Credit union loan for extension

Myself and my partner will be looking to build an extension to our home in about two years time. Assuming building costs remain flat between now and then, it should cost around €100k.

Our intention is to borrow around 50k of the cost, and save the rest (50k is the max we can save within two years). The reason why we won't just save for longer and borrow less is that we plan another child in two years time, and will need the bigger house at that stage.

We are in negative equity on our current home, so moving to a bigger house is not really an option. But we both have secure incomes and could comfortably manage the extra 50k borrowings.

The Garda Credit Union (my partner's credit union - she's a teacher, but her Dad was a guard hence she got an account there) seems to us our best option to borrow the cash on an unsecured basis. I presume we can't remortgage with the bank because of the negative equity. Currently, we are saving almost 1,500 a month in the CU towards the extension and will achieve the 50k target in two years.

My question is this: Will the CU allow us to borrow 50k unsecured and also withdraw the 50k we will have saved in the account? Or is there still some CU rule that you have to leave your savings in situ if you want to borrow? Also, despite our reasonably healthy and secure incomes (My job is private sector and quite safe I think, my partner is public sector), could the negative equity mean that the CU might not lend an amount of 50k to us at all?

Thanks for your help. Any advice at all would be appreciated.

Hi There,

The CU will not let you borrow the further 50K required unsecured. If you are saving €1500 a month with the target of €50,000 your CU will let you borrow based on a proportion of your shares.

I.E

1. Do you have a current loan?
2. What is the share to loan ratio you can borrow from your CU
3. Can you prove you have the ability to repay (the ability to repay will be a major factor) you will need to provide details on current income and expenditure.

Hope this helps.

MANTO said:

Hi There,

The CU will not let you borrow the further 50K required unsecured. If you are saving €1500 a month with the target of €50,000 your CU will let you borrow based on a proportion of your shares.

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Thanks for your help Manto. If they see I can put in 1500 a month in savings every month for over two years, surely that demonstrate my ability to meet repayments on a loan (if I divert my 1500 from savings towards a loan repayment)

So you're saying I won't be able to withdraw my 50k savings and at the same time also borrow 50k from them? I had hoped that this wasn't the case.

I will need 100k for the extension, but I don't want to borrow the full 100k if I have 50k in savings. That doesn't make financial sense, paying interest on 100k when 50k is just sitting there gathering dust. I will only want to borrow 50k. Should I then consider an unsecured loan for the 50k from a bank instead? The only reason I am saving this 1500 a month for the next two years in the CU as opposed to a bank is to show the CU that I have the capacity to repay them. It sounds like I am wasting my time.

It is worth talking to the credit union now about your plan. It is very unlikely that you will be able to withdraw all of the money saved but you should be able to withdraw part of it. The amount you need to leave in, the maximum loan available and the term of the loan with depend on the specific credit union. As the Garda Credit Union is one of the largest they have greater capabilities and experience with larger loans which should be in your favour.

As building projects have a tendancy to go over budget they will probably want to see that you have correctly budgeted the work and have contingency.