# cost of credit union borrowing



## darag

hi, i'm not sure if this is the correct place but the last time 
credit union loans were discussed, the messages ended up 
here.  one aspect of the discussions which bothered me was 
the fact that despite arguing the pros and cons of borrowing 
from the credit union, no-one seemd to be able to say what 
the true apr of a credit union loan was.  the other night i 
sharpend a pencil and tried to waken the few brain cells i've 
left which can handle sums and worked out a formula which 
might be useful when considering a credit union load.

the formula i came up with is: if r is the credit union loan 
interest rate, d is the interest earned on savings and f is the 
fraction of loan which must be kept as savings, then the true 
apr of the loan is: (1+r-f(1+d))/(1-f) - 1 

so for example if you are told your loan will be charged at 
9.5% (r is 0.095) while currently deposits are earning 3% (d 
is .03) and you'll have to maintain 30% of your loan amount 
in savings (f is .3), then the true apr is gotten by plugging 
these values into the above formula which comes out in this
case at about .122857142 or 12.3% apr.  this apr rate only 
holds if the borrower always insures that their savings acount 
has the absolute minumum to meet the credit union 
demands. so every month, as well as putting money into 
paying off their loan, they will use the excess savings that 
this frees up to pay off more of their loan.


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

Just to put this post in context this was one of the most extensive topics about CU lending:


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## huh

*apr*

Im still not sure what the difference between APR and ordinary interest rate is. Can someone explain

 eg, if I take out 10k at 10% and the interest is worked out monthly then interest charged is balance*10%/12.
Whats the apr got to do with it? If the APR is say 12% (it always seems to be 2-3 points higher) then how does that affect my calcs above.


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: apr*

I don't know the maths but APR is the real cost of credit - for example the nominal rate may be applied to the loan annually, monthly, weekly or daily leading to different APRs. APR takes these different approaches to interest calculation and other ancillary charges into account in order to yield a single figure that can be used to compare different loans from different lenders on an equal basis.

This topic might also be of help:


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## Brendan Burgess

*Re: apr*

Hi 

I have tried to do a simple explanation of APR in the 

Brendan


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## Brendan Burgess

*Re: apr*

Hi darag

Your formula is correct, but most people can't handle abstract formulas. They must deal in actual numbers.

Credit Unions don't phrase it "you must keep 30% of your loan on deposit". They say - "we will lend you 3.3 times your deposit". 

So the best way for most people to approach it is:

You have €1000 on deposit at 3%, so you get €30 interest.
You can borrow €3333 at 9.5%, so the interest will cost you €317. 
The net interest is €287
The net loan is €2333
So the APR is 12.3%. 

Come to think of it, that's just as complex as your formula. 

The simplest rule is: "If your credit union requires you to keep a balance on deposit when you take out a loan, then it's much dearer than an overdraft with AIB or Bank of Ireland. You should cash your savings in the credit union and borrow what you need from the bank.".

Brendan


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## Protocol

*odd, isn't it?*

If the CUs are more expensive for loans than other financial institutions, then how come they have over 2 million members and billions in loans?


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## Statler

*Re: odd, isn't it?*

The same reason only 50% of people with a credit card clear their balance each month?


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: odd, isn't it?*

And the same reason that 30%+ of mortgage borrowers are lured in by one years discounted rates offered by lenders who charge the highest standard variable rates from years two onwards. Ignorance and inertia. I was just talking about loans with some colleagues about loans yesterday and was amazed that some of them who are generally fairly astute when it comes to financial matters automatically assumed that the CU offered good value on loans.


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## Scud

*Above nonesense*

The above info is accurate for about 1980. The garbage about CU rates continues in the media because the League of Extraordinary Gentlemen, ( aka The League of Credit Unions) couldn't score in a brothel.

Modern Credit Unions do not insist on a savings account minimum balance offset, and indeed this was evident from a few of the recent RTE money programmes. 

Today my CU will give borrowers 10.5% headline rate, and rebate 20% at the end of our financial year, a net rate of about 8.5% typically. However we apply our rate on a reducing balance basis, and for a loan say of 10k repaid over 52 weeks we'd charge about €450.


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: Above nonesense*



> Modern Credit Unions do not insist on a savings account minimum balance offset, and indeed this was evident from a few of the recent RTE money programmes.



A little bird tells me that all was not what it seems in this context on those shows. As far as I know many CUs do indeed still insist on deposits being maintained while the loan is outstanding.


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## scud

*Above*

That's self serving nonesense. Ring up and interview a few GM's of top CU's, and in the meantime stop posting inaccurate comments.


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: Above*

I don't see how it's self serving nonsense. I have nothing to gain and arguably, as a member of my local CU, something to lose by pointing out that the CU lending practices may not be a transparent or competitive as other institutions'? Anyway, last time I checked my own CU required deposits to be held while loans were issued. Obviously people should double check with their own CU(s).

P.S. I've emailed the ILCU and my own CU for some up to date answers to some borrowing related questions such as (a) does money have to be kept on deposit/in shares while borrowing (b) what is the APR applicable to loans (exclusive and inclusive of any interest rebates) (c) does the APR take int account money that must be held on deposit (d) is borrowing capacity calculated based on the amount held on deposit/in shares. I'll let you know how I get on.


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## Brendan Burgess

*Re: Above*

scud said in another thread:





> Perhaps Statler could ring the GM of any main CU like Tullamore, Newbridge, Bishopstown, etc and check his knowledge, then after eating a bit humble pie he or she might enlighten us as to the findings. The stuff on AAM about Credit Unions is inaccurate, but then again so is a lot of other self serving opinions where their is an on-line community need to see the world in a particular way, ie an inbuilt prejudice.



So I rang Newbridge Credit Union

Me: What is your APR?
Them: We don't have a fixed APR - we charge interest of €2.01 per week per €1000 borrowed. So because we charge interest on a reducing balance, that works out at 5.3%
Me: Whoooooa? Is the €2.01 interest or repayments?
Them: Interest only
Me: Well €2.01 x 52 = 109.2 or 10.92% APR
Them: No - because it's charged on a reducing balance, it's only 5.3%
Them: And we give an interest rebate of 20% at the end of the year
Me: if I wanted to borrow €5,000 would I need to have money on deposit?
Them: Yes, you would need €1000 to 1500.
Me: So if I had €1000 on deposit, I couldn't withdraw it and borrow the €5000.
Them: No. You would have to keep it on deposit
Me: What's the rate paid on deposit?
Them: 3.5% last year
Me: Can you send me a brochure on APRs as there is nothing on your website?
No: Come in and we will quote for you. 

*My interpretation of this*
They may be breaking the law by not quoting an APR but CUs may be exempt from the Consumer Credit Act
They certainly have no understanding of what APR means. This is about the third time, that a Credit Union has quoted me an APR which is half the correct rate. 

Where they are confused is with the old style of bank loans who used to charge a flat rate of 7%, which worked out at an APR of around 13%. 2.01 a week is 10.92% a year APR( or 11.5% if they compound it which I suspect that they do).

*The real APR of Newbridge Credit Union*
If I have €1000 on deposit and borrow €5000 to buy a car for €4000.  Net amount borrowed:  €4000

Interest paid 5000 @ 10.9%   = €545
Less 20% rebate                  =   109
Less deposit interest             =    35
Total interest paid               =    401

Amount of loan                    = €4,000

True APR                          =    10%

Not bad, but it doesn't make the Sunday Tribune/AAM Best Buy Lists and if they were covered by the Consumer Credit Act, they would face a reprimand for misquoting rates

Brendan


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## Scud

*That's a bit better*

Suddenly we've gone from over 12% to 10% for a flexible loan that won't trigger reports in the ICB, but its still not accurate, because loans are available without deposits. Try ringing the GM there, his name is Des Diver to validate, then we can start correcting some of the guff here.


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## Statler

*Re: That's a bit better*



> Perhaps Statler could ring the GM of any main CU like Tullamore, Newbridge, Bishopstown, etc and check his knowledge, then after eating a bit humble pie he or she might enlighten us as to the findings.


Perhaps scud could check his/ her facts and who actually posted the comments (s)he is referring to, then after eating a bit of humble pie he or she might withdraw that comment.

Posted on another thread:


> I've already done so and I'm challenging you to verify your comments.


Scud, you seem very keen on others making phone calls and verifying their comments. Perhaps you might like to present any evidence or facts you have to back up your assertions?


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: That's a bit better*



> Suddenly we've gone from over 12% to 10%



To be fair ... from the ILCU webpage:



> Interest on credit union loans
> 
> 'Truth in Lending' is the policy of the credit union movement. Normally there are no fees or transaction charges.
> 
> By law a credit union cannot charge more than 1% per month in the reducing balance of a loan. This represents an annual interest rate of 12.68% APR. Some credit union may choose to charge even less than this 1% per month or give a rebate of interest to borrowers at the end of the year. Since the interest is charged only on the outstanding balance of the loan, you will pay even less if you repay in a shorter time than planned. Thus the credit union gives you control of your own finances, even when you are a borrower.



[broken link removed]

Hence the 12% you mention. If the ILCU can't propagate accurate facts about CU loan rates and individual CUs can't answer straight questions with straight answers as above then you can hardly blame some people for being misled.


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## Brendan Burgess

From the Tullamore Credit Union website:



> Interest on Credit Union Loans
> 
> 'Truth in Lending', with no hidden costs, is the policy of the Credit Union movement. By law a Credit Union cannot charge more than 1% per month on the reducing balance of a loan. Tullamore Credit Union presently charge 0.75% per month. This represents an annual interest rate of 9.1% APR (annual percentage rate). Credit Unions do not charge fees or transaction charges.
> 
> Saving while Repaying
> Members are encouraged to continue saving at all times, even when repaying a loan. Remember that even the smallest amount saved regularly grows quickly, and that your savings and loan will be doubly protected by insurance. Savings not only help build up your own fund but also contribute to the Credit Union's fund.



So at least they have the 9.1% calculation correct. And they encourage saving while repaying, so the true APR must be higher.

And from Bishopstown:



> The interest rate is under a percent a month, coming to 0.79% a month and 9.9%APR
> 
> ...
> Benefits of saving
> ...
> 
> Easy access to your savings if you wish to make a withdrawal (once not pledged against loans)



So they don't make the Best Buys list either I am afraid.

They used to be great value when the banks were charging 20% APR. But interest rates have come down by 10% over the past 10 years and the Credit Union has only come down by around 3%. I wonder will this be covered by IFSRA's report into the way financial institutions passed on rate cuts?

scud - Do the arithmetic and then ask why most credit unions are more expensive than banks. Go to your AGM and insist that they stop insisting or encouraging borrowers to borrow at 9% while saving at 3%. It's just madness.

I would love to see the Credit Unions being cheap again and being honest about their rates. 

I think that my local Credit Union in Sandymount charges some borrowers around 6% - now that's good value. But they charge most borrowers much, much more.

Brendan


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

> I wonder will this be covered by IFSRA's report into the way financial institutions passed on rate cuts?



Probably not. The whole area of CU regulation is only being sorted out now and they don't currently fall under the remit of IFSRA but rather the registrar of CUs as far as I know:

[broken link removed]
[broken link removed]

The whole "truth in lending" thing rings a bit hollow when it takes long discussions such as this and others on AAM to attempt to get to the bottom of the CU's lending practices and requirements...


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## scud

*that's Better*

I never said the CU product would make the best buy list, just that the debate about it here was inaccurate. At least now, thanks to Brendan, AAM is looking at rates of 9%, not over 12%. That's a huge difference in a few posts, because a respected participant actually went away and researched it. 

Still, despite websites and brochuretalk, loans are widely available without compulsory savings. When these are arranged, and repayments accelerated the CU deal isn't bad at all. Their most important function however is loan availability first day to sections in society not liked by the banks, then there's the mutuality thing, and not getting registered as a bad borrower with the ICB if you miss a few payments.

My problem with AAM was the dismissive manner it wrote off CU's, based on wrong information. Perhaps in future participants will be less cutting. As for the League of Credit Unions properly outlining its case - God help us.


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## Brendan Burgess

*Re: That's a bit better*

scud 

I spoke to the manager of a credit union who did not want to be named. This is what he said verbatim:



> APR isn't the true cost because we calculate interest on a reducing balance.
> Our gross rate is 10.5%
> We pay a rebate of 20% which brings the APR down to 8.4%
> Anybody in the Credit Union has to be a saver to get a loan.
> The 3 or 4 times savings is obsolete for 10 years now
> On a loan of €10,000 for one year, you will pay €450 interest, so the "effective cost" is 4.5%.



It is clear to me that the Credit Union movement does not understand APR. The APR on this loan is clearly 8.4% and this is the true rate of interest on the loan _before_taking into account the requirement for a deposit. In my view, the "flat rate" of 4.5% is meaningless and totally misleading, although I accept that it was not intentionally misleading. 

I established that a borrower must have savings but I could not establish what percentage of the total loan, so it's not really possible to establish the true, true APR.

Brendan


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## Brendan Burgess

*Re: That's a bit better*

scud said:



> Modern Credit Unions do not insist on a savings account minimum balance offset...



I am delighted to hear this, but I have only come across one credit union who does not insist on it or encourage it. And there is something strange in the Credit Union Act which does not allow you withdraw  your savings if you have a loan.

Brendan


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## darag

*Re: That's a bit better*

scud, you actually reinforce one of the main criticisms of 
credit union lending policies:


> Today my CU will give borrowers 10.5% headline rate, and rebate 20% at
> the end of our financial year, a net rate of about 8.5% typically.
> However we apply our rate on a reducing balance basis, and for a loan
> say of 10k repaid over 52 weeks we'd charge about 450.


so what's the apr?  why the rigmarole?  why can't the credit 
unions quote a simple apr figure like everyone else is obliged 
to?  how is a borrower expected to compare the above offer 
with offers from banks or other lenders all of whom will quote 
a single apr figure with no qualifications?  terms like
"reducing balaces, rebates, etc." are all factored into the apr 
rate and should be unnecessary.

also, while i'm sure many or most people get good deals from 
their credit union, there have been a number of people 
who've posted to this site who've ended up paying rates of 
between 18% and 22% apr.  these may be isolated cases - i 
don't know - but it shows some of the criticisms here don't 
just apply to 80s era credit union policies.

actually, i didn't really want to get into this debate again.  i 
just wanted to provide a formula which would allow people to
compare the cost of credit union borrowing against that of 
other lenders.


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## crugers

*> Re: That's a bit better*

Darag said:

why can't the credit unions quote a simple apr figure like everyone else is obliged to? how is a borrower expected to compare the above offer with offers from banks or other lenders all of whom will quote a single apr figure with no qualifications?

Who has ever seen or heard, any bank or lending institution, quote anything “…without qualifications”?

“…How is a borrower  expected to compare…” Today AIB website calculated (with qualifications!) the cost of a €10k personal loan over 60 months with an APR of 9.8% at €229.63 per month. Strangely enough BOI quote the same loan, same period, same APR but costing €236.46. So! Single APR! Simple comparison! I think not! AIB’s APR of 9.8% is cheaper that BOI’s APR of 9.8% (with qualifications, of course!)

“…why can’t the Credit Unions quote…” They can’t because as this discussion demonstrates there is no such thing as a “…simple APR…”. If my memory serves me correctly the obligation to quote APR’s was made obligatory to assist comparison of loans at a time when rates were quoted but real cost and charges were hidden. Exact science it ain’t!

Credit Unions don’t, by law, have to quote APR (although the IFSRA, Credit Union Section requires them to make the calculation on their annual returns to IFSRA).

Cut to the chase. It would seem from the “qualified” quotes I found online today that if I borrowed €10k over 60 months and wanted to make the same payment amount each month, I will end up paying the following ACTUAL cost:
From BOI: €2,869.40
From AIB: €2,504.00
From MyCU: €2,454.80
From UB: €2,282.00

However the cheapest I found was: if I was willing to pay one 60th of the principle each month (€166.67 - 60th payment would be €166.47), plus the interest due at that month end, for 60 months:
MY CREDIT UNION: €2,256.11.

I don’t want a loan of €10,000 now! As a matter of fact I have at present “investments” in my credit union in excess of that. Why? Because some of the other members of my credit union might need to borrow €10,000 now. When they do borrow the money I want my credit union to “encourage” them to keep saving/investing in my credit union as well as repaying the loan. Why? Because some time in the future I might want to borrow more than €10,000 and if they don’t save, the funds won’t be there for me to borrow.

My advice?
If you want to borrow funds, contact your lending institutions and ask them how much in total you will have paid at the end of the term. Don’t be an APR fool! Live in the real world! Show me the money!


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## Protocol

*well done*

I, too, will do an analysis of the total cost of borrowing 5k or 10k from various institutions.

I will do it tomorrow, and am confident that the CU will have the lowest cost.


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## Brendan Burgess

*Re: well done*

scud, you quoted that your credit union would charge you €450 for 12 months on a €10k loan. This was exactly the same figure which my anonymous credit union manager quoted me. He said that no high street bank would beat it.

I fed those figures into the AIB and Bank of Ireland calculator and the interest was €461 and €476 respectively. The HUGE difference is that neither AIB nor Bank of Ireland require me to be a saver, so they work out a lot cheaper. 

There are problems with APR, but they are very small compared to a manager of a credit union quoting me an effective rate of 4.5%, when the true APR was in excess of 10%. 

The idea of a credit union is very nice, but the reality is that they cost a lot more than the high street banks. If you cannot get a loan from a high street bank, then certainly go for the credit union. 

One of you mentioned that the banks will put you in the ICB if you don't pay up. What will the Credit Unions do? Anecdotal evidence suggests that they get jailing orders much more quickly than any other lender. When I heard this first, I didn't believe it. But one credit union, around the 20th largest in the country, told me that they jail around 2 people a year on average. They say they have sympathy for those who can't pay, but they go for those who can and won't pay.

Brendan


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## cu customer

*my experience*

Here is my experience concerning my balance on deposit/in shares while I have a loan from my credit union.

I've been saving and borrowing from my credit union for many years.  A long history of regular saving and prompt repaying.

In 2001 I got my biggest ever loan from them.  It was for €25k over 10 years.  (At the time I was purchasing my first house so I budgeted my cu repayment as if it was part of my mortgage repayment).  I've been happily repaying my cu loan every month. 

When I got the big loan I thought that the ratio of loan to savings was 6:1 so I increased my savings balance of €4,200.00.  A while after I got my loan I noticed the publicity leaflets advertising loans from my cu stated that the required ratio for loans was actually 10:1.

In the back of my mind I noted that the correct savings amount for a loan the size of mine would be €2,500.00 which meant I had €1,700.00 more on deposit than I really needed to have.

I never did anything about this as I felt my money was on deposit and I could access it if I ever needed it.  Eventually I wanted to buy a sitting room suite for my new house.  I decided to finance the purchase by withdrawing €1,700 from my credit union (i.e the amount I had on deposit in excess of their loan to savings ratio).

When I enquired at my credit union I was told that I would not be allowed to withdraw the €1,700.  They said "your loan is secured against that money so  you are not allowed to withdraw it".  When I pointed out that the ratio was 10 to 1, and that my deposit amount was well in excess of their required ratio, the person I spoke to merely repeated the line about my loan being secured against that money.

It seems very odd to me.  Basically I have €1,700 more than I need to have on deposit with them and they will not let me withdraw it.


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## Brendan Burgess

*Re: my experience*

Hi CUCustomer

This is the bit in the Credit Union Act which needs to be changed. A few credit unions sensibly advise their borrowers to withdraw their savings and to borrow only what they need. A lot of customers don't do this and find the same problem you discover. 

It's absolute madness borrowing at 9% while having money on deposit at 2%. But you can't explain this to most people.

Brendan


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## Nutter

*Above*

But Brendan most of us save all the time while we pay massive borrowing costs. We're all MAD, MAD, MAD.

We do it at AIB, BOI by keeping money at lousy deposit rates, while we repay car loans, credit cards, and ,nay, even overdrafts with the same crowd. There isn't a difference, you know- even though you're publically unlikely to admit.

I'm not a CU user, but much like some other dogma's, this is one I fear you can't change, because you've worn the clothes too long. I think CU's do  wonderful job in meeting the needs of there target market. If this statement was untrue, then CU's wouldn't be so successful. Long live CU's, I say. Long live the banks, Long Live diversity of opinion, Long Live Brendan, and may he continue to challenge us, at at times entertain us with his inflexibilities.


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## Brendan Burgess

*Re: Above*

Hi Nutter



> We do it at AIB, BOI by keeping money at lousy deposit rates, while we repay car loans, credit cards, and ,nay, even overdrafts with the same crowd. There isn't a difference, you know- even though you're publically unlikely to admit.



Worse still are people with a balance in their current account earning no interest, while having a loan elsewhere. These are the  real nutters.

But there is a difference, as far as I know, only the Credit unions insist that you keep money on deposit while borrowing. Their customers do it through stupidity or inaction and when you point this out to them, some of them change.

Brendan


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## Slim

*Credit Union Borrowing*

I see no problem in using the calculator above to calculate APR. However, there is no one ratio of savings to loan. Many loans are lent at a ratio of 10:1 or even higher. The criteria is now (a) ability to pay and (b) the record of the member. To use the calculator implies a rigidity in the formula that is not there. Any member who takes out a loan should be advised that their current level of savings is frozen unless they set up a "slash one" account into which they can transfer any surplus balance and keep saving and withdrawing.

Many of the contributions here seem to suggest that one should have no savings while repaying a loan, unless the situation pertains where the savings rate exceeds the loan rate - most unlikely. Everyone, IMHO, needs a little cash in reserve, even if it is pledged against a loan. Incidentally, you cannot pledge your SSIA balance against a loan but you CAN pledge your DIRT EXEMPT Special Term Account against your loan. Even if your share balance is secured against your loan, if circumstances demand, you can ask the CU to reduce the ratio.

The arguments here have been going on for a year now and not much progress has been made. If the sums don't add up, you are better to borrow somewhere where they do. But, Credit UNions are not trying to mislead anybody. Many of us would not have seen the figures quoted here on APR etc. CU directors are all amateurs trying to do the right thing. The dilemma is that people like to borrow from CUs and a very high percentage repay the loans, compared to banks. Coincidence? I think not. The added security of savings against loans keeps the bad debts down and enables us to lend to those who cannot borrow from banks.

Slim 8)


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: Credit Union Borrowing*



> But, Credit UNions are not trying to mislead anybody.



I'm sure that is the case but going by my own experience and Brendan's posts above this does not mean that they DO end up misleading people nonetheless. 

An update on my earlier post - neither the ILCU nor my own CU branch have replied to my email query from Tuesday...


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## daltonr

*Re: Credit Union Borrowing*

I checked with our Credit Union and they do loan some multiple of savings.  The multiple varies depending on your history with them, i.e. previous loans.

Interestingly even though I've been a member since I was a kid (almost 30 years) and have had a token payment going in every week to savings, I'd only qualify for the lowest multiple because I'm not considered to have a history.

-Rd


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: Credit Union Borrowing*

I'm in a similar position except that I haven't been lodging money in ages. I was thinking about withdrawing my money and just sticking it in a unit linked fund since I've obviously done without it for years now.


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## daltonr

*Re: Credit Union Borrowing*

I went to the CU a while back with the intention of moving a loan I had with One Direct (they had pissed me off).  I assumed the CU would be cheaper (I didn't have the sifficient multiple to get the loan in the first part with the CU, but since 

I'd been paying One Direct for over a year without a hitch, and I clearly had the income to cover the loan, I presumed the CU would be delighted to get the business from One Direct.

How wrong I was.  First of all, I still didn't have the right multiple of savings.  Obviously since I had withdrawn much of what I had in order to borrow less from One Direct - Silly Me!!!

Secondly I didn't have a history with the CU (almost 30 years of regular savings doesn't count).

I was refused, on those two grounds, which is fair enough, it's their policy.  I kept the loan with One Direct.

But the funny thing is a while later the asked me to come in and meet the loans committee.  I was going to be abroad when they wanted to see me.  I didn't bother arranging another date.  I'm sorry now I didn't.  It would have been interesting to hear their explaination for some of the issues raised here.

Maybe I'll stick in another application in the hopes of another invite.   

-Rd


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## crugers

*CU borrowing et al...*

Brendan said in his post "A simple explanation of APR" that: "...APR is the true rate of interest on a loan. If you borrow €100 and pay €12 interest at the end of the year, the APR is 12%..."
If that's the case then my CU, with an interest rate of 9% HAS an APR of 4.5% because that is what it would cost me in interest.
What about the cost of having to keep deposits in place?
Well to get a loan from my CU (MY - as in I own part of it!!!) I have to have demonstrated that I can afford to repay the loan. I do that by saving regularily then reduce the sum I regularily save by the sum of the principal and interest repayment. Rocket Science!

In another posting Brendan said:
There are problems with APR, but they are very small compared to a manager of a credit union quoting me an effective rate of 4.5%, when the true APR was in excess of 10%.
Is the term "true APR" different to "APR"? I think this is where the problem lies. What is APR? Is it the Annual Percentage Rate? Is it the Actual Percentage Rate? Is it the be all and end all irrefutable, indisputable, rock solid reliable ratio that guarantees level comparison? No!
It is a fairly good indicator at best. You just can't work backwards from a quoted APR and be sure you are correct.
Ask the arkward questions when looking for finance. How much will I have paid you back by the time I'm finished? Then compare the COST!


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## Brendan Burgess

*Re: CU borrowing et al...*

Hi crugers

If you borrow €100 and make no repayments for the year and they charge you €12 at the end of the year, then the APR is 12%. That is the definition of APR. The A stands for "Annual". 

If you borrow €100 and repay it in equal instalments over the year , then the average amount borrowed will be €50. If they charge you €4.50 interest, then the APR is 9%. 

The Credit Union is not interested in APRs, because it would be obvious to their customers that they are very expensive compared to most of the banks. 

But if you don't like APRs, we will use the repayment calculators and you will still see that the Credit Unions are dearer. It's just a lot harder to calculate repayments.

Brendan


----------



## Harold

*The Myth's*

Brendan, your inclusion in Myth 1 and conclusion that CU's offer bad value insn't borne out even by your own collection of facts. CU's do offer good value, because they lend where others don't, their generally much more humane, the decision making is local by your peers, and the rate isn't over 12% as stated here, but 9% or so. 

That rate for an account that takes variable repayments, including over the counter, ( unlike DD's etc), is GOOD VALUE FOR MONEY. Yes there's cheaper finance elsewhere for the middle and upper market, but to rule out CU's still, appears like bias rather than balanced judgement.


----------



## Brendan Burgess

*Re: The Myth's*

Hi Harold

I suppose the Myths are headlines, so they might be amplified by a short statement, if we do go down the road of doing the Myths seriously.

But many people who can borrow elsewhere, should avoid the Credit Unions. The fact that they think they are getting good value is a big Myth.

Brendan


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: The Myth's*

An update on my query about CU lending criteria/practices. I just received the following from the ILCU:



> Thankyou for your email.
> 
> One must maintain savings in your share account when one is looking to borrow - this acts as security for your loan.   Each credit union has its own loan policy so if you contact your own branch they will advise you on how much you can expect to borrow .
> 
> Hope this helps,
> Kind Regards,
> Reception Desk
> ILCU


----------



## Slim

*Re: Credit Unions and APR*

Brendan



> The Credit Union is not interested in APRs, because it would be obvious to their customers that they are very expensive compared to most of the banks.



This is untrue. Credit Unions have not been required to publish APRs and will only soon have to do so as part of a voluntary acceptance of a Consumer Credit Directive. The fact is that CUs do not know HOW to calculate APRs and we have been trying to find out for the past couple of years. It had not occurred to any of us in a CU board that the cost of keeping the funds on deposit would/could be calculated into the equation. The ratio of savings:loans is too varied across different CUs and personal to have a rational consistent formula for calculating APR taking this into account.

If you are borrowing 10k for a car, then leaving 1k or 2k on deposit is hardly a real problem. However if you are borrowing 20k - 100k then the ratio may become a real issue. I think we should keep some perspective on this. CUs are what they are and what they are not is - BANKS. The only winners in this debate will be the banks, especially if you, Brendan, announce things like "Myth no 1" and then state your own opinion as a "fact" i.e.the myth.

Remember, only a few years ago, most of us had to establish a savings record in a bank to get a loan or mortgage. The CUs were the places where most ordinary people felt comfortable in saving and borrowing and it was probably the only place many could get a loan.

Slim 8)


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: Credit Unions and APR*



> If you are borrowing 10k for a car, then leaving 1k or 2k on deposit is hardly a real problem.



Whatever about it being a problem, keeping 10-20% of the amount borrowed on deposit would surely be an issue for most people, particularly since it increases the effective cost of the loan?


----------



## daltonr

*Re: Credit Unions and APR*



> CUs are what they are and what they are not is - BANKS.



What they are is financial institutions that loan money to people.  As such it is valid to compare them to other sources of credit and pass comment on whether they represent better or worse value.



> The only winners in this debate will be the banks



If the banks are a cheaper source of credit then the consumers who borrow from the banks will also be winners.  Those who believe they are getting cheaper credit from the CU will lose.

People will always be willing borrow from the CU for other reasons, i.e. The "humane" attitude, the friendly staff, the community concept etc.  Or simply to keep that Loan for a house deposit off their ICB record.

They will pay a small premium on their borrowing, but that may not be an issue for them.

I certainly think the CU is a great institution otherwise I wouldn't have savings with them, but I wouldn't borrow a significant sum of money.

But it's not OK for the CU to claim to be cheaper when they are not.  Fine if the CU say's look at all this good work, our loans are a little more expensive, we can't quote a proper APR.



> The CUs were the places where most ordinary people felt comfortable in saving and borrowing and it was probably the only place many could get a loan.



All fine and dandy, and admirable.  But it doesn't change the fact.  Leaving money on deposit increases the cost of borrowing.



> The fact is that CUs do not know HOW to calculate APRs



As a shareholder that worries me.  I better start going to the AGM.  A formula has been proposed here that will work for all CU's regardless of their savings to loan multiples, so no excuses.  

-Rd


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: Credit Unions and APR*

Following on again from my earlier posts here's the reply that I got from my own CU branch - note that the hoary old chestnut of APR rears its ugly head again (if that's not too much of a mixed metaphor!):



> The answers to your questions are as follows;
> 
> * Any shares in a members account, below the level of any loan balance, are locked in and cannot be withdrawn. Therefore the level of shares must be at least equal to the level of any loan balance.
> 
> * The amount, which a member can borrow, is not related to a multiple of their shares. When considering a loan application we try to ensure that the loan granted is sufficient for the members needs and that there is some evidence that it will be repaid in accordance with the  agreement. In this regard the savings history is important, the size of the loan, the members income, security  available, etc... We tailor each case to suit the member's needs.
> 
> * APR's can be misleading so we tend not to quote them. The commercial banking sector quotes "typical" APR's but I'm not sure over what term these are calculated. We charge .9% per month on the reducing balance and the actual APR will depend on the term of the loan. Last year we rebated 10% of all interest paid by members in the year which brought the effective rate down to .81% per month.
> 
> In considering one loan against another you need to take into account a number of factors such as:
> 
> * Charges and costs (both up front and hidden)
> * Flexibility of payments (what happens if you wish to pay more, or less, in any period)
> * What happens if you fall into arrears?
> * Speed of response to application
> * Benefits attaching to the loan.
> 
> With a credit union loan payments are structured flexibly to suit the member's needs, payments may be accelerated or, by agreement, reduced without penalty, interest is not charged on interest, no penalties attach to arrears and the loan is insured against the death of the member at no extra charge. Most loans are approved on the spot and only large or unusual applications are required to go the Credit  committee. For members who wish to insure their loan repayments against sickness, redundancy etc, we will shortly be offering a very competitive product in this area.
> 
> If you let me know exactly how much you require, and over that term, I can tell you exactly how much it will cost you with the credit union and you can compare this with other options. Be careful however, to check for the "what if" costs - e.g. What if I fall into arrears? Or what if I want to redeem the loan early?
> 
> Finally, as I have outlined above we do not insist that a member have savings at any particular level to obtain a loan but it is part of our philosophy to encourage thrift in our members and encourage them to save some money. To this end we have always managed to pay an excellent dividend (last year we paid 2.5%) and we build in encouragements such as free life insurance on savings and free death benefit insurance for all members with more than €250 in savings.
> 
> You must remember that we seek to establish a long-term relationship with our members and only do things that are in our member's interests. There is a big difference between being a MEMBER and a CUSTOMER. I could continue outlining the many other reasons for dealing with the Credit Union but hopefully; I have said enough to whet your appetite. Please call, or e-mail your requirements to me, and we can see how we can help you.



I don't understand the first point which makes it sound like you can only borrow as much as you have in shares which can't be right. Apart from that, it all seems reasonable enough except the bit about APRs and the fact that savings are locked in while there is a loan outstanding (due to the Credit Union legislation as mentioned by Brendan earlier). I'm not sure that I see the imminent arrival of loan repayment protection as such a good thing myself and would be wary of it involving high charges and little benefit in most cases (as is the case with many loan protection products sold by other financial institutions). It seems particularly odd that the CU now seem inclined to doubly insure loans  - i.e. the existing life assurance element on CU loans PLUS the imminent optional repayment insurance. I would question how this offers good value to the majority of members.


----------



## Protocol

*online loan cost survey*

OK, here is my amateur effort at comparing personal loan costs.  €5000 borrowed over 36 months.

I looked at *Bank of Ireland* (website), *AIB* (website), and *two credit unions*.

*1  BoI*

Variable rate interest = 677.20,  8.8% APR
Fixed rate interest = 726.52,  9.4% APR

This excludes payment protection insurance. I suppose the fixed rate is a bit higher due to the peace of mind involved.

*2  AIB*

Variable rate interest = 725.80,  APR = 9.8%

*3  Kells CU*

Interest cost = 663.23,  8.95% APR

So even though the CU has a higher APR of 8.95%, it is still cheaper that the BoI at 8.8% APR.  (I don't know why this is.)

*4  ASTI Credit Union*

Interest cost = 449.55,  5.99% APR

As the large ASTI credit union has many members, who save and borrow via pay deductions, they pass on these low costs via a low interest rate of 5.99% APR, plus they pay a nice dividend.

*You would save over €227 in interest compared to the BoI*.

Sure no wonder thousands of teachers have joined the ASTI credit union.


----------



## Brendan Burgess

*Re: online loan cost survey*

Hi Protocol

The ASTI certainly seems good value. However, it must be noted that the Credit Union movement doesn't appear to understand APRs and I would check this out before committing to any loan with them.

Why did you leave out the requirement to maintain savings with the Credit Unions? You must factor this in.

But even if you do, it does seem that ASTI will be a very good deal.


----------



## Brendan Burgess

0's credit union said:


> APR's can be misleading so we tend not to quote them. The commercial banking sector quotes "typical" APR's but I'm not sure over what term these are calculated. We charge .9% per month on the reducing balance and the actual APR will depend on the term of the loan. Last year we rebated 10% of all interest paid by members in the year which brought the effective rate down to .81% per month.



Whoever wrote this simply does not understand the meaning of the expression APR. The term shouldn't matter. 



> We don't charge interest on interest


I think she is wrong on this. They charge .9% on the reducing balance. The balance at the end of month 1 is the amount borrowed + the interest less the repayment. So they do charge interest on interest. It's called compound interest. We learned all about it in 2nd year.

The bit about keeping a savings balance is odd. What I think they mean is this: If you have €3000 in savings and more than €3000 in a loan, then you cannot take out your savings. If this is true, then their APRs should be recalculated upwards significantly. Let's say you have €3000 and borrow €12,000. The APR will work out at around 10% to 12% in the first year.
But towards the end of the loan, you will have savings of €3,000 and borrowings of €6,000. Your net borrowings will be only €3,000. The net interest you pay will be around €500 which is an APR of around 17%!

Brendan

Brendan


----------



## crugers

*Re:CU borrowing et al*

Sorry Brendan!
As I demonstrated in my post of 17/03/04 MY credit Union would be the cheapest!
I do agree with your workings on the APR on the loan repaid in equal installments. My CU charges 9% interest. The APR is 9%!!! No qualifications! It is APR 9%. Its not that I don't like APR's. They are, as quoted by various lending institutions, not an exact science. You said it yourself, they have their problems, consider other indicators like cost per thousand.
My advice is that they are indicators but not the truth, the whole truth and nothing but the truth!
As such, why the facination with CU's not publishing them. Because CU's charge interest on the outstanding principle only and because payments are equally divided over the loan period, the APR for CU's will be their quoted interest rate!
CU's aren't banks they are mutual, financial co-operatives. The theory is that you save so others can borrow. They pay interest so you can receive a dividend on your investment (your share of your CU).


----------



## Brendan Burgess

*Re: Re:CU borrowing et al*



> My CU charges 9% interest. The APR is 9%!!! No qualifications! It is APR 9%.



Sorry, this makes no sense, unless they only charge interest once a year and you make only one repayment a year. I would be surprised that they charge interest on the outstanding principal only. I have only ever seen them quotes on the outstanding balance. 

I think you will find that they charge .75% per month on the outstanding balance which is an apr of 9.3087% [(1+(0.09/12))^12]

Virtually all banks now charge interest on a balance outstanding basis and virtually all charge equal monthly repayments.

I think what is confusing the CU contributors to this debate is that they are stuck in the way things were done before the Consumer Credit Act came into force. Banks used to charge flat rates. The APRs were usually twice the quoted rates. The banks have brought their interest rates down roughly in line with the drop in Central Bank rates. The CU movement haven't done so. 

Brendan


----------



## crugers

Brendan, Brendan, Brendan...
You said " I think she is wrong on this...It's called compound interest. We learned about it in 2nd year..."
Have you forgotten what you learned in 1st year. It's called simple interest! CU's don't calculate the interest daily or weekly or monthly or annually... They calculate it when you come in to make a repayment.
For example:
You take out a loan of €100. If you come in and make a repayment in a weeks time they charge you interest of €100 X interest rate /365 X 7. If you don't appear for another 30 days the interest is charged at "the remaining principal" X interest rate / 365 X 30.

As for the saving ratio. Have you ever had ANY investments at the same time as having a loan, any loan? If you had then your argument against having savings in the CU while borrowing from the CU doesn't hold water.
I have always had savings, somewhere, every time I had a loan. My savings didn't influence the APR of the loan I had. I now choose to save in MY CU. My savings help other members of MY CU. It is not an airy-fairy way of operating. It is called having a social conscience! It could be called very PC. We all do it! Even the BOI got a dose of social conscience recently when their loan making policy to some un-PC third party threatened to affect turnover!
As for freezing your assets until your loan thaws...
The Credit Union Act 1997 allows for saving to be withdrawn down as far as 4:1 loan to savings ratio. However since all CU's are autonomous, the policy in each, may differ and does in most cases.


----------



## crugers

*Making sense!*

Brendan quote me and then said:

Quote:
My CU charges 9% interest. The APR is 9%!!! No qualifications! It is APR 9%. 

Sorry, this makes no sense, unless they only charge interest once a year and you make only one repayment a year. I would be surprised that they charge interest on the outstanding principal only. I have only ever seen them quotes on the outstanding balance.

But Brendan also said:

If you borrow €100 and repay it in equal instalments over the year , then the average amount borrowed will be €50. If they charge you €4.50 interest, then the APR is 9%.

So Brendan what am I missing?
I borrow €100, I end up paying back €104.50, the rate MY CU charge is 9% and you worked out that the APR is 9%.


----------



## rainyday

*Re: Making sense!*



> As for the saving ratio. Have you ever had ANY investments at the same time as having a loan, any loan? If you had then your argument against having savings in the CU while borrowing from the CU doesn't hold water.
> I have always had savings, somewhere, every time I had a loan. My savings didn't influence the APR of the loan I had. I now choose to save in MY CU. My savings help other members of MY CU. It is not an airy-fairy way of operating. It is called having a social conscience!



Hi Crugers - This is all very well, but I think you are ignoring the *compulsory* nature of the requirement to keep savings on deposit while borrowing at a CU. If the member opts to keep savings on deposit for social reasons, then that is all very well - but my real concern is that CU's (and CU members) don't consider the impact of this requirement on their cost of borrowing.

For the sake of example, let's say I have 2k in savings at my CU (which has a 5:1 borrowing/saving ratio) and I want to buy a 10k car. If I go to BOI/AIB, I'll borrow 8k and spend my 2k savings. If I go to my CU, I'll have to leave the 2k on deposit and borrow 10k.

So in calculating the total cost of borrowing for comparison purposes, I should look at the following;

AIB/BOI - Interest paid on *8k* loan plus interest foregone on 2k savings

CU - Interest paid on *10k* loan less interest received on 2k savings.

I guess the CU will come out pretty poorly in such a comparison.


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: Making sense!*



> Whoever wrote this simply does not understand the meaning of the expression APR. The term shouldn't matter



I should have pointed out that the response above from my CU was from the manager himself!


----------



## crugers

*Re:Re: Making sense!*

Hi Rainyday
I just did a quick exercise to compare AIB (online calc) and MY CU.
AIB: €8k loan  @ 36 mths X €254.48 Interest paid €1161.28
MY CU: €10k @ 36 X €277.78 Interest paid €1368.55
AIB
If I leave my €2k on deposit for 36mths @1.7% (compounded annually) I will receive €103.64 in interest.
AIB cost €1161.28 add €103.64 TOTAL: €1264.92
MY CU cost €1368.55 less interest rec'd €103.64 TOTAL: €1264.91.
Now where do I get interest on deposit of 1.7%?
AIB 3yr Special term quote 1.85%
MY CU paid 2% last year on deposits.
So the case for the CU coming out poorly in comparison isn't proved. As a matter of fact on balance MY CU does well. If you factor in the warm glow of social conscience, the benfit of no cost CU Loan Protection, the benefit of CU Life Savings insurance, the probability of an interest rebate from MY CU, my financial situation at term end (still have €2,103.64 on deposit) and the fact that it is MY CU, I own it (well a portion of it), I have a say in how it should operate... 
My advice still stands. If you are borrowing ask the hard question. How much will I have paid you at term end. Consider all the options... MY CU works for me. (I suspect there are other CU's that don't...)
However this is all a step to the left of the thread origins.
APR. Is it all that it is made up to be? In it's present guise I still say that it is only an indicator and whether CU's quote it or not, it can't be used as the bottom line for loan comparison.


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: Re:Re: Making sense!*



> If I leave my €2k on deposit for 36mths @1.7% (compounded annually) I will receive €103.64 in interest.
> 
> ...
> 
> MY CU paid 2% last year on deposits.



Is that gross or net of DIRT or does it apply on one of the DIRT free term accounts?

[broken link removed]



> Now where do I get interest on deposit of 1.7%?



Easy access deposit rates of up to 2.5% gross (2% net of DIRT) are available elsewhere. EBS Sure Certificates return 3.79% gross CAR over six years. An Post Savings Certs give 2.75% gross DIRT free over five and a half years. (Income on both of these can be accessed with no loss of interest by gratual partial encashment of certs at six monthly intervals). EBS members savings bonds are offering 2.75% gross CAR now as well.

www.askaboutmoney.com/clu...RM_SAVINGS


----------



## Brendan Burgess

*Re: Re:Re: Making sense!*

Crugers said:



> Have you forgotten what you learned in 1st year. It's called simple interest! CU's don't calculate the interest daily or weekly or monthly or annually... They calculate it when you come in to make a repayment.
> For example:
> You take out a loan of €100. If you come in and make a repayment in a weeks time they charge you interest of €100 X interest rate /365 X 7. If you don't appear for another 30 days the interest is charged at "the remaining principal" X interest rate / 365 X 30



Hi Crugers. If this is true, we are both wrong in our calculation of APR. It's probably not easy to explain, but I will try. 
You borrow €100 and you make only one repayment of €110 at the end of the year. That is, by definition, an APR of 10%.

Let's say that you pay €5 after 6 months and €105 after 12 months, then the APR will be slightly higher than 10%, because you are paying the interest off during the year instead of at the end of the year. 

A borrower who is late making payments would thus be paying a lower APR than a borrower who pays on time. I doubt if the Credit Union system does this.

This is how the Sandymount Credit Union, of which I am a member, words it:

"Low interest rates are charged on the reducing balance of a loan rather than continuing on the original balance". 

The normal meaning of reducing balance would be the principal + interest charged less repayments. 

I will email them.

By the way, to my surprise, my Credit Union charges "5.78%" on loans over €30,000. It doesn't give an APR, so I guess it's around 6%.  Not bad value, but it might be better to remortgage your home at 3%.

Brendan


----------



## crugers

*CU's and APR*

Brendan
I'm not calculating the APR. I'm asking why the facination with APR. I'm recommending that borrowers don't use APR alone to compare loans because of the various actions/options that can distort it.
My original post had 2 examples, one AIB one BOI. Same loan amount, same term, same APR. However the monthly repayments and therefore the sum total to be repaid differed.
So APR is a calculation, a type of statistic, and we should all be aware what can be done with statistics...
If you want to borrow ask for the bottom line. How much will I have paid you back at term end. Gather up all the quotes and apply any formula or ratio you like to assist your own decision. But for your own good treat "Quoted APR's" with appropriate skeptisism.

"The normal meaning of reducing balance would be the principal + interest charged less repayments. "
Not in credit unions. Your loan balance in credit unions is the principal only! You do owe interest but it is never posted / added to your loan balance! Credit Unions do not charge interest on interest!


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: CU's and APR*

Why the fascination with APR? Well because IFSRA has this to say about it perhaps?

[broken link removed]



> Annual percentage rate (APR)
> 
> The annual rate charged on a loan taking into account all the costs involved, such as set-up charges for an overdraft permission. It provides a good comparison of costs between lenders.


----------



## Brendan Burgess

*Re: CU's and APR*



> So APR is a calculation, a type of statistic, and we should all be aware what can be done with statistics...



Hi crugers - It's annoying when two lenders quote the same APR, but different repayments. But the difference is very small and apparently due to rounding. I have not seen APR abused.

But the Credit Unions mislead their members. They make comparisons with lenders who don't require you to retain your savings to get a loan. So the Credit Unions force you to borrow more. And all their literature is full of stuff like: "no hidden charges". The Credit Unions are often very dear and it's important for borrowers to realise that. They are sometimes cheaper and it's important for borrowers to understand that. They are often the only people who will lend small amounts to those most in need and that is why they are very important. But they should be upfront about the true costs of borrowing.

APR is important because it allows loans of  different periods and different amounts to be compared simply. If my Credit Union in Sandymount did not quote interest rates, how would I know that borrowing €30,000 was much cheaper than borrowing €29,500? (5.78% vs. 9%)?

Brendan


----------



## Crugers

*@ last APR*

I give up Brendan.
You have gone full circle again...
The banks quoting the same APR's but charging different amounts are just rounding errors.
MY CU loan costing me less than the banks must be a figment of my imagination.
Hard facts don't cut the mustard.
Generalities like "...Credit Union force their members to take out loans..." make sense.
And what ever is said means whatever you want it to mean.
The words: MBO, asylum and lunatics are playing on my mind! 
;-)


----------



## rainyday

*Re: Making sense!*



> AIB/BOI - Interest paid on *8k* loan plus interest foregone on 2k savings
> 
> CU - Interest paid on *10k* loan less interest received on 2k savings.


One for the bean-counters here: Have I double-counted in the AIB/BOI example above? Is it appropriate to include the interest foregone in the calculation in this case?


----------



## Statler

*Re: Making sense!*



> One for the bean-counters here: Have I double-counted in the AIB/BOI example above? Is it appropriate to include the interest foregone in the calculation in this case?


Don't believe I qualify as a bean counter, but the interest forgone should be excluded from the calculation. The objective is to compare the cost of a 10k purchase. For AIB/BOI you have used 2k cash and borrowed 8k so the total cost of the purchase in interest terms is the interest on the 8k. For the CU example you borrow 10k, so the interest on 10k is taken, but there is interest received on the 2k on deposit so the total interest cost is the interest paid on the 10k less the interest received on the 2k.
So the net cost in interest of the 10k purchase is:
AIB/BOI: Interest paid on 8k minus interest received on 0 deposit.
Credit Union: Interest paid on 10k minus interest received on 2k deposit.


----------



## Statler

*Re: Making sense!*

Just while we are on the subject crugers said:


> I just did a quick exercise to compare AIB (online calc) and MY CU.
> AIB: €8k loan @ 36 mths X €254.48 Interest paid €1161.28
> MY CU: €10k @ 36 X €277.78 Interest paid €1368.55
> AIB
> If I leave my €2k on deposit for 36mths @1.7% (compounded annually) I will receive €103.64 in interest.
> AIB cost €1161.28 add €103.64 TOTAL: €1264.92
> MY CU cost €1368.55 less interest rec'd €103.64 TOTAL: €1264.91.


Double counting is present in this example too. The €103.64 should not have been added to the AIB interest charge.
For the 10k purchase made by borrowing 8k from AIB and using 2k cash, the total cost including interest is €11,161.28.
The same purchase using a loan from the credit union will cost €11,264.91.

If you wanted to take the comparison a step further it should reflect the difference in monthly repayments on a 10k and 8k loan.The CU calculation makes a deduction for interest earned on deposit, however the repayments are higher on a 10k loan, and if the borrower took the bank loan option they could place the difference on deposit each month. These monthly deposits, would reach €2,207.27 at the end of the 36 months and would earn interest over the 3 years totaling €56.80 if placed on deposit at crugers CU. There should therefore be a deduction from the AIB interest charge above to reflect this and maintain comparability with the credit union, or possibly more correctly a reduction in the deposit interest adjustment in the CU calculation. 
In the above example a borrower taking an 8k loan from AIB and then building up a deposit at crugers CU would be better off by €160.43 than one borrowing 10k from the CU and leaving 2k on deposit.

Sorry if this is a bit of a tangent to the whole debate, but with worked examples in posts calculating interest to the nearest cent, these calculations should probably be made on a consistent basis. Ok maybe I am a bean-counter at heart


----------



## crugers

*Re: Making sense!*

Statler said:
"...and if the borrower took the bank loan option they could place the difference on deposit each month..."

I thought that the whole premise for these calculations was that it was lunacy to have funds on deposit while paying off a loan at a higher rate....


----------



## rainyday

*Re: Making sense!*



> In the above example a borrower taking an 8k loan from AIB and then building up a deposit at crugers CU would be better off by €160.43 than one borrowing 10k from the CU and leaving 2k on deposit.
> 
> Sorry if this is a bit of a tangent to the whole debate, but with worked examples in posts calculating interest to the nearest cent, these calculations should probably be made on a consistent basis.


Actually, I think this is the crux of the whole debate, and is not tangential at all. Back to you now, Crugers - It really does appear that the CU is dearer in this case.



> I thought that the whole premise for these calculations was that it was lunacy to have funds on deposit while paying off a loan at a higher rate....


Hi Crugers - Who is moving the goalposts now?    Or perhaps we should do a worked example whereby the extra funds are paid off the AIB/BOI loan early, thus reducing the interest charges and thereby *increasing* the gap between the AIB/BOI cost and the CU cost?


----------



## Statler

*Re: Making sense!*



> Or perhaps we should do a worked example whereby the extra funds are paid off the AIB/BOI loan early


A rough calculation shows that, if repayments on the 8k loan were upped to the level needed for the 10k loan, it would be paid off almost 8 months earlier. Total interest would be €908.82, making it €356.09 cheaper.


----------



## Slim

*Re: apr*



> Any shares in a members account, below the level of any loan balance, are locked in and cannot be withdrawn. Therefore the level of shares must be at least equal to the level of any loan balance.



I think they are trying to say that; at approval stage, the shares in the account are frozen at that level. To withdraw from that acc. the loan balance must drop below the level of shares. To get around this, CUs offer a "slash 1" acc. which can be used as normal , away from the main acc. There are no charges or fees for maintaining this additional acc. and it operates under the same member(acc. no.). Experienced CU staff will explain this when you are taking out the loan.

What people here seem to be suggesting is that no borrower should maintain a cash savings balance while they have a loan out. I disagree and see no real problem in having a cash balance while borrowing a larger sum. In an emergency, you will find your CU a lot easier to get your savings out of than it would be to borrow additional funds from a bank. In addition, you can lock your funds away fro 3/5 yrs DIRT exempt and use this as security against a loan.

CUs are not bound by law to publish APRs but soon will be. As part of our CU's drive to encourage more loans, I attempted to work out APRs and asked friends in the industry and other learned people. Either they did not know or the methods were varied. I worked out a rough method of multiplying by 1.05 and that seemed near enough.

I am intrigued by the formula proposed here but do not accept it as it plays straight into the hands of the ABCUs who populate this site and disregards all the positives which were articulated in the quote(and there are more) from a CU reproduced above.

I will repeat what I said many times here - if it suits you well and good, if not shop around. Price is not the only determinant of good value.

Slim 8)


----------



## rainyday

*Re: apr*



> it plays straight into the hands of the ABCUs who populate this site


That's a cheap and misdirected shot. I'm arguing for greater transparency and openness for CU's, so that their members can easily compare the deal they are getting from the CU with deals available from other sources. Yes, there are many other benefits of CU's - but the current situation allows CU's to present a warm, fuzzy picture to members where there is no actual value of these other benefits quantified.

I am most definitely not an ABCU - I just want to ensure greater clarity and openness.


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: apr*

Yes - cheap shot. As already point out at least two people with some reservations about the cost of borrowing from CUs (myself and Brendan) are members of our respective CUs and, as such, in no way "ABCUs"! Where the terms & conditions of dealing with the CU are clear and they offer better value for money than alternative institutions to their members (part of their raison d'etre I would have thought) then I (and Brendan I'm sure) would be happy for people to avail of their services. However if the terms & conditions are unclear (in spite of assurance to the contrary) and/or they are not competitive compared to other institutions then it is fair to warn people.


----------



## Slim

*Re: apr*

No offence intended. What I was saying was that acceptance of the formula is to accept that the security requirement should in some way be reflected in the APR. This thread and general discussion has been going on for months and seems that it's going around in circles. The really "cheap shot" was Brendan's use of the "myth" to have a go at credit unions.

Slim 8)


----------



## rainyday

*Re: apr*



> What I was saying was that acceptance of the formula is to accept that the security requirement should in some way be reflected in the APR.


Why should it not be included in the APR, given that the APR is designed to allow consumers to compare competing offerings?


----------



## Brendan Burgess

*Re: apr*

Slim

I am not having a go at credit unions. I am having a go at their expensive lending practices and their practice of misleading customers.

Read back at the contributions of people to this thread. CU borrowers are hanging on to the belief that they are borrowing cheaply. We cannot shake that belief with the facts. To me that is what a myth is. Something which is not true which people believe in strongly.

Brendan


----------



## Slim

*Re: apr & CUs*



> their expensive lending practices and their practice of misleading customers.



You see, Brendan, it's not that I am arguing that the requirement to retain shares as security does not increase the real cost of borrowing, it's the tone of the comment. Your words quoted above give an impression of deliberately misleading lending practices and a deliberate attempt to mislead their members(not customers). The positives of borrowing from CUs have been listed above by me and others. I accept there is a cost associated with this type of borrowing and it is not suitable in every case but I think it is harsh to accuse us of misleading members. Most people should keep a bit of cash, preferably in a DIRT free account, for emergency situations. If IFSRA decide that CUs must factor this into their APRs when they must publish APRs, then someone will undoubtedly give us the correct formula for calculating same.

CUs "Putting People First",

slim 8)


----------



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: apr & CUs*



> Most people should keep a bit of cash, preferably in a DIRT free account, for emergency situations.



DIRT free accounts lock up money for a minimum of three to five years - hardly suitable for an emergency fund. 

[broken link removed]

Like the whole APR versus "CU way of calculating interest" issue perhaps another example of the type of non deliberate misleading information propagated by some CUs?


----------



## rainyday

*Re: apr & CUs*

Hi Slim - I think you are getting a bit defensive. Ignore the tone of the comment just for the sake of arguement and look at the facts.

The compulsory saving requirement with CU loans means that these are expensive loans. Surely it is in the direct interest of the members that this expense be visible & transparent? If the CU truly is 'putting people first', then surely it wants those people to get the best value service?

I appreciate that there may be other benefits that come with this higher price - and if the CU's want to call this out & compete on a level playing field (e.g. take our 9% APR loan to get life insurance and participate in your community), then that is fine. But when CU's claim to offer their members best value but actually end up being dearer than the average high street bank, then there is a problem that needs to be addressed.

And surely the angle of using the compulsory savings as your 'rainy day' (no pun intended) money doesn't make sense, as you won't be able to withdraw this money when you need it, unless the loan has cleared.


----------



## darag

*Re: apr & CUs*

hi lads.  i've actually stood back from the flack in this debate 
deliberately - i think i've already expressed my opinions 
about credit union lending policies and don't really have 
anything new to add.  but i am still interested in calculating 
a true apr of credit union loans.

some seem to be suggesting that apr is not a good measure 
for expressing the cost of borrowing or that it is "just a 
statistic".  i'd prefer to farm off such a discussion to a 
different thread.  let us accept that it is the only universally 
accepted measure of credit cost.  go to any personal finance 
site on the internet and you'll find apr used to compare the 
cost of credit.  let's just say that if you believe that apr is not
relevent to comparing the loan costs , you're in a tiny 
flat-earth like minority.

slim, you object to including the cost of the "security 
requirment" in the apr figure.  i don't think this is reasonable 
as it is requirement for securing the loan and so is part of the 
cost of the loan.  if it were optional i would agree.  even at 
that i believe the credit unions will in many cases offer better 
deals than banks.

i think the formula i initially gave is errouneous because i 
made some false assumptions.  i assumed that the borrower 
could decrease the balance of their savings as their loan 
balance decreased but it seams this isn't the case?  from 
what i gather from the above, if you borrow 10k having put 
2k on deposit, you must leave the 2k there until the loan 
balance is down to 2k?  is this the case? what happens then? 
can you then use the 2k to pay off the balance?  what about 
the interest earned on the 2k, does that have left in the
savings account?


----------



## Slim

*Re: Credit Unions and APR*

A couple of points here. Yes, I sound defensive but that is because I think CUs are getting a bashing they don't deserve.

With regard to the access to emergency funds, you can access your DIRT free Special Term Accs. at least once without penalty and thereafter, if it really is an emergency, you can terminate it and pay the penalty.

With regard to the security requirement, in fact this was removed by the Credit Union Act of 1997. Prior to that, any credit union might implement varying types of ratio, 25%, 30% etc and reduce this as borrowers gain a successful record. In addition any shares on deposit at the time the loan was applied for were frozen at that level and could not be accessed without the loan balance being lower than the shares or special permission of the board.

Nowadays, the ratio requirement is no longer in force as a rule but may be applied at the discretion of individual CUs, perhaps in the case of new members. The reality is that lending decisions are made on the basis of ability to pay and good record as a borrower (with the CU) previously. we have loans for thousands out to members who have only a few hundred in the account. If an emergency arose, we would allow that member to reduce the funds to the minimum allowable. There are over 530 CUs in the country and each may apply a variation on this practice. If a formula was created which would allow each CU to calculate its own APR according to the lending policy it uses, that might be one way of having a meaningful APR, but it would be difficult to factor in members' record of borrowing etc.

In relation to APR, I think its usefulness is much overrated. look at how many examples of quoted APRs not matching in terms of repayments per month. Many financial writers say not to look at the APR but at the amount payable per month. On that score many CUs are cheaper than the mainstream lenders and with very minimal security requirements.

At the end of the day, the scenario may differ from CU to CU depending on where you live. A loan rate of 5.5% or so was attributed on this site to ASTI CU but that is where the member's shares at least equal the loan amount. Where the loan amount is greater the rate is closer to 8%.

Perhaps the forthcoming voluntary adoption by CUs of aspects of the Consumer Credit Directive will push things in this direction.

Slim 8)


----------



## Brendan Burgess

*Re: Re:Re: Making sense!*

Anyone with access to banking facilities would not need an emergency fund. So if you can get a bank overdraft or a Credit Union loan, you won't need to keep money on deposit. 

I will say it again - Credit Unions have their place in society and some people could not get by without them. But having said that, everytime I have phoned them, they have misled me about the true cost of the loan. The members actually believe that they are cheap, when the opposite is the case. They are very dear compared to the banks. 

It's not easy to say that in a neutral, factual tone. The facts bash the Credit Unions. Their misleading information also bashes them. 

Brendan


----------



## crugers

*Making sense*

Hi Brendan
You say:
"...it does seem that ASTI (CU) will be a very good deal..." (19/03/04), and then say "... They (CU's) are very dear compared to the banks..." (23/03/04).

Would you agree that facts are that SOME CU's are good value, some are better value than most banks, SOME CU's are not as good as SOME banks and possibly SOME CU's are more expensive than most banks?


----------



## Brendan Burgess

*Re: Re:Re: Making sense!*

I think the best summary is as follows:

Credit Unions are expensive places to borrow from when compared to banks, but some credit unions may be cheaper. 

As a general rule, it's probably better for people to avoid the Credit Unions if the banks will give them the money. If they are a secondary school teacher or a resident of Lahinch, they might save by going to the Credit Union instead of the bank. but lots of people will check their local credit union and be misled by the Credit Union advertising and end up paying more than they should do. 

Brendan


----------



## rainyday

*Re: Making sense*

Just came across one credit union which allows it's members to make unlimited international calls at national rates. Now that's what I call a great service.


----------



## crugers

*Re: Making sense*

Hi Brendan
According to your post in Value of APR thread you have contacted +/- 1% or 2% of the 500+ independent, autonomous credit unions in the country but you are still willing to make sweeping statements like "...Credit Unions are expensive places to borrow from when compared to banks...". You do qualify the statement with a qrudging "...some credit unions may be cheaper..."
Based on such a small sample of CU's and the very limited response you received how can you be so sure that your general rule is best for most people?
On balance, 2 positives (ASTI and Lahinch[I must have missed that one]) from a sample of <10(?), would suggest that there may be 100+  CU's that may be better value than banks.

As for misleading advertising...
I shudder to think how many people were mislead by BOI's online calculator.


----------



## Brendan Burgess

Still no response from Sandymount, but another manager confirmed Crugers description of how they calculate interest. 

The "rate" is applied, not to the reducing balance, but to the reducing principal. Interest is not charged on interest.

So the APR is higher for those who pay weekly than it is for those who pay monthly. And it's lower again for those who default on their payments or farmers who might make two or three payments a year. 

Some Credit Unions do not want deposits although they can't say this publicly. They are overflowing with deposits because they are generally much better value than the banks. These Credit Unions encourage their members to withdraw their savings and to borrow only the net amount. 

Brendan


----------



## temptedd

*Re: Making sense*

Interesting that AIB has embarked on a major advertising campaign to try and capture some of the savings market without making their savings products more attractive to savers. Maybe the CUs could teach them something?


----------



## crugers

Hi Brendan
"...So the APR is higher for those who pay weekly than it is for those who pay monthly. And it's lower again for those who default on their payments or farmers who might make two or three payments a year...."

I'm having difficulty reconciling this statement to what would actually happen.
Take a €10k CU loan over 3 years as the base.
Repaid weekly expect to pay €1354.98 interest over the term.
Repaid monthly expect to pay €1387.50 interest over the term.
Repaid 6 monthly expect to pay €1575 interest over the term.

So the actual interest paid is lower for those who pay weekly than it is for those who pay monthly. And it's higher again for those who default on their payments or who might make two or three payments a year. (Lets leave the farmers out of it for now, it is complicated enough...)
Phew! Where do we go from here?


----------



## darag

*Re: Making sense*

this is addressed to crudgers regarding the "interest in not charged on interest" claim on the way credit unions do their calculation.  to make it simple, suppose i've borrowed 3000 over three years at this "simple interest" rate of 10% say.  i go in at the end of the first year with 1000 euros and tell them that that's all i have and i can't afford to pay back the interest but i'll have no problem paying everything next year as you've a good tip for the grand national.  i was told when i took out the loan that credit unions don't charge interest on interest so i'm expecting there'll be no problem if i just add the 300 quid in interest owed to my payment next year?

somehow, i don't think it would be as simple as this, and if it isn't then isn't it disingenious to claim "interest isn't charged on interest"?

in your reply to brendan,  you actually confirm his point.  the interest is higher for the person paying back weekly, albeit by only a very small amount.

normally i'd be the last person to stand up for banks but as far as your shuddering in concern for the users of the boi calculator is concerned, you'll be relieved to know that you can rest assured.  the response i got from them made it clear that the calculator was overestimating the repayments, so in actual fact, if anything, the mistake in the calculator actually damaged their business.  in fact it affirms the binding nature of apr quotations.  if web based caclulators were around years ago, they would have quoted an arbitrary number which they would call an "interest rate".  they would not be obliged to tell you what this figure represented nor how it related to repayments.  a bit like the credit unions really.


----------



## crugers

*Re: Making sense*

Hi darag
My statement that _“…interest is not charged on interest…”_ is not a claim, it is a fact. Charging interest on interest would be contrary to the provisions of The Credit Union Act that specifies:
_38.—(1) ( a ) the interest on a loan shall not at any time exceed one per cent. per month on the amount of the loan outstanding at that time;_
As I explained before interest is only charged on the _“…amount of the loan outstanding at that time…”_, nothing else!

From the contents of your hypothetical scenario you seem to have a very low opinion of procedures within CU’s. I think you would probably get the same reaction from any lending institution if you proposed to change your repayment schedule unilaterally. If you originally were granted a loan of €3k from a CU you would have signed a promissory note detailing how and when you would make repayments. If you hit hard times, and couldn’t meet your commitments, I would expect you would receive more sympathetic assistance and treatment from a CU’s than from some other institutions. However I would leave out the Grand National bit as most financial institutions don’t rate the gee-gees as a good bet! 

_“…in your reply to brendan, you actually confirm his point. the interest is higher for the person paying back weekly, albeit by only a very small amount…”_
The other thread title “Value of APR”  is very relevant at this point. APR has absolutely no application when it comes to financial institutions calculating the interest due on a loan. I think what you meant to say was that I confirmed Brendan’s point that the APR is higher for the person paying weekly, albeit by only a very small amount. That is the point I was making. It seems that for CU loans the “Value of APR” calculations is distorted to the point of being inverted. Where the interest paid is lowest the APR calculation is highest and visa versa.

_“…they would have quoted an arbitrary number which they would call an "interest rate" they would not be obliged to tell you what this figure represented nor how it related to repayments. a bit like the credit unions really …”_
Calling the interest rate “…an arbitrary number…” is incredulous! The interest rate is the multiplier used by *all* financial institutions to calculate what they will charge you!
The Consumer Credit Act obliges financial institutions to display only the APR because it includes (or should include) all costs not just the multiplier for calculation of interest due alone. That is why financial institutions other than CU’s are required to quote APR. 
In the case of CU’s the Credit Union Act specifies that:
_38.—(1) A credit union may charge interest on loans made to its members under section 35 subject to the following conditions— ( b ) the interest on a loan *shall in every case include all the charges* made by the credit union in making the loan;_


----------



## darag

*Re: Making sense*

crugers, i have given up on you in the apr discussion but you've actually raised some points worth discussing here.

first of all, the point of my example is that the "no interest charged on interest" claim is meaningless unless it applies in the type of scenario i suggested.  imagine two guys sitting at a bar - one says to the other that they've just borrowed 10 grand over three years.  the second says turns around and says he's done the same.  the first guy says "it's costing me 213 quid a month in repayments" - the second guy is very surprised by this and says "that's exactly what i'm paying!".  the first guy goes "are you paying interest on the interest? 'cause i'm not."  the second goes "jaysus, i'd better check otherwise i might be getting ripped off here".  is the first guy supposed to feel he's gotten a better deal here?

i'm sure credit unions can be more understanding than other institutions when it comes to rescheduling repayments but, then again, in many cases this is because they can afford to be when the real rate of interest (factoring in the mandatory savings) is actually quite high.  credit card companies are also very understanding when people carry over large balances from one month to the next.

saying "apr has absolutely no application" for financial institutions when it comes to calculating interest on a loan is ludicrous.  the most fundamental and simple principle of finance is called the "time value of money" which is captured by the standard formulae for interest which is the basis for apr.  this is first page stuff in any book on finance and you can be sure that anyone with a job in finance knows this principle.

finally an "interest rate" which doesn't include all the charges associated with the loan is just an arbitrary number.  there are many interest rates and they will differ depending on how they are calculated but apr is based on continuously compounded interest which is the only measure of relevance as far as any financial analysis is concerned.


----------



## crugers

*Re: Making sense*

Hi darag

€10k at €213 for 36 months!!! They are both getting an absolutely fabulous deal and I wouldn’t give monkeys about the interest! But I presume that’s not the point you were making!

It is your example, you tell me. Should the first guy, or the second guy, or neither guy, feel he is getting a better deal? To pervert one of Fr Jacks catchphrases _“That would be an 'economical' matter!”_.

As for the credit union and the credit card:
If you have a credit card and they charge an interest rate (not APR) just a plain old vanilla interest rate of 9%. And if you are a member of a credit union that charge an interest rate (not APR) just a plain old vanilla interest rate of 9%.
If you go out and purchase something on your credit card for €100. (I don’t want to complicate matters by factoring in how much free days credit it is possible to get depending on when your merchant presents the CC charge and whether you are billed mid month etc…) For simplicity’s sake, if that’s not an unknown factor in these discussions, your credit card company tell you at the end of the month that you owe €100. Now at around the same time you took out a loan from your credit union of €100.
Your next bill from the CC would say that you owe €100 + €100*9/12. The following bill from your CC would say you owe (€100 +€100*9/12)*9/12. And the following bill would be ((€100+€100*9/12)*9/12)*9/12 and so on. In other words you would be accumulating interest charges on principal and interest. At the end of 12 months you would owe €109.38.
In the credit union after 1 month you would owe €100 +€100*9/12. At the end of the following month you would owe €100 +€100*9/12 +€100*9/12. It would increase by €100*9/12 each month and at year-end you would owe €109.00.
I’m not trying to prove that the credit union is cheaper here I’m just illustrating the different method used in CU for calculating interest. Credit cards compound your interest each month and left unpaid they will charge you interest on it. Credit unions don’t ever compound your interest and never charge you interest on it.
Credit Card companies wouldn’t exist if we were all cute hoors and paid back our balances on time. They exist, mainly, to exploit the many who let it run for one reason or another. Credit unions if true to their principles are mutual based. The theory is great. The question whether they are all still 100% faithful to these principles, in the best possible manner, is debatable. But that’s for another thread, another day! But even at their worst I think I'd opt for the CU before the CC, even at their best! There is no comparison between the two, if you'll excuse the non-sequitur!

_“…saying "apr has absolutely no application" for financial institutions when it comes to calculating interest on a loan is ludicrous…”_
No! ‘fraid not!
If a financial institution calculated the interest due using the APR it would actually distort the APR. At day, week, month or year-end, whenever the interest on a loan is calculated the APR figure is not used to calculate it. Going back to the CC and CU example above. The credit card interest rate is 9% but it’s APR is 9.38%. The 9.38% is not used in the calculation by the CC company just the 9%. Again not blowing the CU’s trumpet but the APR just happens to be 9% and the interest rate 9% but it is the interest rate of 9% that is used in the calculation of the interest due!

_“…apr is based on continuously compounded interest which is the only measure of relevance as far as any financial analysis is concerned…”_
Yup! Won’t argue with the thrust of that.
However its application, in its present form as detailed in the Consumer Credit Act 1995 does not easily fit with analysis of the cost of loans from CU’s.
As laid out in the Credit Union Act 1997 the interest charged on CU loans must include all charges. So when a CU approves a loan for €100 at 9% rate of interest that means you will only be charged a maximum of €9.00 during that year. If you pay back some of the loan during the year you will only be charged 9% rate of interest on the amount of the loan, and only the loan, that remains unpaid.


----------



## joan

*credit card borrowing*

The UK credit card borrowing is now 54 billion according to the bbc news.  Does anyone know what it is in Ireland.


----------



## endowed

*Re: Making sense*

Hi Joan,

€7.6bn was spent on credit cards in Ireland last year according to this article in last weekend's _Sunday Indo_. (registration req.)


----------



## daltonr

*Re: Making sense*

If you have €2000 in the CU and you borrow €10000.
The CU locks in the €2000, so you have actually borrowed €8000

(You loan them €2000, they loan you 10000, 
so you've borrowed €8000 Net).

But you are paying interest on the €10000, not the €8000.

That's it, end of story let's all move on.

-Rd


----------



## crugers

*Re: Making Sense*

If only it was that simple!
But, yes lets move on!
Next: The Value of Saving in CU's?


----------



## daltonr

*Re: Making Sense*

Saving with the CU is fine.  They tend to offer a better rate than the banks for a demand deposit.

If you feel like engaging in Tax evasion they are happy to turn a blind eye.   

Personally I think given the limits on the amount you can deposit, and the social benefits of CU's there shouldn't be DIRT on CU savings,  but given that there is the CU's shouldn't offer the option to people of declaring the interest themselves.

On a broader issue, I'd put a ceiling on savings before you start paying DIRT in any institution,   say €50,000.  And I'd introduce DIRT on debt, so you'd be taxed more for taking out debt with high interest rates.

i.e.  Tax things we don't want people doing (debt), and encourage things we do want (Savings).    All the money raised from the Debt Tax should be ring fenced for financial literacy education, and for organisations like MABS.

-Rd


----------



## temptedd

Tax on debt? How do you think the banks make all their money?! (interest, penalties on interest, penalties on penalties on interest...) I don't think this sort of psychology would reduce debt but would actually increase it. 

I would agree that less tax on savings is a good idea. It would encourage savings and might actually discourage some of the more hare-brained investment schemes around (including some overseas property transactions IMHO) by making it worthwhile to save. At the moment, the returns on savings are so poor after DIRT that people have no incentive and are attracted to a range of dodgy products in the hope of getting some sort of return.


----------



## daltonr

> I don't think this sort of psychology would reduce debt but would actually increase it.



Possibly, but if you have to tax something, it might as well be something bad (excessive debt) rather than something good (saving).

E.g. the Credit Card levy could have been applied to the people with multiple cards (no tax on your first card), or perhaps a levy on the interest charged on debt, so people who don't pay their credit card each month would pay more tax than people who do.

-Rd


----------



## Guest

> Possibly, but if you have to tax something, it might as well be something bad (excessive debt) rather than something good (saving).

But surely, from a macro-economic point of view, there is nothing intrinsically "good" or "bad" about either debt or saving? Looking at the big picture debt can be just as good or bad as savings depending on your viewpoint, the prevailing economic climate and a host of other variables...?


----------



## daltonr

True,  depending on the climate we need both in moderation.
However, (I'm open to correction on this),  at the moment there's apparently a big savings gap, and a growing problem with consumer debt.  

We also have a problem with extremely high prices, so perhaps clocking back on consumer spending wouldn't be a bad idea.

I'm not an expert, but it seesm to me we should be trying to tip the scales back towards savings, and away from consumer debt.

Not saying we should all become puritans though.  
If that's what you're worried about.    

-Rd


----------



## ClubMan

I see that the [broken link removed] has an _APR _calculator link but it seems to be restricted to _CU _staff only.


----------



## darag

A while back I wrote a calculator for this purpose which uses the formula from the 1995 Consumer Credit Act.  I've dug it out and put it up on a web page but I haven't tested it with various browsers etc.  You may need to install the latest version of Java for it to work... I dunno.  The page describes the calculator and give instructions etc.


----------



## ClubMan

Sorry - I seem to have a vague recollection about that but didn't think of it earlier. Looks good. I just tried the calculator using _Internet Explorer 6 SP2 _and _FireFox 1.0.4 _on _Windows XP Home Edition _and seem to have the same problem on both: I can see the panels for the loan and savings information but then the rest of the calculator seems to be clipped/occluded - i.e. I can see part of a field (?) below the _Savings At End _field and don't know if this is a problem. I can't see where the calculator reports the effective APR arrived at through entering the loan/repayment and savings details. However by selecting, copying and pasting the contents of the occluded field it looks like this contains the answer (i.e. the effective _APR_). Perhaps you know some easy way of addressing the clipping/occlusion problem?


----------



## darag

Ok.  I'll have a look at it later to see if I can fix that.

... Ok - didn't get a chance last night...  hopefully over the weekend.


----------



## darag

Ok. I increased the size of the panel.  I've downloaded firefox to try it and it seems ok now?


----------



## Marion

Hi Darag

I was hoping to include it in the _useful links_ topic - but ...

I've tried to access it with IE - no success.
With Firefox, it opened once - albeit very slowly, but having tried it a few times I now seem to get a timeout message.

I'm using Broadband.

Marion


----------



## ClubMan

Works fine for me in both _FireFox 1.0.4 _and _IE 6 SP2 _on _Windows XP Home _and is no longer clipped either. Are you sure that your _Java _runtime installation is OK? Do you know if you are running Sun's Java runtime or Microsoft's? Do other Java applets work OK (e.g. Karl Jeacle's mortgage calculator or [broken link removed])?


----------



## Marion

I'm running Sun's. I dowloaded a new version a couple of days ago.(java TM 2 platform) I can see all calculators clearly now on Firefox. It must be a problem at my end so.

Marion


----------



## darag

I've slightly improved it and fixed a few spelling corrections.  Is your problem only with Internet Explorer, Marion?


----------



## Marion

Hi Darag

I can access it with IE and Firefox now. 

I have linked to it here under Calculators and Currency Convertors in the  section under the sub heading _Useful links._

Marion


----------



## Kjpk

Regarding Credit Union borrowings using Loan calculator examples from CU and Banks, the Cu loan is cheaper

EG Credit Union Rate standard loan 7.5 % 10,000 euro over 3 years
Repayment 311/month intrest repaid = 1198.29 euro

BOI APR 8.9 % car loan 10,000 over 36 months 
Fixed 339 with loan protection, 315 without
Var    337 with loan protection                      313 without      

even at rate of 12.68 p.a  the repayments are 335.40 /month there are no setup or transaction charges 2% div on savings + 25% rebate on intrest paid on reducing balance

So to say CU charge more on loans does not correlate with the above examples


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## tonka

Kjpk said:
			
		

> So to say CU charge more on loans does not correlate with the above examples


The CU does not charge those €70 - €100 "Documentation Fees" either, add that to the total cost of a car loan as well where it applies.


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## darag

One thing that this thread has highlighted is that every credit union seems to have different rules regarding borrowing, different ways of stating interest rates, different loan to savings multiples, etc. so it's hardly helpful to the general debate to quote snippets of figures from an unnamed credit union without specifying all the qualifying conditions.

I've stated many times that I think that in many cases particular credit unions under particular circumstances can offer cheaper credit.  My beef is that they refuse to use the standardized measure of credit, APR, including the cost of the manditory savings which would allow the punter to directly compare them with other lenders.


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## debtor

*if you wish to pay off loan quicker with credit union*

my payments on a credit union loan would be €65.00 over 5 years however i wanted to get rid of this loan quicker and started to pay off €125.00 a week however i was wondering am i paying more interest this way or would i be better putting the extra money into a savings account and pay it off of my loan at the end of the year can anyone clarify this for me 
thanks


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## Slim

Credit union loans are based on daily interest calculations so you will save interest at the loan rate, say 9%, if you overpay. No savings account will pay you anything like that. Many CU s are charging less.

Slim


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## Spondulicks

*Re: Credit Union Inspections*

Has anyone experience of firms doing this work and if they have, who are the accounting firms that might be recommended?

The Regulator can appoint such accountants and it may have done so in Monaghan, Dunamaggin, Mitchelstown and elsewhere.


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## Slim

*Re: Credit Union Inspections*



Spondulicks said:


> Has anyone experience of firms doing this work and if they have, who are the accounting firms that might be recommended?
> 
> The Regulator can appoint such accountants and it may have done so in Monaghan, Dunamaggin, Mitchelstown and elsewhere.


 
Is this in the wrong thread?


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## Spondulicks

Yes : what is the right thread? I am happy if someones moves it somewhere appropriate.


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## speirbhean

To go back to the original discussion... sometimes it's not all about the money. Credit unions have a flexible attitude towards borrowers that is now completely absent from the banks. For example a loan for home improvements from the CU is dependent on your savings and ability to pay, whereas the banks are clamping down big time on top ups because of changes in LTV, regardless of the borrower's salary, job security etc. I know people should shop around but in the current climate I know plenty of people who have gone to their local CU because it's just simpler to get the money there. 
I'm not saying it's right but it's true!


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