Is this really bad advice from Credit Union?

Don't see the issue, I've taken out loans from the credit union like this in the past against my own savings and think they are a good idea. Hate spending the savings after putting in the effort to save them and this allows you get a cheap loan without using them up. Its a lot easier to pay off a loan than save too as you simply have no choice with the loan. Much happier seeing the lump sum in your account and paying off a small bit every month on a loan than having a zero in the account and trying to build it with savings.

AlmightyCushion

Deleted User wrote: »

The justification for it hinges on a number of points:

- proves to them you can meet regular repayments, should you ever need a (bigger) loan
- improves your credit rating with other financial institutions
- the funds stay in your account should anything come up like an emergency medical bill or whatever. If you just took out the cash you're stuck trying to get a loan at the last minute
- you earn a dividend based on the cash left in your account
- it's dirt cheap (a €2k loan over two years @ 4.6% costs less than a fiver a month interest)
- the communal aspect: a more profitable credit union means a better one, no point being in a CU where nobody takes out loans

We don't have credit ratings here. You get loans based on your repayment capacity not how good you have been at paying back loans in the past. This is an American concept. Also, the funds stay in your account but you can't use them as they are secured against the loan so if you encounter an emergency and need to use your savings, you can't. However, if you use your savings to buy the thing in the first place instead of the loan and then start building up your savings again, then you can use those new savings to pay for the emergency.

KrakityJones

AlmightyCushion wrote: »

We don't have credit ratings here. You get loans based on your repayment capacity not how good you have been at paying back loans in the past. This is an American concept. Also, the funds stay in your account but you can't use them as they are secured against the loan so if you encounter an emergency and need to use your savings, you can't. However, if you use your savings to buy the thing in the first place instead of the loan and then start building up your savings again, then you can use those new savings to pay for the emergency.

We don't have a credit score but we most certainly have credit ratings here. Whether you get a loan is very dependent on this - the first thing any lending house (credit union or bank) will do is run a check on you via ICB and the newer CCR systems.


I have used this specifically for building up my credit rating following insolvency. A secured loan doesn't need the usual checks so even someone with their credit rating in tatters (myself a case in point) can easily get a secured loan. It's 100% risk free for them. The benefit for me is that every payment is marked on my credit rating as a positive. I clear one secured loan (more plus points on rating), take out another a couple months later and over time my credit rating builds back to normal.

Dodge

emeldc wrote: »

. They will also lend you up to 3 times your savings. Will the banks?

Those days are long gone. The amount you can borrow is based on your ability to repay with credit unions. That’s all. If you have 3k saved, and want a loan of €9k, you’re going to have to show the credit unions exactly the same amount of docs as you would a bank (payslips, bank statement etc). Some with 1k or 8k saved is in the same boat

I like my credit union. It suits my needs

But they’re just another financial institution now and people should do their own research on all aspects of their own money

EDIT: oh and I’ve no problem with them trying to sell their products either

emeldc

Dodge wrote: »

Those days are long gone. The amount you can borrow is based on your ability to repay with credit unions. That’s all. If you have 3k saved, and want a loan of €9k, you’re going to have to show the credit unions exactly the same amount of docs as you would a bank (payslips, bank statement etc). Some with 1k or 8k saved is in the same boat

I like my credit union. It suits my needs

But they’re just another financial institution now and people should do their own research on all aspects of their own money

EDIT: oh and I’ve no problem with them trying to sell their products either

I thought so too but I know a lad that is trying to finance a log cabin. The CU told him (just last week) that with 5k on deposit they would lend him 17.5K and with 10K on deposit they would lend him 38k. The term would be 4 yrs.

Dodge

emeldc wrote: »

I thought so too but I know a lad that is trying to finance a log cabin. The CU told him (just last week) that with 5k on deposit they would lend him 17.5K and with 10K on deposit they would lend him 38k. The term would be 4 yrs.

That’s his CU and their rules. It isn’t the norm. Even the example you give aren’t 3x /4x savings as they were maybe 15 years ago

Each credit union has their own rates and requirements. There isn’t a uniform credit union

emeldc

Dodge wrote: »

That’s his CU and their rules. It isn’t the norm. Even the example you give aren’t 3x /4x savings as they were maybe 15 years ago

Each credit union has their own rates and requirements. There isn’t a uniform credit union

But it's not long gone either. The Cu's need to lend money in order to survive. The banks on the other hand wouldn't entertain him at all regardless of his ability to pay.

Dodge

emeldc wrote: »

But it's not long gone either. The Cu's need to lend money in order to survive. The banks on the other hand wouldn't entertain him at all regardless of his ability to pay.

I’m not arguing about specific applications BUT in the past credit unions loaned solely on shares/savings, now they loan on the ability to repay (in the same way banks do)

That’s all.

As I’ve said, they’ll all have their own individual requirements. If your mate can get a loan with them and not a bank, then good luck to him

HerrKuehn

Borrowing your own money @ 5%. There is truly one born every minute. I would love to know what thee uptake of this is. There seems to be 2 valid use cases:

1) You expect to croak it imminently.
2) You need to build back up your credit rating.

joe40

I think people take these type of loans purely because the discipline required to pay off a loan is greater than the discipline required to save.
An individual may not trust themselves to save hard to replenish savings but would pay back a loan.
Apart from that these loans make no sense

shadydestroyer

The 3 times rule is long again, well for a lot of the bigger credit unions.

All I was every asked was to have 10% of the loan in the shares. Maybe if my salary was less they would request more. Maybe not.

I probably wouldn't bother for a loan with them anymore to be honest unless rejected by the bank as their interest rates are pretty bad.

phormium

This type of lending is based purely on the psychological aspect of not spending the money you worked hard to save. Lots of people like this system, they find it easier to be disciplined enough to pay back a required weekly payment when they might not save that money easily and flitter it away.

It's a type of loan that works well for credit unions and their client base, not for everyone obviously especially those who can easily save or easily borrow from banks.

It's not advice as previously stated, it's advertising and an offering of a product that a lot of people like.

PhilOssophy

HerrKuehn wrote: »

Borrowing your own money @ 5%. There is truly one born every minute. I would love to know what thee uptake of this is. There seems to be 2 valid use cases:

1) You expect to croak it imminently.
2) You need to build back up your credit rating.

A bank would not look kindly on somebody stupid enough to borrow like this when it comes to credit rating....

HerrKuehn

These share secured loans are the most idiotic product I have ever heard of. I see one credit union has the rate set at 6.5%. They lend you your money at 6.5%! There should really be legislation to protect people from this type of thing

PHG

Sophia Tinkling Orangutan wrote: »

Don't see the issue, I've taken out loans from the credit union like this in the past against my own savings and think they are a good idea. Hate spending the savings after putting in the effort to save them and this allows you get a cheap loan without using them up. Its a lot easier to pay off a loan than save too as you simply have no choice with the loan. Much happier seeing the lump sum in your account and paying off a small bit every month on a loan than having a zero in the account and trying to build it with savings.

There is nothing cheap about a loan!! You always have a choice, set up a DD from your wages the day you get paid to put it back into your account, same thing but no interest. There is also the idea, that if you cannot afford it, then don't buy it.

My Auld Lad has one atm from the CU and it is aaprox. 10% on 11000! The credit union representative behind the counter told him to just pay the amount and don't worry about overpaying each month.

My brother and I were not happy with him and immediately told him to start overpaying (he can afford to) and are going to pay a good portion of it upfront.

Donn Cuailnge

HerrKuehn wrote: »

These share secured loans are the most idiotic product I have ever heard of. I see one credit union has the rate set at 6.5%. They lend you your money at 6.5%! There should really be legislation to protect people from this type of thing

They are not idiotic.
I took out a 5k secured loan to buy a new (to me) car. I could of paid for it with my saving but that would of more or less wiped them out.
By taking the loan, I ensured that should I need a larger loan down the line (due to unforeseen circumstances), it would be easier to get rather than applying for a loan with no savings to show.
The rate was 5.5% which worked out at about €300 interest over the term (30 months).
Any spare money extra i had was used to clear the loan quicker. The loan was cleared within 18 so the interest was thus the cost of the interest was even less.

CUs are co-operatives and are a very worthwhile instituting, worth supporting.
So to me it was worth the cost.

HerrKuehn

Donn Cuailnge wrote: »

They are not idiotic.
I took out a 5k secured loan to buy a new (to me) car. I could of paid for it with my saving but that would of more or less wiped them out.
By taking the loan, I ensured that should I need a larger loan down the line (due to unforeseen circumstances), it would be easier to get rather than applying for a loan with no savings to show.
The rate was 5.5% which worked out at about €300 interest over the term (30 months).
Any spare money extra i had was used to clear the loan quicker. The loan was cleared within 18 so the interest was thus the cost of the interest was even less.

CUs are co-operatives and are a very worthwhile instituting, worth supporting.
So to me it was worth the cost.

Borrowing from your own money at 5.5% is the bit that I find idiotic. The money is not accessible to you during that time, so it cant be used for emergencies. It seems to me that the people who are doing this are the ones that can least afford to give away a few hundred euros.

PhilOssophy

Donn Cuailnge wrote: »

They are not idiotic.
I took out a 5k secured loan to buy a new (to me) car. I could of paid for it with my saving but that would of more or less wiped them out.
By taking the loan, I ensured that should I need a larger loan down the line (due to unforeseen circumstances), it would be easier to get rather than applying for a loan with no savings to show.
The rate was 5.5% which worked out at about €300 interest over the term (30 months).
Any spare money extra i had was used to clear the loan quicker. The loan was cleared within 18 so the interest was thus the cost of the interest was even less.

CUs are co-operatives and are a very worthwhile instituting, worth supporting.
So to me it was worth the cost.

Did somebody in the CU advise you that that loan would be easier to get with savings?

All these institutions are more concerned with a pattern of saving (e.g. if you are putting €x hundred aside every month) than the exact amount you have saved, especially if you can say "I had 5k saved and had to change the car and am now back to zero but I'm still putting €200 a month aside" rather than them seeing you adding €300 interest into the CU pocket when you didn't have to.

AndrewJRenko

Donn Cuailnge wrote: »

They are not idiotic.
I took out a 5k secured loan to buy a new (to me) car. I could of paid for it with my saving but that would of more or less wiped them out.
By taking the loan, I ensured that should I need a larger loan down the line (due to unforeseen circumstances), it would be easier to get rather than applying for a loan with no savings to show.
The rate was 5.5% which worked out at about €300 interest over the term (30 months).
Any spare money extra i had was used to clear the loan quicker. The loan was cleared within 18 so the interest was thus the cost of the interest was even less.

CUs are co-operatives and are a very worthwhile instituting, worth supporting.
So to me it was worth the cost.

This is an interesting case study, and shows that these loans can work for some people. You understand how interest works, but I suspect a lot of others don't really get the impact of this.

My main concern about these loans is that the quoted APR is understated, as it doesn't take account the need to keep additional funds on deposit for the lifetime of the loan. This really means that you're actually borrowing less, so you're paying higher interest on the net balance.

I'm all in favour of co-operative institutions, but very few Irish credit unions are truly cooperative. The AGM is a ritualistic set piece, with little input from members. There is no facility for members to submit motions, as was the case with building societies. And practices like this understatement of APR are not in the member's best interest at all.

Wildly Boaring

Donn Cuailnge wrote: »

They are not idiotic.
I took out a 5k secured loan to buy a new (to me) car. I could of paid for it with my saving but that would of more or less wiped them out.
By taking the loan, I ensured that should I need a larger loan down the line (due to unforeseen circumstances), it would be easier to get rather than applying for a loan with no savings to show.
The rate was 5.5% which worked out at about €300 interest over the term (30 months).
Any spare money extra i had was used to clear the loan quicker. The loan was cleared within 18 so the interest was thus the cost of the interest was even less.

CUs are co-operatives and are a very worthwhile instituting, worth supporting.
So to me it was worth the cost.

So your savings were locked in to get the secured loan?
If you wanted them you couldn't have them??
You think that's still your money???

You just paid €300 to borrow your own money from yourself
Oh and you used SPARE money to clear it quicker even though you have the savings (ie SPARE) in the first place.

Christ on a bike

Jim2007

Dodge wrote: »

I’m not arguing about specific applications BUT in the past credit unions loaned solely on shares/savings, now they loan on the ability to repay (in the same way banks do)

That’s all.

As I’ve said, they’ll all have their own individual requirements. If your mate can get a loan with them and not a bank, then good luck to him

Exactly, so it is pointless arguing about generalizations since individuals are dealing with individual CUs

SusieBlue

I've done this before and its not all of your savings, just a percentage. I had savings of about a grand and only €300 was secured against the loan, I could access the other €700 as I pleased. I imagine the higher your savings are, the less you'll be required to hold (in my CU, at least).

Jim2007

Uncle Pierre wrote: »

I think this is very, very relevant.

Call that email an advertisement or advice or whatever you like, but looks like most would agree with me that it's irresponsible?

We certainly do not, nor does society. All commercial interaction assumes that you as an adult are capable of acting in your own best interests, either by your own knowledge or seeking actual advice. Otherwise your argument would apply to all advertising since it ends up targeting some people less knowledgeable in that area than others.

Uncle Pierre

Jim2007 wrote: »

We certainly do not, nor does society.

Well, fair play to you for somehow being qualified enough to speak for the whole of society.

The way I see it is still as follows: here's a financial institution, which many people for some reason hold in higher regard than the banks, which is basically saying...

1 - Do you have expenses to pay, and the money to pay them?
2 - Don't use your money to pay them! Keep it for a holiday or some other treat!
3 - Take out a loan to pay your bills instead!
4 - And pay us 5% interest on that loan, while we pay you next to nothing on the money you're still keeping with us!

Certainly seems irresponsible to me.....

Jim2007

AlmightyCushion wrote: »

When you die won't the loan just go against your estate? i.e. If you have a €5,000 loan and €5,000 savings, your next of kin will get nothing as the savings cancel out the loan.

From what I have heard the OP is correct. The loan will crystallize and be a charge against the estate, but the estate will also have a claim against the CU, which cancels out the loan and the savings are available. I don't think this option applies to all borrowers though.

AlmightyCushion wrote: »

Regardless, it still makes little financial sense. Borrow money to pay for things instead of savings because if you die you won't have to pay off the loan.

Financial sense makes very little sense to most people. Financial behavior is about 10%, 10% logic and 80 gut reaction. Many people find it easier to pay of a loan that save and no amount of logic will change that.

Jim2007

Steer55 wrote: »

I rang local credit union this morning to ask how much dividend I would get on opening an account with €20,000. She said zero, I refrained from asking her how much they would charge if I had to borrow the 20k :-)

And what is your point? There is a cash surplus at the moment and people are struggling to find good returns, so why should they pay you for putting cash on deposit.


Here in Switzerland, banks already charge businesses and public institutions for putting cash on deposit and most likely they will start to charge the public interest as well later this year.


If things don't change soon, negative deposit interest is on it's way.

Uncle Pierre

Jim2007 wrote: »

If things don't change soon, negative deposit interest is on it's way.

So there'll be even less sense then in taking out a "secured loan".

ShaShaBear

SusieBlue wrote: »

I've done this before and its not all of your savings, just a percentage. I had savings of about a grand and only €300 was secured against the loan, I could access the other €700 as I pleased. I imagine the higher your savings are, the less you'll be required to hold (in my CU, at least).

Same in our local CU - you determine when applying how much of your savings you would like to be used as security, and the remainder is available to be used at any time. They are also, as some other posters have mentioned, a great way for those who may have fecked up their credit rating in the past to get back on a level footing. Not only is a loan cleared if someone unexpectedly dies, but in my local CU they will give a payout towards funeral costs if the savings in the account is over €25 continuously - I believe the amount is over 1k and if the death was accidental it's almost 3k.

My father had a terrible credit history from years on the poverty line and was able to use the CU to build up a rapport and eventually open his own business. When he died very unexpectedly, his outstanding loan was cleared and my mother was given a little over €1000 towards his funeral costs no questions asked. It may not be for everyone but it definitely is for someone.

PhilOssophy

AndrewJRenko wrote: »

This is an interesting case study, and shows that these loans can work for some people. You understand how interest works, but I suspect a lot of others don't really get the impact of this.

But he paid €300 interest when he didn't have to!

PhilOssophy

People talking about credit rating is BS. Banks care about 3 things
1. How much have you on deposit
2. How consistent are your monthly savings
3. How long have you been consistent at number 2 for.

There is very little else matters on your credit risk and if a Credit Union etc tells you otherwise they are lying to you.