# Credit union stops charging loan interest



## chocolatecake (2 Jun 2016)

Credit union loan (20k) is in serious arrears (12k)but having agreed a reduced repayment and the borrower is meeting this repayment. 

However the credit union stopped charging interest without being asked and repayments now have a description of "bad debt lodgment".

Credit union maintain they did this as a favour to borrower to help them catch up and get loan repaid but borrower is dubious. 

What are the implications of this for the borrower and will this go against borrower if they want to seek a loan with a different institution eg a bank?


----------



## RichInSpirit (2 Jun 2016)

Credit Union is being proactive in helping your friend pay off their loan. And also improving it's balance sheet.

If the credit union is a member of the ICB then your friend's credit rating is already marked.
With the zero interest arrangement the credit rating will be repaired quicker than without it.


----------



## Brendan Burgess (3 Jun 2016)

In simple terms

Say  the borrower is repaying €250 a month or €3,000 a year. 

At the end of year 1,without interest, the borrower will reduce the €20,000 to €17,000.  The level of arrears will fall as well.

With interest of 10% or €2,000 a year, they will owe €19,000 after 1 year. 

So it is always to the borrower's advantage not to be charged interest. 

Your friend has €12k in arrears.  They should not be seeking a loan anywhere else for years to come. 

Brendan


----------



## chocolatecake (3 Jun 2016)

Thanks for replies. Borrowers concern is that because "bad debt lodgment" is showing up every time a repayment is made that this will go against them or that there will be a bad debt registered against them. 
Borrower doesnt intend borrowing again until this loan is cleared but in the case of an emergency occuring what would happen if they did seek a loan elsewhere?


----------



## Brendan Burgess (3 Jun 2016)

They won't get a loan elsewhere if the lender sees their account. It does not matter if it's classified as "bad debt lodgement" or "Great big pink fairy lodgement" 

Brendan


----------



## Gerry Canning (3 Jun 2016)

chocolatecake.

1. Borrower is already on Irish Credit Bureau as a poor payer and rightly so.
2. Borrower will not have a bad debt registered but his poor payment history will show for circa 6 years on ICB.
3. It is highly unlikely they will get any loan anywhere for the next few years , think about it , why would any lender take on the Risk?

Best they can do is repay debt to CU as fast as possible.


----------



## chocolatecake (3 Jun 2016)

Just to add the arrears are a result of borrower being hit extremely hard by the recession and not a result of just "not bothering to repay loan". Oftentimes borrower paid what they could whilst on social welfare. But borrower did keep in contact with the credit union and got reduced payments which were met as best as they could.  Borrower is very worried about this scenario.


----------



## Bronte (7 Jun 2016)

chocolatecake said:


> Thanks for replies. Borrowers concern is that because "bad debt lodgment" is showing up every time a repayment is made that this will go against them or that there will be a bad debt registered against them.
> Borrower doesnt intend borrowing again until this loan is cleared but in the case of an emergency occuring what would happen if they did seek a loan elsewhere?



One would hope to goodness they don't get a loan anywhere else.  Sounds like this person needs to do the money makeover thread to me.  So they can get advice on how to prevent them ending up borrowing and getting into more hot water.


----------



## Monbretia (7 Jun 2016)

That sounds a little harsh, the op says the borrower was hit by the recession and clearly was out of work if on social welfare.   Not much point doing money makeovers if there is no money worth talking about!

I can understand a person while already in debt worrying about what to do if for instance an emergency occurs and I have seen many cases for such emergencies which can be as simple as having to have urgent dental work or needing a set of tyres for the car.   If you don't have proper income coming in these things can be colossal so I wouldn't read it that the person is contemplating heading off to another bank looking for a loan for some random purpose but is just worried about any future emergencies.


----------



## 44brendan (7 Jun 2016)

I think many posters are missing the point here!!!
Yes I can accept that large numbers of people got into financial difficulty during the recession and this was not necessarily their own fault. However lending institutions have to base their loan assessment systems on issues such as the borrowers repayment record! This is a key criteria and if any client has a poor track record in meeting repayments on a loan this will create a significant problem in any further loan application made for a number of years! This is the system and while it may seem unfair or harsh I can't see it changing anytime soon.


----------



## Monbretia (7 Jun 2016)

I didn't think I was missing the point 

The person is concerned about having no access to money in the case of an emergency, now this may never come to pass and we'll presume they are not talking huge bucks but more of the examples I mentioned.   Credit Unions regularly lend again to borrowers who have had difficulties once they are back on the straight and narrow even if the original loan is not cleared off fully so I would imagine the cu are their best chance in the case of an emergency.

Main banks not a hope I would imagine.


----------



## 44brendan (7 Jun 2016)

Monbretia said:


> Credit Unions regularly lend again to borrowers who have had difficulties once they are back on the straight and narrow even if the original loan is not cleared off fully


WOW
Given that scenario I don't think I'd last long as an underwriter in a CU! One of the primary underwriting criteria in all banks I've worked in is that if any loaned funds are w/o then that precludes the client from ever getting a further loan from that institution.


----------



## Monbretia (7 Jun 2016)

But that's just the thing about CUs, they don't only operate on the rules and regs, while they take them into account of course there is also a human element to decisions and a community benefit element.  A lot of work has been done between for example MABS and CUs to discourage borrowing from moneylenders which is where someone ends up in an emergency when there is not other option.

Those of us who were lucky enough to have good secure jobs (well actually it wasn't that secure in my case   ) just don't get I would say that there are other people for whom gathering together even a few hundred quid for a set of tyres can be such a difficulty.   I have seen many the moneylenders book with things like electric kettles even borrowed for. 

Now don't know if OPs friend fits into this category but credit unions I think serve a very useful purpose, it's not all about the profit!

When I worked in banking it never even occurred to me that not everyone was up to date with things like ESB bills, never crossed my mind, I dealt with people with loan difficulties but never considered utility debts.  A bit of voluntary work later and it's actually quite astonishing how little disposable income and access to credit for emergencies some people have.


----------



## Brendan Burgess (7 Jun 2016)

44brendan said:


> WOW
> Given that scenario I don't think I'd last long as an underwriter in a CU!



Yeah, when I first heard this some years ago, I found it hard to believe. 

An underwriter in a Credit Union told me that they actually lent money, against his advice, while simultaneously taking legal action against the borrower for an unpaid debt.


----------



## chocolatecake (7 Jun 2016)

Thanks for all the replies and various viewpoints. 
Just to clarify borrower doesnt intend borrowing again (ever if they can help it!) but is very worried that should an emergency occur this loan /bad debt will prevent them getting access to emergency funds. 
As quoted above the lack of disposable income is exactly the borrowers problem and while a set of tyres or such may not seem like a huge expense to others it is indeed a colossal expense and worry  to the borrower in this case. At this stage i think the stress of this whole thing is beginning to affect borrowers health. All going well assuming borrower can meet the repayments they re still looking at a timeline of at least 6 years before they are finished with this loan. Thats quite a long time to be stressed about no access to any emergency funds.


----------



## Gerry Canning (7 Jun 2016)

44brendan said:


> WOW
> Given that scenario I don't think I'd last long as an underwriter in a CU! One of the primary underwriting criteria in all banks I've worked in is that if any loaned funds are w/o then that precludes the client from ever getting a further loan from that institution.


.............
I think that holds very largely true in CU,s.
Monbretia, I take it was writing about good people, who had got into problems eg unemployment and were slow to repay, and had shown they were now back on the straight and narrow.

Anecdotally , we hear CU,s freely give funds to Write -off customers, I really doubt if that is anything other than a VERY uncommon occurrence ie urban myth .
Because if this practice was common , Cu,s would be bust !

chocolatecake.
Borrower needs to put even a little by each week to get a reserve fund , because if they can,t do that , how can they then afford an emergency loan !


----------



## RichInSpirit (7 Jun 2016)

Most Credit Unions now I suspect are members of the ICB and are subject to much the same lending rules as the banks.
I know that my local credit union look for serious paperwork to be considered for a loan. 
Whereas before the financial crash they were outside the ICB system.


----------



## Monbretia (7 Jun 2016)

Yes they are members and there are much stricter lending rules but they still can make their own decisions locally.   The ICB is a great help as it can confirm whether or not they have the full story regarding the customer's financial position which mitigates risk.


----------



## chocolatecake (7 Jun 2016)

Monbretia - the scenario which you depicted about good people falling on hard times is exactly what has happened to the borrower here. Pre recession they were way ahead with their cu loan and were an excellent cu customer. However 7 years of being hit sereverly by the recession and unfortunately find themselves in this position. Now (and for the past no of years) even the smallest unexpected bill/expense (of say 50e) causes major stress and the money must be pulled from somewhere else in their already stretched budget. I think its knowing that they have no hope of accessing emergency cash is really getting to them also. 
@Gerry Canning - borrower is trying to save something every week - altho most weeks they re lucky if its 5e. While this is the right approach it will take a long time to reach an emergency fund of eg 500e!


----------



## chocolatecake (31 Aug 2017)

Bumping this thread with regard to the new ICB format which takes effect in January 2018.
What effect will this cu loan being written off have on the borrowers ability to borrow again ( doesn't intend to borrow but just in case) in respect of the new ICB rules?  Will it prevent the borower from ever getting a loan again?

Edited to add that this loan is being serviced weekly as agreed with the credit union.


----------

