and told me I wouldn't get 'brownie points' for paying it off early. Then I'd have to get another loan for a larger amount and eventually work my way up to the big loan I'd asked for (€17k).

I told the lady that I didn't want loans just for the sake of having loans to earn credit points - I'd end up paying loads in interest probably, but she basically said 'tough'!

I dunno....


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## DoshDaisy

Sorry for jumping in and digressing slightly but I now have 16k remaining on a CU loan (for a car) and 4k in savings (shares) there.  The interest is ridiculously high (over 10%) and I'm now considering getting a bank loan for 12k and combining it with my savings in the CU to clear the CU loan.  Is this advisable or even possible? (could I apply for a motor loan from a bank in this situation?)

Thanks in advance


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## Noor77

fizzelina said:


> Brendan while sound advice in theory this is not relevant advice for Credit Union borrowing. In the case of credit unions they allow you to borrow based on how much shares/savings you have in there - so you can't withdraw all savings and then borrow an amount. Also they like to see that you are repaying the loan and still saving with them even a nominal amt (eg loan repayments €200 a month and you also put €20 into shares) The loan is secured against the shares and you can't withdraw your savings while you have the loan amount. In the case of the OP I don't believe they could withdraw the €1,500 and then ask for a loan of €1,500. They would have to borrow the €3,000. However when they have repaid €1,500 and only owe €1,500 left then they could use the shares of €1,500 to pay that remaining loan balance.


 
Exactly Fizzelina. You are right. Your loan with the CU is tied to what you have saved with them. Like the OP, I opened an account with a CU recently and they explained that generally a loan could be up to three times the amount you have saved but that your savings stay with the CU - almost like a form of collateral I suppose. I want to take out €6000, so I will make the loan application when I have €2000 saved, but that €2000 stays put and does not form part of the €6000 that the CU will advance to me. 

I have never heard of any CU allowing what Brendan mentioned.

Noor


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