# Why don't Credit Unions reduce interest rates to get more business?



## Coldwarrior (17 Dec 2020)

The interest rates credit unions offer on loans don't seem to have dropped much over the last number of years despite ECB rates being at record lows and downward movement on bank mortgages rates etc. If they have tons of deposits and are struggling to lend enough, why have they not dropped their rates to be more competitive?


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## 24601 (18 Dec 2020)

Coldwarrior said:


> The interest rates credit unions offer on loans don't seem to have dropped much over the last number of years despite ECB rates being at record lows and downward movement on bank mortgages rates etc. If they have tons of deposits and are struggling to lend enough, why have they not dropped their rates to be more competitive?



The demand for personal loans doesn’t exist anywhere near the degree needed to shift enough of their deposits on. They could reduce their interest rates to 3 or 4% and I’d say demand would remain static. Their rates have fallen significantly on average in recent years though nonetheless.


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## Coldwarrior (18 Dec 2020)

24601 said:


> The demand for personal loans doesn’t exist anywhere near the degree needed to shift enough of their deposits on. They could reduce their interest rates to 3 or 4% and I’d say demand would remain static


I'd argue demand for CU loans is low partly because they aren't competitive. Looking at a couple of them near me for example, their rates have barely changed in 5 years and they don't give borrowers much reason to go to them over the banks. They charge 8.5% - 11% for car loans, people can do a lot better than that on PCP deals or borrowing on HP via car dealers/banks. Personal loans are 11-12.7% in the local CUs, bank rates are about half that. They offer a mortgage at 4.9%, why do they even bother, who is going to take that!


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## Protocol (18 Dec 2020)

Over and over I have been saying this.................

Where are the CU loans at 3.9%, to compete against PCP???????

Where are the CU mortgages at 2.5%?

Why not make 2.5% on mortgages against -0.65% on deposit?


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## Coldwarrior (18 Dec 2020)

Protocol said:


> Over and over I have been saying this.................
> 
> Where are the CU loans at 3.9%, to compete against PCP???????
> 
> ...



Agreed, I'd argue CUs need to actually undercut the banks on personal/car loan rates especially and not just match them. There's a convenience and ease of applying factor in favour of the banks, especially when you have your current accounts with them. To give an example, a colleague of mine needed a small personal loan to finish off a new kitchen last year, she initially went to her CU who wanted lots of documentation/statements and said the whole process would take a few weeks. The next morning she applied for the same loan on her bank's website (AIB) and had it approved and in her account that day. And they charged nearly 2% interest less than the CU.


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## NoRegretsCoyote (18 Dec 2020)

Protocol said:


> Where are the CU loans at 3.9%, to compete against PCP???????



Probably because the profits from the new customers would be less than the loss of margin from repeat borrowers. They know their price point.

The sector has big challenges.


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## 24601 (18 Dec 2020)

Coldwarrior said:


> I'd argue demand for CU loans is low partly because they aren't competitive. Looking at a couple of them near me for example, their rates have barely changed in 5 years and they don't give borrowers much reason to go to them over the banks. They charge 8.5% - 11% for car loans, people can do a lot better than that on PCP deals or borrowing on HP via car dealers/banks. Personal loans are 11-12.7% in the local CUs, bank rates are about half that. They offer a mortgage at 4.9%, why do they even bother, who is going to take that!



You might argue that but it's not true. CU rates have fallen significantly in recent years without a corresponding increase in market share. Your local example is anecdotal. 

Also, comparing PCP and car loans is totally pointless. They're not the same product and have completely different credit risk profiles. If credit unions were offering PCP products then you could argue that they should be priced accordingly but they would be in serious bother if they started offering unsecured personal loans at 0% - 3% for car purchase. 

Where are you getting your figures for CU personal loan rates? That's almost certainly an overestimation. In any event the bank's headline rates versus their actual blended rates across the personal loan portions of their loan books are vastly different.


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## NoRegretsCoyote (18 Dec 2020)

24601 said:


> Your local example is anecdotal.



Is there anything better? 

The CBI publishes statistics on unsecured lending but AFAIK they don't survey CUs as they don't have banking licenses. These statistics show unsecured consumer lending averaging about 7.5% for 1-5 years, and 2.9% for >5 years.

Where would I get statistics for average rates for CUs?


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## 24601 (18 Dec 2020)

Protocol said:


> Over and over I have been saying this.................
> 
> Where are the CU loans at 3.9%, to compete against PCP???????
> 
> ...



Because of credit risk and economies of scale. How can a credit union charge an interest rate that competes with a product where the financed asset remains in the ownership of the creditor? A credit union can't go to someone's house and take the car back if they're not meeting repayments. This also betrays an ignorance of the attractiveness of PCP whose USP is low monthly repayments achieved through the deferral of a large part of the value of the car and the payment of a large part of the value up front. The interest rate is neither here nor there if an individual's payment is half on PCP what it would be as a personal loan. A credit union can't compete with that. 

An illustration of this will highlight the folly of these comparisons. PCPs are generally 3-year products. Lets take the Octavia, which is one of the most popular cars in Ireland. The Skoda website has the following:
_Typical Example: Octavia 1.0 TSI 110 BHP Active OTRP €24,470. Deposit €7,543.88. 36 Monthly payments of €229 including fixed price service plan of €12.99 per month. Optional final payment €10,199.60. Total Hire Purchase Price €25,669.84. Total cost of credit €1,199.84. No minimum deposit requirement. APR 2.9 %_. 

The equivalent credit union loan repayment over 3 years at say 4% would be €756. 

The mortgage issue has been argued extensively on this site elsewhere. Credit unions are too small to operate in the mortgage market competitively.


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## Brendan Burgess (18 Dec 2020)

Your overall point about the CUs being uncompetitive is absolutely valid. 

It's not just the rates - it's the insistence by most of them that you keep money in shares on which they pay 0% while charging you 6% or 12% on the money they lend you.

Brendan


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## 24601 (18 Dec 2020)

Brendan Burgess said:


> Your overall point about the CUs being uncompetitive is absolutely valid.
> 
> It's not just the rates - it's the insistence by most of them that you keep money in shares on which they pay 0% while charging you 6% or 12% on the money they lend you.
> 
> Brendan



I don't think the rates are uncompetitive for personal loans, but yes, they are for credit unions that insist upon that practice.


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## Coldwarrior (18 Dec 2020)

24601 said:


> You might argue that but it's not true. CU rates have fallen significantly in recent years without a corresponding increase in market share. Your local example is anecdotal.



Your probably right over all CUs nationwide, but anecdotally, I priced around local CUs about 5 years ago and comparing their rates to now they've hardly changed. Small sample I know.



24601 said:


> Also, comparing PCP and car loans is totally pointless. They're not the same product and have completely different credit risk profiles. If credit unions were offering PCP products then you could argue that they should be priced accordingly but they would be in serious bother if they started offering unsecured personal loans at 0% - 3% for car purchase.


This is what they are competing with though, so they are surrendering a huge chunk of the car loan market. Even aside from PCP, their standard car loans are more expensive than their equivalent with the main banks. What's to stop CUs offering HP where the car is the security?



24601 said:


> Where are you getting your figures for CU personal loan rates?


I priced an 8k personal loan over 5 years.
Here's[broken link removed] in Dublin (I believe one of the biggest CUs in the country) - 11%
Bonkers.ie shows I can get the same from Ulster Bank for 7.5% and most of the rest of the banks for between 8%-9%.

Also bear in mind most people can avail of one or maybe two CUs, depending on where they live/work or whether they are a member of certain trade unions. So if a CU across the country offers a better rate than my local ones, I can't avail of it. Whereas with the banks I can apply to and borrow from the cheapest available in the market.



24601 said:


> In any event the bank's headline rates versus their actual blended rates across the personal loan portions of their loan books are vastly different.


I'm sure this is true but as a potential borrower why do I care, I just want cheapest rates possible and if I was looking for a loan right now the CUs wouldn't factor in the equation at all.


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## Brendan Burgess (18 Dec 2020)

One important point to note is that most borrowers don't really care that much about interest rates. 

They think about the car and not the rates. 

They want to get the loan easily and quickly to buy the car. If AIB turns it around in 24 hours, and the Credit Union must wait until the next meeting of the credit committee, AIB will get most of the loans. 

On the other hand, if it's not urgent, most members like borrowing from their credit unions because they are seen as cheap even if they are not. 

So I doubt that credit unions would get much more business if they reduced their rates.

Brendan


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## 24601 (18 Dec 2020)

Coldwarrior said:


> This is what they are competing with though, so they are surrendering a huge chunk of the car loan market. Even aside from PCP, their standard car loans are more expensive than their equivalent with the main banks. What's to stop CUs offering HP where the car is the security?



OK, fair enough, maybe there is an argument that they should offer HP-type products, but that's a whole other kettle of fish. I don't know enough about it to know whether that would be a good or bad idea. Like all these things though, I don't think an individual CU will be able to set up the infrastructure required to compete with BOI or VW Bank etc.

Again, I'm not sure what you're saying is true in relation to car loans. This is very unscientific but I got BOI, AIB, KBC, UB and PTSB's rates from their websites and the rates on all of the credit unions that appear on the first page of Google when you search "credit union car loan" and here's what it looks like:








Coldwarrior said:


> I'm sure this is true but as a potential borrower why do I care, I just want cheapest rates possible and if I was looking for a loan right now the CUs wouldn't factor in the equation at all.



The point I'm making is that what the banks say they charge versus what they charge in practice is a lot less rigid than a CU car loan. The headline rate might be available to you if you work in XYZ industry, are a PAYE employee and earn > €X per annum, but you might pay a higher rate with some if you don't meet the standard criteria.


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## Brendan Burgess (18 Dec 2020)

I checked with Bonkers.ie to borrow €20,000 over 5 years 

An Post Money  5.9%
Avant Card: 6.1%
KBC 6.3%

Most of these have "restricted eligibility" .

Brendan


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## 24601 (18 Dec 2020)

Brendan Burgess said:


> I checked with Bonkers.ie to borrow €20,000 over 5 years
> 
> An Post Money  5.9%
> Avant Card: 6.1%
> ...



I'm not sure bout An Post but I think Avant are very selective? I've added KBC. In any event, the rates are not too dissimilar. The requirement to keep savings on deposit during the life of the loan is a key factor though, so the rates will be understated where a CU insists upon this.


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## Protocol (18 Dec 2020)

24601,

On the PCP issue, thank you, I forgot that the car remains owned by the lender.

So not the same type of loan, as a CU term loan.

Good point.


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## Pinoy adventure (18 Dec 2020)

Brendan Burgess said:


> One important point to note is that most borrowers don't really care that much about interest rates.
> 
> They think about the car and not the rates.
> 
> ...



Brendan,a good friend of mine applied for a loan of €2000 with his local south Dublin credit union on Friday 4 th if December.loan approved on Thursday 10th of December with the money lodged into his account.
He went to them Friday 11th and was told he can get the money on Monday 14th of December.as of today he is yet to receive a penny as they don't have €2000 in cash.
They can give him a cheque or bank transfers which is of no valve too him as his credit union is his only account he has.
The embarrassing part is the loan is too pay a trades man too put down a new floor in his home.
Im sure the trades man is regretting doing this work as he cannot be paid for now.
The first repayment is was due yesterday on this loan.


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## 24601 (19 Dec 2020)

Pinoy adventure said:


> Brendan,a good friend of mine applied for a loan of €2000 with his local south Dublin credit union on Friday 4 th if December.loan approved on Thursday 10th of December with the money lodged into his account.
> He went too them Friday 11th and was told he can get the money on Monday 14th of December.as of today he is yet to receive a penny as they don't have €2000 in cash.
> They can give him a cheque or bank transfers which is of no valve too him as his credit union is his only account he has.
> The embarrassing part is the loan is too pay a trades man too put down a new floor in his home.
> ...



The credit union will write a cheque payable to the tradesman.


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## Brendan Burgess (19 Dec 2020)

Pinoy adventure said:


> they don't have €2000 in cash.



Pinoy

I have to say that sounds a bit odd to me. Are you sure you are getting the full story? 

People are lodging cash all the time and withdrawing it.  And many CUs have ATMs.

I would have thought that €2,000 was insignificant.  Unless this particular CU is moving away from cash? 

Brendan


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## Pinoy adventure (19 Dec 2020)

24601 said:


> The credit union will write a cheque payable to the tradesman.



I did mention that too him and they could also do a bank transfer but he insisted on it as a cash job(which is another kettle of fish)


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## fayf (31 Dec 2020)

In another lifetime, i was on one of the committee of a credit union. At the agm, at the end of my term(i declined te-election, when asked), i stood up, and presented a survey i did. It was a typical average loan, (based on the credit unions average loan)and a comparison of the credit union i was with, which was the most expensive, at a rate of 12%, with a nearby local credit union, was the cheapest, charging 6%, and several banks between 7 &9 % at the time. I asked why we why we were genourously rewarding savers, but penalising, those who are the lifeblood of any credit union- the borrowers. They had no answer, and there was a sense i was “upsetting people”, by asking awkward questions. I had no support whatsoever, which is exactly what i expected. I accept there are huge differences between individual credit unions, and many have been forward looking, but others are not.

Things have changed, and now, many Credit Unions have an uncertain future. However, the whole ethos of Credit Unions and the ultra flexibility, of loan repayments, which is not available anywhere else,  is something, i often recommend when asked.


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## MrEarl (1 Jan 2021)

Hello,

That's interesting, as I had a very similar experience a few years ago, when I also tried to tackle the issue of the lending rate, at my local credit union, and got an equally frosty response, from most of my fellow directors.

I just couldn't understand why they firmly believed that they'd be able to safely grow the loan book, at the level needed, without moving from their traditional 12.68% APR.

Like you, I presented a survey of alternative lenders and their rates, drilled home the point about the additional cost to Borrowers, when the CU insisted on a conservative share to loan ratio with shares held as security etc.

I finally got some level of acceptance from them, when I pointed out that the people most likely to borrow at the high rate, were higher risk borrowers, who were unable to borrow elsewhere - and that this in turn, increased the risk of default, with greater potential for loan loss.

In the end, I gave up banging my head against a brick wall, and like you, didn't stand for re-election, after my 3 year term ended. The loan book continued to shrink and the CU was subsequently taken over (oh, eh, sorry... it "merged" with another bigger CU).

I had also been promoting the concept of the credit union essentially demutualising, selling its loan book, and distributing its net assets to its members, but the majority of my fellow directors thought that was a terrible idea - and that it was a far better idea to simply give away our members assets to another CU, that had no connection with our community, and would most likely just asset strip our little CU.


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## Brendan Burgess (1 Jan 2021)

MrEarl said:


> In the end, I gave up banging my head against a brick wall



Hi Mr Earl

That is my feeling entirely when dealing with them. Everyone else is to blame, particularly the Central Bank for stopping them expanding. 

They are just closed to new ideas.

Brendan


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## Protocol (1 Jan 2021)

Two good posts by fayf and MrEarl.

What is the answer?

A new model, a different model?

I still think there is something to be said for competing on price.

I accept the point made earlier than PCP is not a direct comparison with CU personal loans.

Could a CU lend at 4.9%, and cover

cost of funds (=0%?)
operating costs
credit risk
surplus


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## Cavanbhoy (1 Jan 2021)

My local Cu rates are 9.5% under 10k
7.5% over 10k
5% for student loans
Some people will just apply for loan with bank they are with regard less of rates. For a lot of people still convience is a bigger factor than rates.


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## 24601 (2 Jan 2021)

Protocol said:


> I still think there is something to be said for competing on price.
> 
> I accept the point made earlier than PCP is not a direct comparison with CU personal loans.
> 
> ...



Not to labour the point but credit unions aren’t particularly expensive for unsecured personal loans relative to the banks. The ones that insist upon high levels of savings as collateral are though, but that’s nearly a separate argument.

Also, reducing rates would cannibalise their existing loan interest income as there just isn’t sufficient demand for consumer credit. It is also very unlikely that most credit union borrowers are as price sensitive as people seem to be suggesting here. If they halved their rates they’re not going to double their lending.

A credit union couldn’t lend at the rate you are suggesting and generate a profit without massive cuts to operating expenses that would result in branches that are more in line with the skeleton bank branches we see today.


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## jpd (2 Jan 2021)

Ah! - so Credit Unions are just a way to employ more local people locally. 

This is no doubt a good thing but it would be better if it was clearly stated as an aim of the Credit Unions.


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## Protocol (2 Jan 2021)

OK, so reducing rates to grow consumer lending isn't really a solution, ok.

So what to do with huge amounts of deposits?

Put them into Govt bonds / bank bonds earning 0%?? This happens at the moment, but the investment income has fallen and fallen.................
Apply negative rates to drive away deposits? (Not realistic IMHO)
Lend them out for mortgages?? Some CU are doing this............
Lend somewhere else?
Combine many CU together / lend to social housing sector / long-term loans to councils / AHBs / could this be turned into a bond market so that the debts might be liquid?


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## NoRegretsCoyote (2 Jan 2021)

Protocol said:


> So what to do with huge amounts of deposits?



Returning excess to members makes most sense.


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## Pinoy adventure (2 Jan 2021)

NoRegretsCoyote said:


> Returning excess to members makes most sense.



Which in turn may be the end of credit unions


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## MrEarl (2 Jan 2021)

Pinoy adventure said:


> Which in turn may be the end of credit unions



In some instances, that's actually the best solution - better to see some credit unions dissolve, and distribute their net assets to their membership.

The historic CU model doesn't have a future - so better for those who can't / aren't willing to evolve - to do the right thing for their members, rather that risk eroding their members' assets.

If An Post's circumstances were different, there's probably a decent arguement for amalgating it with the credit union movement - then maximise the opportunity for synergy.


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## DublinD (22 Jan 2021)

A few people with CU loans I know, like the ability to pay back the loan early and extras life death benefits/insurance...is it worth the extra few % on the loan, probably not to most people but some like the sound of the extras..Also I think many still trade on the community aspect and word of mouth passed from parents to child. We all know people could easily change mortgage providers to save money but don't, it's just inertia for most people and familiarity that keeps certain business running.  You only have to look at the CU documentary series on RTE to see how people view them.

I would like to see the age profile of CU customers with loans, would be an insight.


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## RedOnion (22 Jan 2021)

DublinD said:


> A few people with CU loans I know, like the ability to pay back


You can pay any personal loan back early.


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## wheeler dealer (22 Jan 2021)

I know a few self employed business were started up with c.u. loans from scratch  bit by bit while the owner was still on the dole .Now tell me any bank that would back such a business starting out in that circumstance.These are still small independent business employing 4 or 5 full time and another few part time staff and very sucessfull .


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## NoRegretsCoyote (22 Jan 2021)

wheeler dealer said:


> I know a few self employed business were started up with c.u. loans from scratch bit by bit while the owner was still on the dole .



In 2006 AIB gave me an unsecured personal loan (€4k I think) within a few hours when I was on the dole.


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## DublinD (22 Jan 2021)

RedOnion said:


> You can pay any personal loan back early.


Yeap, but not all are penalty free for doing so I thought? Aren’t CUs penalty free? Still not a game changer for the extra costs.


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## RedOnion (22 Jan 2021)

DublinD said:


> Yeap, but not all are penalty free for doing so I thought? Aren’t CUs penalty free? Still not a game changer for the extra costs.


I'm glad you asked.






						Key Post - How Personal loans work:  Making early repayment & overpayments
					

Inspired by a discussion in another thread, I couldn’t find a Key Post on how Personal Loans work, particularly around repaying Personal loans early, so here’s first attempt at it.  I'm happy to take feedback and make amendments for people’s experiences with different lenders, and any practical...



					www.askaboutmoney.com
				




Cost rarely comes into it. People borrow where they're familiar with. I'm worked with several retail banks. There's a reason they all try to get students to open current accounts with them - a huge percentage of their lending is to people who hold their primary account with that bank.

Same with credit union - a lot of lending business is repeat customers.


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## DublinD (23 Jan 2021)

RedOnion said:


> I'm glad you asked.
> 
> 
> 
> ...


Thanks RedOnion, big eye opener in your link-shows the CU advertising worked on me! ...like many things in Irish finance, scratch the surface into T&C/regs and many truths revealed!!


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## 24601 (23 Jan 2021)

DublinD said:


> Thanks RedOnion, big eye opener in your link-shows the CU advertising worked on me! ...like many things in Irish finance, scratch the surface into T&C/regs and many truths revealed!!



I don't think I've ever seen credit unions insinuate that you can't pay off a bank loan early, it's probably just that banks don't advertise this as much as it's not something that they really want to encourage as it erodes the return on loans. Also, credit unions are attempting to compete with PCP/HP type products and moneylenders on two different fronts in addition to competing with banks so they place more emphasis on the flexibility of the terms and conditions.


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## RedOnion (24 Jan 2021)

24601 said:


> I don't think I've ever seen credit unions insinuate that you can't pay off a bank loan early


But how else would you interpret "The Credit Union Difference"?

"What makes a Credit Union different from any other financial provider?"

"Flexibility -you can repay a credit union loan earlier or make larger repayments than agreed with no penalty.
Additional lump sum repayments are accepted with no penalty."









						Difference-between-CUs-&-other-Financial-Providers | Link CU
					

The Credit Union Difference - What makes a Credit Union different from any other financial provider? A Credit Union is owned by you - its members....




					linkcu.ie


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