Borrowing My Own Money From CU

[Gordon Gekko]

My local credit union lend at 10.5%. If you’re a new member and want to borrow, say, €15k, you probably need to leave around €5k on deposit. But once you’ve a track-record, you don’t. If they reduced their rates to something more reasonable, say 6.25%, they’d be out the door. Charging 10.5% when they do actually turn people down these days is ridiculous.

 

[24601]

My local credit union lend at 10.5%. If you’re a new member and want to borrow, say, €15k, you probably need to leave around €5k on deposit. But once you’ve a track-record, you don’t. If they reduced their rates to something more reasonable, say 6.25%, they’d be out the door. Charging 10.5% when they do actually turn people down these days is ridiculous.

Your credit union is more expensive than the typical credit union. It's also cheaper than PTSB, so go figure.

I don't think reducing their rates would have much impact to be honest. The consumer credit market has shrunken considerably and their share of the market has remained stable and even increased in spite of the perception of them being more expensive than the banks. Their big issue is that shrinkage in demand for consumer credit. Most credit union customers aren't particularly price sensitive so they'd be on a faster hiding to nothing with lower interest rates.

 

[Monbretia]

They're definitely not applying "normal banking criteria" - credit unions are far more forgiving than the banks are and would, by and large, have a more flexible approach to underwriting. They also have to generate a surplus to keep the lights on, and are very limited in what they can do in the current environment without handing back most of the savings they have to members and filleting their branch network. When they do these things they are accused of being just like the banks. It's a lose-lose for them.

Totally agree with this, they may have more stringent banking criteria now but you will always get a hearing at a credit union, it's not just 'computer says no', many people have good explanations for past blips on their record and you will at least be able to have your case listened to and usually discussed by the Credit Committee to come to a decision. It's far more human and in house than any bank branch even with new rules or at least it was when I was involved with one a few years back.

I have been on Committees and been on the Board of a CU and don't recognise the structure Brendan is talking about on boards, not saying it doesn't exist and I do only have experience of one but I certainly didn't see anyone there just for a foreign trip! There was a hell of a lot of work involved and I actually gave up after 2 yrs because of the demands on time and needing to keep up with regulations etc, I could hardly even keep up with the emails! And all of that for nothing but the good of your health! I could see why some of the retired people on the board did it to keep the brain ticking over and maybe the social aspect of getting out but anyone holding down a job as well as dealing with the workload is asking a lot of people for a couple of freebie dinners a year and a platter of sandwiches at the meetings!

I worked in banks for 30 yrs and in my innocence knew nothing about money lenders etc when I became involved in another financial area that eventually led me to volunteering in the CU but I think anyone that can easily get a regular bank loan when they want does not really 'get' what it's like to be on the other side and the CUs have definitely played a huge part for that market. Where they go in the future though I don't know.

 

[Paul O Mahoney]

Where they go in the future though I don't know.

That's the question.

 

[Paul O Mahoney]

Totally agree with this, they may have more stringent banking criteria now but you will always get a hearing at a credit union, it's not just 'computer says no', many people have good explanations for past blips on their record and you will at least be able to have your case listened to and usually discussed by the Credit Committee to come to a decision. It's far more human and in house than any bank branch even with new rules or at least it was when I was involved with one a few years back.

I have been on Committees and been on the Board of a CU and don't recognise the structure Brendan is talking about on boards, not saying it doesn't exist and I do only have experience of one but I certainly didn't see anyone there just for a foreign trip! There was a hell of a lot of work involved and I actually gave up after 2 yrs because of the demands on time and needing to keep up with regulations etc, I could hardly even keep up with the emails! And all of that for nothing but the good of your health! I could see why some of the retired people on the board did it to keep the brain ticking over and maybe the social aspect of getting out but anyone holding down a job as well as dealing with the workload is asking a lot of people for a couple of freebie dinners a year and a platter of sandwiches at the meetings!

I worked in banks for 30 yrs and in my innocence knew nothing about money lenders etc when I became involved in another financial area that eventually led me to volunteering in the CU but I think anyone that can easily get a regular bank loan when they want does not really 'get' what it's like to be on the other side and the CUs have definitely played a huge part for that market. Where they go in the future though I don't know.

Sorry hit wrong button

 

[Cavanbhoy]

Absolutely, you would be equally stupid to do that with a bank as you are with a Credit Union. The only difference is that banks do not insist that you keep your savings with them in order to take out a loan.

Some Credit Unions do.

Brendan

Brendan,
Can only speak for a credit union I am involved in we do not require members to hold there savings against loans.
I agree with you in regard secured loans being bad value
Eg secured loan 5%
Non secured loan 7.5% rate
But it is not a necessity to take a secured loan but some members do.

 

[Ordinary User]

This is a myth, the vast majority of credit unions have moved away from this practice.

Edit: @Brendan Burgess you might be confusing the "savings-secured" loan offered by many credit unions (and PTSB), which is an entirely different thing, and is mental.

I borowed money from CU to buy a car and 25% of debt on my share account was held as a security. I wasn't offered any other deal and I'm not aware of any borrowings that wouldn't be secured on savings. but perhaps it's just my CU.

@eirman you must bear in mind that with CU car loan interest depends wheter you buy from dealer (must provide an evidence) or private seller (then it becomes a personal loan with a higher rate).

With option one you are left with a car and a debt. Option two makes sense from cashflow perspective, as you get your car, have new debt, have 1.25k emergency fund (assuming 25% secured on your share account) and 3.75k to be released when you pay off your debt (you can and should pay it earlier to reduce your cost of debt).

The interest earned on savings is so small that it wouldn't bother me to pay interest on my own savings as you state here.

 

[Brendan Burgess]

The interest earned on savings is so small that it wouldn't bother me to pay interest on my own savings as you state here.

Hi OU

I don't understand this.

Can you explain what you mean and maybe illustrate with an example?

Brendan

 

[Pinoy adventure]

OU

A lot of credit unions no longer pay interest or dividends on shares

 

[jpd]

How could they - most of their funds are lodged in bank accounts and they have to pay interest to the banks for the privilege

Whatever interest income they earn from their loans to members has to pay their costs (salaries, insurance, rent, etc etc)

 

[Paul O Mahoney]

Brendan,
Can only speak for a credit union I am involved in we do not require members to hold there savings against loans.
I agree with you in regard secured loans being bad value
Eg secured loan 5%
Non secured loan 7.5% rate
But it is not a necessity to take a secured loan but some members do.

Would that example not mean that you're savings being used as security is actually generating a small return by allowing the borrower to enjoy a lower interest rate, and by extention lower repayments?

Or am I missing something?

 

[Pinoy adventure]

Leper - would you have any say on why staff members of the credit unions are able too get loans at a much cheaper rate than customers ?

 

[Ordinary User]

Hi OU

I don't understand this.

Can you explain what you mean and maybe illustrate with an example?

Brendan

Hi, yeah, this bit wasn't clear. The way I see this is that there's no such thing as paying an interest on your own savings with CU - it's simple security charge on your asset (cash) and I see no issue here, but in this thread it was called as paying interest on your own savings - perhaps I misunderstood this - savings should be earning interest for you rather than generating cost. Realistically 5k in CU will earn nothing so if some is risk adverse like me it's better to go with option two and have a charge on share account amd still have access to some of the funds. Does this make sense?

 

[jpd]

But do you have access to your funds if the CU requires you to keep them on deposit?

 

[Leper]

Leper - would you have any say on why staff members of the credit unions are able too get loans at a much cheaper rate than customers ?

When I was involved back in the day all loans through the two CU's carried the same rate whether they were for staff or clients to the best of my knowledge.

 

[Cavanbhoy]

Would that example not mean that you're savings being used as security is actually generating a small return by allowing the borrower to enjoy a lower interest rate, and by extention lower repayments?

Or am I missing something?

When I was involved back in the day all loans through the two CU's carried the same rate whether they were for staff or clients to the best of my knowledge.

The credit union I am involved in there is no difference in rates charged, I am not 100% sure but imagine it might even be against the rules to charge diff rates on the same class of loan.

 

[Ordinary User]

But do you have access to your funds if the CU requires you to keep them on deposit?

not until u pay the loan back. in the above scenario 5k is in share account and 15k is needed. assuming that CU will restrict 25% of loan amount, 3.75k will be unavailable until the loan is paid. he will still have acces to the reminder i.e, 1.25k

 

[BoardsieKKV]

I used my local Credit Union a lot growing up. My CU is Drogheda Credit Union, and they've been taking over other smaller CU's in recent times, so they seem to be doing relatively well and would be perhaps one of the larger ones. As far as I know, most (all?) CU's follow the same general rules.

When it comes to lending, if you have savings, your savings are secured against the loan. Sometimes they won't require the whole lot if you mention it to them, but by default they are entirely secured to the loan.

My CU has two loan products, as a result. A standard loan (8.9%) and what they call a "Special Savers" loan (5.9%). You qualify for the Special rate, if you are borrowing an amount of money that is less than your savings. (ie; if you have 5k saved, and get a loan of 2k).

If you have 5k saved, and borrow 10k, you pay 8.9% on the entire amount, however, once the balance of the loan is lesser than your shares, your interest rate swaps to the lower rate of 5.9%.

So you absolutely are paying interest on your own money. However, they do stress these days that a loan application is decided on your ability to repay, and not your shares, so i presume you can talk them out of securing your shares, however, as i say above, the 'default' method seems to be to secure your shares.

There is something to take into consideration here though in relation to your shares: If you have shares with the CU, you will get some 'free money' if you die as they have insurance in place that'll match your savings, up to €7,700. Of course, for someone in their 20's buying a first car, this is likely not a great concern, but worth a mention, nonetheless.

 

[ClubMan]

There is something to take into consideration here though in relation to your shares: If you have shares with the CU, you will get some 'free money' if you die as they have insurance in place that'll match your savings, up to €7,700. Of course, for someone in their 20's buying a first car, this is likely not a great concern, but worth a mention, nonetheless.

I tried to get info from my CU about what different "free" insurance cover they offered (the first 3-4 listed here: https://www.creditunion.ie/what-we-offer/insurance/) and the terms and conditions that applied and they basically refused and said they they couldn't give this info to me. Go figure...

 

[ClubMan]

not until u pay the loan back. in the above scenario 5k is in share account and 15k is needed. assuming that CU will restrict 25% of loan amount, 3.75k will be unavailable until the loan is paid. he will still have acces to the reminder i.e, 1.25k

It's also possible (albeit with difficulty in my experience) to reduce the amount required to be held on deposit/in shares in line with the reducing balance of the loan. So that it's always only 25% (or whatever) of the outstanding balance and not of the original principal.