T
True Blue
Guest
A simple post led to this very important debate.
I have deleted the first few posts of the thread
I have deleted the first few posts of the thread
D
darag
Guest
Re: CU
i think borrowing while saving is a very bad idea especially
with the credit unions. the effect of their policy of
encouraging punters to do this raises the cost of borrowing to
usurous levels. for example someone saving one grand while
borrowing two from the credit union ends up paying
approximately 20% apr (assuming 12% on loans and 4% on
deposit). if i were to be unkind, i could easily suggest that
this policy is a cynical excercise on the part of the credit
unions to exploit people who may be financially naive.
i think borrowing while saving is a very bad idea especially
with the credit unions. the effect of their policy of
encouraging punters to do this raises the cost of borrowing to
usurous levels. for example someone saving one grand while
borrowing two from the credit union ends up paying
approximately 20% apr (assuming 12% on loans and 4% on
deposit). if i were to be unkind, i could easily suggest that
this policy is a cynical excercise on the part of the credit
unions to exploit people who may be financially naive.
A
AB
Guest
CU
Its not always the case that borrowing to invest is a bad idea. If you see a good investment which requires immediate capital, then you need to weigh up the return against how much interest you have to pay on the loan. If the return is higher and you make a profit, then borrowing is just a means to an end. the same can be said about borrowing to buy a second property. CUs may have a high APR but they don't penalise for early payments and charge interest and the principal of the loan which is outstanding after that. So it is possible to cut interest payments to well below bank levels when dealing with the CU.
Its not always the case that borrowing to invest is a bad idea. If you see a good investment which requires immediate capital, then you need to weigh up the return against how much interest you have to pay on the loan. If the return is higher and you make a profit, then borrowing is just a means to an end. the same can be said about borrowing to buy a second property. CUs may have a high APR but they don't penalise for early payments and charge interest and the principal of the loan which is outstanding after that. So it is possible to cut interest payments to well below bank levels when dealing with the CU.
D
darag
Guest
Re: CU
AB, it's not borrowing to invest in the traditional sense that i
object to - where investing means putting the money into a
higher risk/return venture - but borrowing while having money on deposit which is guaranteed to return many times
less than the cost of the loan. the credit unions are not
unique in allowing early settlement of personal loans - many
personal loans from banks allow this also. what irks me, i
guess, is the hypocracy of credit unions in their advice that it
is sensible to have money on deposit while servicing a loan.
this is absolute nonsense and solely benefits the credit union.
at the same time they portray themselves as a saintly
community bastion and cooperative for the less well off.
their advice effectively allows them to charge usurous rates
of interest (over 20% apr if your loan is twice your savings)
while advertising a reasonable base rate. if they were honest
and admitted that in many cases they are positioning
themselves somewhere between the banks and the money
lenders, i'd have more admiration for them.
AB, it's not borrowing to invest in the traditional sense that i
object to - where investing means putting the money into a
higher risk/return venture - but borrowing while having money on deposit which is guaranteed to return many times
less than the cost of the loan. the credit unions are not
unique in allowing early settlement of personal loans - many
personal loans from banks allow this also. what irks me, i
guess, is the hypocracy of credit unions in their advice that it
is sensible to have money on deposit while servicing a loan.
this is absolute nonsense and solely benefits the credit union.
at the same time they portray themselves as a saintly
community bastion and cooperative for the less well off.
their advice effectively allows them to charge usurous rates
of interest (over 20% apr if your loan is twice your savings)
while advertising a reasonable base rate. if they were honest
and admitted that in many cases they are positioning
themselves somewhere between the banks and the money
lenders, i'd have more admiration for them.
S
Slim
Guest
Borrowing from Credit Union
Darag
I think you misunderstand the ethos of Credit Union. The CU encourages thrift and the establishment of a pattern of regular savings. THe maximum rate charged on a loan is 1% per month, 12.68%APR. Many CUs charge much less nowadays. Borrowers are encouraged to leave thier savings on deposit and borrow the higher sum for two reasons;a. security for the CU, b. the savings & loan are insured in the unfortunate event that the borrower dies, i.e. savings may be doubled and the loan is cleared. This insurance is paid for out of general funds and not by the individual borrower. While other institutions allow early repayment, many impose penalties or do not discount the amount of interest charged.The CUs do not impose any charges whatever.
How do you arrive at the rate of 20%?
Slim 8)
Darag
I think you misunderstand the ethos of Credit Union. The CU encourages thrift and the establishment of a pattern of regular savings. THe maximum rate charged on a loan is 1% per month, 12.68%APR. Many CUs charge much less nowadays. Borrowers are encouraged to leave thier savings on deposit and borrow the higher sum for two reasons;a. security for the CU, b. the savings & loan are insured in the unfortunate event that the borrower dies, i.e. savings may be doubled and the loan is cleared. This insurance is paid for out of general funds and not by the individual borrower. While other institutions allow early repayment, many impose penalties or do not discount the amount of interest charged.The CUs do not impose any charges whatever.
How do you arrive at the rate of 20%?
Slim 8)
D
darag
Guest
Re: Borrowing from Credit Union
hi slim, the effect of this so called "ethos" is to make borrowing
extremely expensive for people who can afford it least. the 20% is
taken from the following example which came up on this site before.
let's say you need two grand for something but you only have a grand in
savings. if you go to a bank and borrow the grand at 10%, it will cost
you 100 quid for the year. if you go to the credit union, they'll
convince you to leave the grand in savings and take out a loan for two
grand. if you're paying 12% on the loan it will cost you 240 quid and
you'll make only 40 quid on your savings (assuming 4% interest/dividend)
costing you net 200 quid. thus you'll end up paying the equivalent of
20% for what is a one grand loan.
the extra security you talk about doesn't make any sense to me; in both
cases above, the lending institution is exposed to one grand. the value
of the life insurance is miniscule - i'd estimate the value of the cover
for the average person in this case at around 5 quid for the year.
the reality of the situation is that credit unions deal with what many
banks would consider to be riskier customers. it is simply
unsustainable to carry a riskier loan book without charging higher
interest. they charge this higher level of interest by insisting people
leave money on deposit. they can vary the effective interest they
charge by varying the savings to loan ratio they insist the punter
maintains. for me this is pretty sneaky and i'd prefer they'd be more
upfront about their business model instead of maintaning this
holier-than-thou fascade. it also propagates a financially ridiculous
notion that it makes sense to borrow while simultaneously having money
on deposit.
bottom line is that if you can at all avoid it don't borrow from the
credit unions.
hi slim, the effect of this so called "ethos" is to make borrowing
extremely expensive for people who can afford it least. the 20% is
taken from the following example which came up on this site before.
let's say you need two grand for something but you only have a grand in
savings. if you go to a bank and borrow the grand at 10%, it will cost
you 100 quid for the year. if you go to the credit union, they'll
convince you to leave the grand in savings and take out a loan for two
grand. if you're paying 12% on the loan it will cost you 240 quid and
you'll make only 40 quid on your savings (assuming 4% interest/dividend)
costing you net 200 quid. thus you'll end up paying the equivalent of
20% for what is a one grand loan.
the extra security you talk about doesn't make any sense to me; in both
cases above, the lending institution is exposed to one grand. the value
of the life insurance is miniscule - i'd estimate the value of the cover
for the average person in this case at around 5 quid for the year.
the reality of the situation is that credit unions deal with what many
banks would consider to be riskier customers. it is simply
unsustainable to carry a riskier loan book without charging higher
interest. they charge this higher level of interest by insisting people
leave money on deposit. they can vary the effective interest they
charge by varying the savings to loan ratio they insist the punter
maintains. for me this is pretty sneaky and i'd prefer they'd be more
upfront about their business model instead of maintaning this
holier-than-thou fascade. it also propagates a financially ridiculous
notion that it makes sense to borrow while simultaneously having money
on deposit.
bottom line is that if you can at all avoid it don't borrow from the
credit unions.
S
Slim
Guest
Re: Borrowing from Credit Unions.
Darag
You are taking a very cynical view of what is a voluntary run community co-op. The example you give is interesting but you are ignoring the fact that many/most people need to borrow much more than twice their level of savings, sometimes up to ten times. Decision-making on credit is more and more impersonal in the banks, almost automated. The CU is operated by members for the rest of the members/community.
The value of the life insurance is greatly underestimated, in my view. It can be a great benefit if a wage earner dies and leaves a large loan behind.
Your view that the CU is for the people that the banks do not want is very outdated. That was how the movement started but nowadays most of the CU members are prosperous, solvent people who could borrow from any number of institutions, and often do as they have free choice.
I think you have had a bad experience in a CU and I am sorry about that, but your views are way off the mark and your examples highly selective. My advice is to shop around. If you get a better overall deal, take it. CUs must compete with other financial institutions but don't slag them off, considering the great work they have done over the years.
Slim 8)
Darag
You are taking a very cynical view of what is a voluntary run community co-op. The example you give is interesting but you are ignoring the fact that many/most people need to borrow much more than twice their level of savings, sometimes up to ten times. Decision-making on credit is more and more impersonal in the banks, almost automated. The CU is operated by members for the rest of the members/community.
The value of the life insurance is greatly underestimated, in my view. It can be a great benefit if a wage earner dies and leaves a large loan behind.
Your view that the CU is for the people that the banks do not want is very outdated. That was how the movement started but nowadays most of the CU members are prosperous, solvent people who could borrow from any number of institutions, and often do as they have free choice.
I think you have had a bad experience in a CU and I am sorry about that, but your views are way off the mark and your examples highly selective. My advice is to shop around. If you get a better overall deal, take it. CUs must compete with other financial institutions but don't slag them off, considering the great work they have done over the years.
Slim 8)
S
Skinflint
Guest
.
I'd tend towards darag's view on the CU generally. The monopolistic approach of the ILCU towards insurance (insisting that it be bought by all member CU's from a provider who was far from competitive) which lead to the threatened (or actual?) secession of some unions from the league is another case in point of members not being served well. I still keep a few bob in my CU but I would not generally be inclined to borrow or buy other services from them.
I'd tend towards darag's view on the CU generally. The monopolistic approach of the ILCU towards insurance (insisting that it be bought by all member CU's from a provider who was far from competitive) which lead to the threatened (or actual?) secession of some unions from the league is another case in point of members not being served well. I still keep a few bob in my CU but I would not generally be inclined to borrow or buy other services from them.
S
Slim
Guest
Re: Credit Union.
Skinflint
I agree with your views on ILCU. That has been an archaic organisation which has only recently been shaken up and will continue to be so. They lost IR£27m of members' money on a computer system that could not work in Ireland. They have negotiated all sorts of deals that line the ILCU's pockets with commission. The alternative however is a free-for-all with 536 CUs all over Ireland doing their own thing and not getting the advantage of group purchasing. The new ILCU will have to change to survive.
Slim 8)
Skinflint
I agree with your views on ILCU. That has been an archaic organisation which has only recently been shaken up and will continue to be so. They lost IR£27m of members' money on a computer system that could not work in Ireland. They have negotiated all sorts of deals that line the ILCU's pockets with commission. The alternative however is a free-for-all with 536 CUs all over Ireland doing their own thing and not getting the advantage of group purchasing. The new ILCU will have to change to survive.
Slim 8)
Brendan Burgess
Founder
- Messages
- 53,684
Re: Credit Union.
Slim
Any calculations I have ever done have shown the Credit Union to be more expensive than an ordinary lender. They are cheaper than Credit Cards, but only just.
They mislead you when you ask them what the APR is. I guess that most of them don't understand what it means. Certainly the ones I spoke to didn't.
I've tried to raise it with the ILCU, but they never returned my calls.
If AIB, Bank of Ireland or the Irish Nationwide behaved the way the Credit Unions do, I would be flooding IFSRA with complaints about predatory lending.
However, I believe that the CUs are well intentioned. They are ripping off their members, although I don't think that they are setting out to do so. If you can borrow from one of the main banks by way of overdraft or term loan, it's a much cheaper option. And you can pay it off without penalty whenever you want. The overdraft is particularly cheap if you are lodging your salary.
I do appreciate that the Credit Unions are trying to encourage people to save. But saving at a low rate while borrowing at a higher rate is financially crazy. Paying off a loan is a form of saving and the Credit Unions should educate their members about this.
Brendan
Slim
Any calculations I have ever done have shown the Credit Union to be more expensive than an ordinary lender. They are cheaper than Credit Cards, but only just.
They mislead you when you ask them what the APR is. I guess that most of them don't understand what it means. Certainly the ones I spoke to didn't.
I've tried to raise it with the ILCU, but they never returned my calls.
If AIB, Bank of Ireland or the Irish Nationwide behaved the way the Credit Unions do, I would be flooding IFSRA with complaints about predatory lending.
However, I believe that the CUs are well intentioned. They are ripping off their members, although I don't think that they are setting out to do so. If you can borrow from one of the main banks by way of overdraft or term loan, it's a much cheaper option. And you can pay it off without penalty whenever you want. The overdraft is particularly cheap if you are lodging your salary.
I do appreciate that the Credit Unions are trying to encourage people to save. But saving at a low rate while borrowing at a higher rate is financially crazy. Paying off a loan is a form of saving and the Credit Unions should educate their members about this.
Brendan
D
darag
Guest
Re: Borrowing to Invest
hi slim. i'd describe my view as sceptical rather than cynical. i don't ascribe evil motivations to the movement but i don't buy the holier-than-thou utterances from credit union representatives either.
i'm sceptical about the notion that communtity co-op for financial products can magically deliver cheaper loans. like i said, no lending institution can survive without charging higher interest rates for riskier loans. this is almost axiomatic. the credit unions are no different except they achieve this by insisting customers keep savings while borrowing instead of just straight up stating the cost in simple apr terms. this is obfuscation but the effect is the exact same.
with your example, i'm sure the people who are allowed borrow ten times their savings are the least risky - for example, with good steady jobs and possibly owning their home - while some youngster without decent qualifications in a low paid, low prospects position will be asked to maintain a much higher ratio of savings. this just reinforces what i'm saying. from a rough estimate, the person who is allowed borrow ten times their savings is paying a bit under 1% over the quoted interest rate, while like i pointed out before, the person borrowing twice their savings is paying 8% above the quoted rate.
regarding your other point, the value of the life insurance is only as much as it would cost to buy, no more or no less. like i said the cost for life cover of one grand over a year would be miniscule.
slim, i haven't personally had any bad experience with the credit unions. i have a friend who unwittingly paid very high interest rates by borrowing from their credit union. i do find the morally superior tone from the credit unions a bit hard to take given they are lenders just like banks. i'm sure many volunteers are well meaning but i'm also sure many within the movement understands the fundamental nature of their business, otherwise they would have gone bust years ago.
hi slim. i'd describe my view as sceptical rather than cynical. i don't ascribe evil motivations to the movement but i don't buy the holier-than-thou utterances from credit union representatives either.
i'm sceptical about the notion that communtity co-op for financial products can magically deliver cheaper loans. like i said, no lending institution can survive without charging higher interest rates for riskier loans. this is almost axiomatic. the credit unions are no different except they achieve this by insisting customers keep savings while borrowing instead of just straight up stating the cost in simple apr terms. this is obfuscation but the effect is the exact same.
with your example, i'm sure the people who are allowed borrow ten times their savings are the least risky - for example, with good steady jobs and possibly owning their home - while some youngster without decent qualifications in a low paid, low prospects position will be asked to maintain a much higher ratio of savings. this just reinforces what i'm saying. from a rough estimate, the person who is allowed borrow ten times their savings is paying a bit under 1% over the quoted interest rate, while like i pointed out before, the person borrowing twice their savings is paying 8% above the quoted rate.
regarding your other point, the value of the life insurance is only as much as it would cost to buy, no more or no less. like i said the cost for life cover of one grand over a year would be miniscule.
slim, i haven't personally had any bad experience with the credit unions. i have a friend who unwittingly paid very high interest rates by borrowing from their credit union. i do find the morally superior tone from the credit unions a bit hard to take given they are lenders just like banks. i'm sure many volunteers are well meaning but i'm also sure many within the movement understands the fundamental nature of their business, otherwise they would have gone bust years ago.
S
Slim
Guest
Re: Credit Union Borrowing
Darag & Brendan
"They are ripping off their members"
I can't agree with that but what has to be remembered here is that each Credit Union is independent of the other 535 or so and of the ILCU. Each can charge its own interest rate up to a maximum of 1% per month. We currently charge 8.52% (APR 8.9%). This is very favourable when compared with the table in "Best Buys" linked from this site. Only OneDirect is cheaper. However, other CUs may charge more and find they can lend out a satisfactory proportion of their funds. Also, bear in mind that most CUs are paying dividend of 2.5% to 4% on what are effectively demand accounts. Where else will you get that in the market?
Borrowing as a multiple of savings has been a core value of CUs so as to encourage thrift and prudent habits amongst members. A first loan might typically be 3 or 4 times savings. Subsequent loans may be granted for higher multiples. The record of the individual member in repaying loans is more important than his/her status in the workforce. Higher paid people are not necessarily better risks. On the subject of risk, remember it is the members' money that is at risk. All members are shareholders. As I said in a previous post, shop around for value but remember, the institutions quoting lower rates may have arrangement fees or early payment penalties.
The ILCU has been a woeful organisation in the past and I am not surprised that you did not get a reply.
Slim 8)
Darag & Brendan
"They are ripping off their members"
I can't agree with that but what has to be remembered here is that each Credit Union is independent of the other 535 or so and of the ILCU. Each can charge its own interest rate up to a maximum of 1% per month. We currently charge 8.52% (APR 8.9%). This is very favourable when compared with the table in "Best Buys" linked from this site. Only OneDirect is cheaper. However, other CUs may charge more and find they can lend out a satisfactory proportion of their funds. Also, bear in mind that most CUs are paying dividend of 2.5% to 4% on what are effectively demand accounts. Where else will you get that in the market?
Borrowing as a multiple of savings has been a core value of CUs so as to encourage thrift and prudent habits amongst members. A first loan might typically be 3 or 4 times savings. Subsequent loans may be granted for higher multiples. The record of the individual member in repaying loans is more important than his/her status in the workforce. Higher paid people are not necessarily better risks. On the subject of risk, remember it is the members' money that is at risk. All members are shareholders. As I said in a previous post, shop around for value but remember, the institutions quoting lower rates may have arrangement fees or early payment penalties.
The ILCU has been a woeful organisation in the past and I am not surprised that you did not get a reply.
Slim 8)
R
rainyday
Guest
Re: Credit Union Borrowing
Hi Slim - Does this APR take into account the requirement to leave funds on deposit?
Hi Slim - Does this APR take into account the requirement to leave funds on deposit?
S
Slim
Guest
Re: Borrowing to invest
Rainyday
No, that is just the loan rate. The significance of the requirement to leave shares on deposit is being overblown here. Nobody, as far as I can say, is asked to leave more than 25% as security and many are asked to leave much less.
Incidentally, we and many other CUs, pay a 10% interest rebate which would reduce the cost of borrowing significantly.
Slim 8)
Rainyday
No, that is just the loan rate. The significance of the requirement to leave shares on deposit is being overblown here. Nobody, as far as I can say, is asked to leave more than 25% as security and many are asked to leave much less.
Incidentally, we and many other CUs, pay a 10% interest rebate which would reduce the cost of borrowing significantly.
Slim 8)
R
rainyday
Guest
Re: Borrowing to invest
Hi Slim - I take your point (and I don't question the motivation or principles of those behind credit unions). I do think that you should help your members/borrowers to compare your loans against other alterntives by quoting a comparable all-in apples-for-apples APR.
Hi Slim - I take your point (and I don't question the motivation or principles of those behind credit unions). I do think that you should help your members/borrowers to compare your loans against other alterntives by quoting a comparable all-in apples-for-apples APR.
D
darag
Guest
Re: Borrowing to invest
hi slim. it is disingenious if not false advertising to quote an apr for credit union loans. apr has a particular meaning when it comes to loans - it is supposed to include all the costs of the borrowing. your quoted interest rate simply doesn't and so you shouldn't call it apr.
for example your credit union never ever lends money at 8.9% apr. assuming 2.5% interest on savings, even if you are lending ten times savings the apr is 9.6% by my calculation. the apr rises to 12.3% for someone borrowing three times their savings. these rates aren't usurous i admit but the figures get much worse if the borrowing rate is higher which it is in many credit unions.
by the way, i've never heard rainyday give anyone such an easy ride when it comes to economy with the truth. he must have a soft spot in his socialist heart for the credit unions. if any other lending institution quoted an apr rate in the same way there would be outrage.
i believe you are well meaning slim but this is nonsense:
hi slim. it is disingenious if not false advertising to quote an apr for credit union loans. apr has a particular meaning when it comes to loans - it is supposed to include all the costs of the borrowing. your quoted interest rate simply doesn't and so you shouldn't call it apr.
for example your credit union never ever lends money at 8.9% apr. assuming 2.5% interest on savings, even if you are lending ten times savings the apr is 9.6% by my calculation. the apr rises to 12.3% for someone borrowing three times their savings. these rates aren't usurous i admit but the figures get much worse if the borrowing rate is higher which it is in many credit unions.
by the way, i've never heard rainyday give anyone such an easy ride when it comes to economy with the truth. he must have a soft spot in his socialist heart for the credit unions. if any other lending institution quoted an apr rate in the same way there would be outrage.
i believe you are well meaning slim but this is nonsense:
the reality is that it is never prudent to borrow at higher rates of interest while having savings on deposit at much lower rates.
S
Slim
Guest
Re: Credit Union Borrowing
Just as a matter of interest, our independent auditors calculate the APR for us, but it is close to what I myself have worked out. That is the straight cost of borrowing. If you want to factor in the opportunity cost of leaving shares on "deposit" at a superb "demand" rate, you need to be aware that the proportion changes for each borrower and subsequent loan. What is the harm in leaving 2k on deposit if you need 10k for a car, the rate is competitive, the loan is insured and so are your savings? THere is no fixed rate deal so if you pay it off early, no penalties apply nor is there an obligation to pay up all the interest calculated over the full term of the loan. Most CUs are flexible when it comes to the amount required to be left as security.
I don't think I was being economical with the truth. CU is not always the cheapest but it is very community based and if it makes a few euro it pays this back to members as dividend and not as profit to fat cat shareholders. As a movement it is struggling to modernise, partly due to the ineffectiveness of ILCU and partly because of the nature of the movement. It is not one company but 530.
I am considering moving the finance for the family vehicles to First Active Utopia myself, so the CU does not suit everyone but I prefer to borrow from it for loans where I don't want a direct debit hitting my account on a monthly basis.
Slim 8)
Just as a matter of interest, our independent auditors calculate the APR for us, but it is close to what I myself have worked out. That is the straight cost of borrowing. If you want to factor in the opportunity cost of leaving shares on "deposit" at a superb "demand" rate, you need to be aware that the proportion changes for each borrower and subsequent loan. What is the harm in leaving 2k on deposit if you need 10k for a car, the rate is competitive, the loan is insured and so are your savings? THere is no fixed rate deal so if you pay it off early, no penalties apply nor is there an obligation to pay up all the interest calculated over the full term of the loan. Most CUs are flexible when it comes to the amount required to be left as security.
I don't think I was being economical with the truth. CU is not always the cheapest but it is very community based and if it makes a few euro it pays this back to members as dividend and not as profit to fat cat shareholders. As a movement it is struggling to modernise, partly due to the ineffectiveness of ILCU and partly because of the nature of the movement. It is not one company but 530.
I am considering moving the finance for the family vehicles to First Active Utopia myself, so the CU does not suit everyone but I prefer to borrow from it for loans where I don't want a direct debit hitting my account on a monthly basis.
Slim 8)
R
rainyday
Guest
Re: Credit Union Borrowing
Hi Slim
Darag, will you ever give it a rest? What gives you the right to moan about what I DON'T say? Your sneering comment is hovering over that line of attacking the person instead of the posting. I highlighted the APR issue - AAM readers are big enough to make their own minds up when they see the facts.
Hi Slim
It's not just an issue of the opportunity cost of the shares on deposit. If I have 2k savings & I want a 10k car, I can borrow 8k from the bank. With my CU, I have to borrow 10k. Therefore the total interest paid on the 10k should really be apportioned over an 8k loan to give a comparable APR with the bank. I think this would push your APR's significantly higher.
S
Slim
Guest
Re: Credit Union Borrowing
Rainyday
Leaving 20% of the total needed is not always necessary. The proportion to be left is negotiable and varies according to the record of the member/borrower. The cost to the member of leaving the funds on deposit are somewhat mitigated by the high dividend paid and the free loan/life insurance. However, more importantly perhaps is the service available to the member. If problems arise in job losses, emergency at home etc, the CU is a more friendly place to appeal to than a bank. It is driven by an ethois of servcie to members not profit. It is old fashioned in that respect.
But, yes I take your point, nevertheless, although that is the way Credit UNions were set up and the ethos they operate under. Much has changed over the 50 yrs or so. CU loan interest rates are struggling to compete with banks and still pay a decent dividend to members. Banks are more aggressive nowadays and much has changed in lending generally. We seem to be in a "show me the money" society and if that is your sole criterion for choosing a lender then I could never persuade you of the advantages of using your local CU.
Slim 8)
P.S: Thanks for the respectful way in which you have conducted your argument
Rainyday
Leaving 20% of the total needed is not always necessary. The proportion to be left is negotiable and varies according to the record of the member/borrower. The cost to the member of leaving the funds on deposit are somewhat mitigated by the high dividend paid and the free loan/life insurance. However, more importantly perhaps is the service available to the member. If problems arise in job losses, emergency at home etc, the CU is a more friendly place to appeal to than a bank. It is driven by an ethois of servcie to members not profit. It is old fashioned in that respect.
But, yes I take your point, nevertheless, although that is the way Credit UNions were set up and the ethos they operate under. Much has changed over the 50 yrs or so. CU loan interest rates are struggling to compete with banks and still pay a decent dividend to members. Banks are more aggressive nowadays and much has changed in lending generally. We seem to be in a "show me the money" society and if that is your sole criterion for choosing a lender then I could never persuade you of the advantages of using your local CU.
Slim 8)
P.S: Thanks for the respectful way in which you have conducted your argument
D
daltonr
Guest
Show Me the Money
It IS the sole criterion for determining APR. Whatever the borrower's sentiment towards a lender he/she is entitled to see an honest and accurate representation of the cost of borowing.
Unless the Credit unions APR takes into account the money that MUST be left on deposit then it is misleading and should not be called an APR.
The fact that the Credit Union customers must hold on to savings at a low rate while repaying debts at a high rate IS NOT GOOD for the customer, it IS GOOD for the CU.
It is unfair and dishonest to tell people that this is for their benefit. These people may well trust the CU and apply the same logic to credit card debts, mortgages etc.
If the CUs APR takes into account the savings then that's an entirely different matter. But I doubt they do, I'll check it out.
-Rd
It IS the sole criterion for determining APR. Whatever the borrower's sentiment towards a lender he/she is entitled to see an honest and accurate representation of the cost of borowing.
Unless the Credit unions APR takes into account the money that MUST be left on deposit then it is misleading and should not be called an APR.
The fact that the Credit Union customers must hold on to savings at a low rate while repaying debts at a high rate IS NOT GOOD for the customer, it IS GOOD for the CU.
It is unfair and dishonest to tell people that this is for their benefit. These people may well trust the CU and apply the same logic to credit card debts, mortgages etc.
If the CUs APR takes into account the savings then that's an entirely different matter. But I doubt they do, I'll check it out.
-Rd