Payday loans vs Credit Unions
We appreciate that payday loans are an expensive form of short-term credit. For customers looking to borrow up to £1,500, payday lenders are a viable option because they can transfer the funds to your account within 15 minutes. However, the convenience comes with a price which is why the APR is higher than your standard loan on the high street. But if you don’t need the funds in a rush and are willing to wait a few days, you can obtain the same amount you need to borrow from your local credit union and pay significant less. In this page, we plan to give you a better understanding of what credit unions, how you can join one and how they are different to payday loan lenders.
What is a credit union?
A credit union is a non-profit community-based loan provider. Originally starting in the mid-1800s in Germany, credit unions are all about members helping other members in their local community to save on loans and reduce their debt. There has always been an emphasis on credit unions operating in churches with some donations to the Church going towards helping members of the community. More recently, credit unions have become recognised financial institutions with over 500 in the UK serving their local communities and over 1 million members in Great Britain. CUs can be found on several high streets across the country and the financial product range includes payday loans, mortgages, saving accounts and current accounts.
Typically credit unions will help those who may have been rejected for other ordinary bank products. To be accepted as a member, you need to have something known as a ‘common bond’ with other members. This may be your geographical location – most credit unions are exclusive only to their borough. Another common bond is your line of employment, with credit unions common for working class like teachers, policeman, nurses etc . But ultimately credit unions are for everyone and if you go to your local credit union for the borough you live in, you should be able to become a member.
How is a credit union different to a payday loan?
There are several differences between a credit union and a payday loan lender. However, it should be noted that more recently, credit unions do offer payday loans in the sense that you can borrow a few hundred pounds and repay on your next pay date.
Rates: The rates for a credit union are significantly lower because they are not-for-profit organisations compared to payday loan lenders who are private and profit making companies. Credit unions are limited by law in the APR they can charge – there’s a maximum of 42.6%, meaning your ‘payday’ loan will cost much less. This is why you find that a payday loan with a credit union may only cost you a few pounds to repay (see examples below).
Speed: This is something that we mentioned earlier on the page. Payday lenders promise instant decisions and quick funds with many able to transfer hundreds of pounds to your account within an hour if you have been successful. By comparison, credit unions take longer to process your application and transfer your funds, sometimes up to 5 days. This is why credit unions can be a fantastic option if you are prepared to wait a few days because despite the delay, you will really pay pittance for your loan.
Credit unions cheaper than payday loans
Based on these examples above of credit unions that offer payday loans, you can see there is a significant difference in the price. The repayment for borrowing a payday loan from CUOK or Six Towns is nothing more than a few pounds repayment provided you are willing to wait a few days to receive the funds. You can even repay early and there are no extra fees (this is available with some payday lenders where some charge early repayment fees and some do not). You will notice just under the table that if you do want the funds on the same day, you will have to pay £11 or £15 which is actually 1,000 times the repayment! But overall.
At The Lenders List, we are all about allowing our customers to compare loans and find the cheapest product for them on the right terms. Recent investigations carried out by the CMA showed that lenders could make big savings by comparing payday loans which is why we are thrilled to offer a simple list of lenders as our comparison. We encourage users to visit the individual pages of our lenders to see the types of checks they carry out and the fees that they charge so they can see how much they could save by using various lenders. Our website is constantly updated with useful blog posts and we encourage users to get in touch with us by email if they have any questions.