The lending policies of Credit Unions

[darag]

Re: .

sure shoegirl but the basic point is that credit unions can
often charge very high interest in a way that is not clear to
borrowers. yes they are better than moneylenders in terms
of interest charged and are more accommodating than banks
in terms of offering credit to people who would be considered
risky cases. however, there have been enough cases on this
messageboard of people ending up paying a real apr rate of
16-20% apr on credit union debts that it obvious that some
people get burned badly by borrowing from credit unions.
i believe credit unions fill an important role in helping people
with access to credit but i find the idea that they are beyond
reproach and that the idea that people cannot get ripped off
by them ridiculous. i also believe that they propagate poor
financial advice with what is either misguided or false advise
that people should maintain deposit savings while borrowing.

as for protocol's claim - it's ludicrous. real apr is the true
measure of credit cost. if you borrow 10K at what is claimed
to be 8% interest but are forced to keep 2.5K in savings
earning 3% then you are really borrowing 7.5K at a 11% rate.
the credit unions never factor in the mandatory savings when
they quote apr which in a fit of generosity, i'd say was very
opaque.

as for contributing to a mutual - some contribute and some
benefit; it's a zero sum game. call me cynical, but you'll
find plenty of people on this messageboard and elsewhere
encouraging you to "contribute to a mutual" because they
benefit from membership. it's not such good fun for those
who end up paying over 15% on their debts.

 

[Slim]

Re: CU rates

"i also believe that they propagate poor
financial advice with what is either misguided or false advise
that people should maintain deposit savings while borrowing."

I think it is important to understand why CUs encourage the holding of deposits while borrowing.
1. To establish a pattern of saving in advance of getting a loan
2. As a form of security to ensure that there is an incentive to repay the loan and
3. In the case of elder members especially the shares insurance declines from age 55 onwards.

Credit UNions do not give out financial advice as part of normal business. It is neither misguided nor false. It is simply current policy.

If CUs abandoned the requirement to maintain at least 25% of the value of a loan in savings, a number of things could happen;
1. Higher level of default on loans
2. CU would attract less scrupulous members
3. Higher level of bad debts leading to reduced returns on lending which would lead to lower dividends and slightly higher interest rates and
4. Some folk who currently are able to borrow from CU (and do so honourably and make full repayments) would not be entertained for loans

Horses for courses.

Slim 8)

 

[<A HREF=http://pub145.ezboard.com/baskaboutmoney.s]

Re: CU vs. Bank of Ireland

Fair points - but they should be obliged to, or volunteer to, quote APRs that include the cost of keeping money on deposit while having a loan outstanding. That way people could compare like with like against other credit products on the market and choose the best value product. As things stand, notwithstanding all the good things that the CU stands for and has done in the past, the CU approach to lending causes confusion for somebody looking for the best deal. This is potentially bad for many consumers.

 

[daltonr]

Re: CU vs. Bank of Ireland

but they should be obliged to, or volunteer to, quote APRs that include the cost of keeping money on deposit while having a loan outstanding.

This is what actually amazes me! I'm surprised that they aren't obliged to. Can anyone confirm that the rate advertised by the CUs does not include the money on deposit?

-Rd

 

[<A HREF=http://pub145.ezboard.com/baskaboutmoney.s]

Re: .

Can anyone confirm that the rate advertised by the CUs does not include the money on deposit?

Presumably they would have to quote different APRs to different borrowers based on the amount they keep on deposit so I presume that any APR quoted doesn't take into account the cost of holding money on deposit while having a loan outstanding.

 

[Dave]

Credit Unions vs Banks

Most banks don't give much unsecured credit, except through Credit cards to non-customers. Most Overdrafts for example are bolted into expensive Current accounts, and customers can also get very poor deposit rates. There's also no interest on C/A credit balances worth talking about.

The point is, taking daltonr's line that if CU's were required my IFSRA to recalculate APR, even allowing for interest rate rebates, ( which seems impossible) surely it would also knacker bank advertising too?

 

[Slim]

To answer daltonr's question, the rates quoted DO NOT include the cost of keeping funds on deposit. This would vary from member to member depending on the loan and the amount held on deposit etc. It is difficult enough to calc. APR without including this. It is part and parcel of credit union to borrow against secured funds.

Slim 8)