How SHOULD a credit union account be used?

jeepers101

I just drew down a loan from my credit union this evening for 1000 euro. I have 1600 euro in shares.

Why didn't I just withdraw shares? I read some time ago that the philosophy of a credit union is that everybody saves together and then borrows from each other. If everybody does this it theoretically results in a low interest rate for all members.

Now with that in mind I checked the credit agreement and the APR is 12.68%. This seems rather high and the cost of credit is 51 euro over nine months.

Should I have just withdrew some of my shares? That's what I used to do... I used to treat the credit union as a bank- save and withdraw. However I was chatting to one of the staff a few months back about taking out a rather large loan to finance home improvements. She told me I wouldn't qualify for the loan due to my share balance. She was looking back through my account and had seen that I withdrew 1000 euro from my shares. She told me I ''Should have taken out a loan for the 1000 euro".

So how should a credit union be used?

chris85

jeepers101 wrote: »

I just drew down a loan from my credit union this evening for 1000 euro. I have 1600 euro in shares.

Why didn't I just withdraw shares? I read some time ago that the philosophy of a credit union is that everybody saves together and then borrows from each other. If everybody does this it theoretically results in a low interest rate for all members.

Now with that in mind I checked the credit agreement and the APR is 12.68%. This seems rather high and the cost of credit is 51 euro over nine months.

Should I have just withdrew some of my shares? That's what I used to do... I used to treat the credit union as a bank- save and withdraw. However I was chatting to one of the staff a few months back about taking out a rather large loan to finance home improvements. She told me I wouldn't qualify for the loan due to my share balance. She was looking back through my account and had seen that I withdrew 1000 euro from my shares. She told me I ''Should have taken out a loan for the 1000 euro".

So how should a credit union be used?

You do what is best for yourself. By getting a loan you are going to pay more. Doesnt matter what the CU says to you, if you get a loan its costing you money. Thats a fairly hefty interest rate also. My credit card has lower.

If you want to do it your way you could just go in and repay the loan tomorrow. You will have on day of interest due and there are no penalties for repaying early (Presuming variable rate loan which most CU loans are). you could then withdraw your shares.

Dodge

As above people use their credit union for different things.

Most CU loans are based on your deposits/shares. So if your CU operates a max loan of 4 times your shares. So if you have 500 in it, your max laon is €2k, if you have €1k in it, you max loan is €4k

Note that each CU has their own rules. Some now even have ATM cards

patmor

Hi

Some Credit Unions offer a reduced rate if your loan is below the level of your shares e.g in our Credit Union we offer a rate of 5.75% for borrowings below shares , this is because we have full security and no risk attached

Another reason is that we find by keeping your shares and borrowing on the strenght of them you have made a committment to repay a certain amount each week , we find members find it easier to repay a loan than to commit to savings , there is obviously a cost to this , the difference between the interest rate and the borrowing rate .

Another factor to consider is the insurance aspect , again this differs from credit union to credit union , in our credit union ( in the event of your demise , god forbid) there is insurance on shares up to a maximum of 7,700 e.g if you took out a loan for 5,000 and you had 6,000 in shares ( savings ) , if you died and assuming the savings were deposited before you were 55 your estate would receive 12000 in savings and your loan would be cleared . this is one of the reasons we often encourage our senior members to borrow rather than withdraw their shares . The insurance declines at certain ages and there is no insurance on savings deposited after age 70

These are just some of the reasons , but it is important to ask what is the best option and why , remember it is your credit union , your an owner and you should inform yourself of the benefits that are available to you if you are borrowing or saving

thomasm

jeepers101 wrote: »

I just drew down a loan from my credit union this evening for 1000 euro. I have 1600 euro in shares.

Why didn't I just withdraw shares? I read some time ago that the philosophy of a credit union is that everybody saves together and then borrows from each other. If everybody does this it theoretically results in a low interest rate for all members.

Now with that in mind I checked the credit agreement and the APR is 12.68%. This seems rather high and the cost of credit is 51 euro over nine months.

Should I have just withdrew some of my shares? That's what I used to do... I used to treat the credit union as a bank- save and withdraw. However I was chatting to one of the staff a few months back about taking out a rather large loan to finance home improvements. She told me I wouldn't qualify for the loan due to my share balance. She was looking back through my account and had seen that I withdrew 1000 euro from my shares. She told me I ''Should have taken out a loan for the 1000 euro".

So how should a credit union be used?

I dont know your circumstances but I really can’t see a reason to borrow here. Take out the money you have in the credit union for your needs and pay back the amount in savings instead. It's only costing you unnecessary interest payments. You’re paying to use your own money!!

billyhead

Further to this query. I have 8,500 in a regular savings account in the CU and was wondering would I be better moving it to another financial Institution and account for a better return. It earns an annual divided bu this years return was pitiful to say the least

jeepers101

patmor wrote: »

Hi

Some Credit Unions...

Excellent post. Thanks.

thomasm

billyhead wrote: »

Further to this query. I have 8,500 in a regular savings account in the CU and was wondering would I be better moving it to another financial Institution and account for a better return. It earns an annual divided bu this years return was pitiful to say the least

Again depends on your circumstances, would you ever need a loan from CU you may not get from bank? If it's just interest on savings you want best to go elsewhere. Best rates currently available are here.

http://www.askaboutmoney.com/showthread.php?t=90481

pawrick

just for comparision

received a text yesterday from my cu

loan offer of 5.92 APR

however a friend of mine in the same cu was charged 10.5% today (must vary depending on loan type and savings I guess as someone else posted above)