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

[Coldwarrior]

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?

 

[24601]

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.

 

[Coldwarrior]

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!

 

[Protocol]

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?

 

[Coldwarrior]

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?

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.

 

[NoRegretsCoyote]

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.

 

[24601]

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.

 

[NoRegretsCoyote]

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?

 

[24601]

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?

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.

 

[Brendan Burgess]

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

 

[24601]

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.

 

[Coldwarrior]

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.

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?

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.

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.

 

[Brendan Burgess]

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

 

[24601]

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:

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.

 

[Brendan Burgess]

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

 

[24601]

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

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.

 

[Protocol]

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.

 

[Pinoy adventure]

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

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.

 

[24601]

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.
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.

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

 

[Brendan Burgess]

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