Earlier this month a survey conducted by public-sector procurement specialist the Scape Group, in cooperation with Association of British Credit Unions (Abcul), revealed some interesting facts about credit unions in the UK. The study indicated that credit unions are an under-utilised resource for borrowers, providing good value especially when compared to high-interest options such as payday loans. The catch is that for many consumers, credit unions are not very easy to access: a scant three percent of the people surveyed by Scape and Abcul had used one.
By contrast, one in 20 people told the surveyors that in order to make ends meet, they had taken short-term loans from payday lenders. The same proportion had borrowed from a doorstep (home credit) lender. The latter type of loan is a scheme in which the lender calls at the borrower’s home to collect the repayments, hence the “doorstep” designation. Most payday as well as most doorstep loans are for smaller amounts and the borrower is charged exorbitant interest. Although the Financial Conduct Authority (FCA) has clamped down on payday lending, some lenders are still finding loopholes and continuing to engage in unacceptable practices that target the most financially vulnerable and desperate customers. And yet many continue to turn to this type of loan because they feel it is the only option available to them.
The Accessibility Problem
It isn’t that consumers have a distaste for credit unions, which offer savings accounts and loans, generally restricting their customer base to people within a small geographical area. There’s a lot to like about credit unions, most notably the fact that for the most part, loans are significantly less expensive than those available from a commercial lender. A couple of years ago the Archbishop of Canterbury even declared that he wanted to compete payday loan giant Wonga out of existence by offering loans through a church credit union.
And, far from disliking credit unions, the public overall seems to have a positive perception of them. Of those questioned in the Scape and Abcul survey, 41% said credit unions provide good value for money. In comparison, only 1% deemed doorstep lenders a good value and 2% saw payday loans that way.
As indicated above, however, the problem lies in ease of access. Although only three percent of the people surveyed had used a credit union, 62% said they would use credit unions if access were easier.
Accordingly Abcul is has said it is working on ways to make credit unions more accessible, e.g., through online and mobile channels as well as payroll deduction schemes. The organisation cites these options as factors that led to the growth of credit unions in the United States, which, according to Abcul, has a credit union membership of more than 100 million people and $1.2 trillion (£770 billion) in assets.
What About You, and What About Now?
There are many good reasons to join a credit union and it is something you should research, whether or not you are considering a loan. Suppose, however, that you are terribly short of cash now and lack easy access to a credit union. What are your options? Depending upon your overall financial situation including your credit history, there are several choices.
The first order of business is to determine whether you really do need to borrow money. You may think that the answer to that is obvious but it may not be, which is why you should ask yourself some basic evaluation questions. First decide if you really need to spend the money you’re thinking of borrowing, and if so, do you need to spend it immediately? Is it a necessity or just an impulse purchase? Is it worth it to you to go into debt, or more deeply into debt, over this item? If you have savings, is it worth dipping into your savings instead of borrowing? Have you friends or family from whom you can borrow without compromising your relationship? Which choice will be the least costly, both in terms of money and of your most important relationships?
If borrowing right now from a commercial lender seems to be your only option you need to decide upon the amount you can realistically afford to pay back on a timely basis, including interest of course. Then you need to explore the different types of loans that are available to someone in your particular situation.
Many people do indeed end up turning to payday loans, and one option for those with poor or spotty credit is a no credit check payday loan. While these types of non-traditional loans have several potential pitfalls and can be very expensive, they can still be a reasonable choice for you if you research meticulously. You should carefully evaluate the terms offered by different companies, and read the reviews by customers who have used these companies. Borrow as little as you can get by with and pay back promptly, and you shouldn’t have any problems.
Once you’re through your money crisis, though, do yourself a favor and consider joining a credit union. If Abcul has its way, credit union membership will become easier for many more people in the UK. And that’s a very good thing.