Is this really bad advice from Credit Union?

beauf

I think people are missing the bigger picture.

Like a Prepay Electricity meter is poor value, it promotes good habits for those its appropriate for.

The CU establishes a credit history for those that might have none, that can't get a loan anywhere else, or who just prefer going to a CU instead of a bank.

The difference between a bank and CU, has narrowed a bit in recent years.

HerrKuehn

Uncle Pierre wrote: »

Well, this has certainly turned out to be a round-in-circles debate about the merits (or otherwise) of secured loans in general.

All I intended when starting the thread was to ask that no matter how people feel in general about them, is it or is it not irresponsible for a financial institution to put out the idea of taking out a five-year loan to pay an annual expense?

It is of course completely irresponsible. I would even go so far as to say I can't believe it is legal. With regard to secured loans in general, thanks for bringing it up. I had never heard of that before and had to do a bit of reading up as I assumed I had misunderstood.

Nigzcurran

Jesus what's the problem here? I've always borrowed far more than I have saved, for example I have €1000 saved and borrow €10000, I'm on a fairly crap ish wage so banks aren't usually too keen to lend to someone like me

HerrKuehn

Nigzcurran wrote: »

Jesus what's the problem here? I've always borrowed far more than I have saved, for example I have €1000 saved and borrow €10000, I'm on a fairly crap ish wage so banks aren't usually too keen to lend to someone like me

We aren't talking about borrowing 10k when you have 1k in savings. The credit unions encourage people to borrow 1k while locking their 1k savings away as collateral.

Nigzcurran

HerrKuehn wrote: »

We aren't talking about borrowing 10k when you have 1k in savings. The credit unions encourage people to borrow 1k while locking their 1k savings away as collateral.

I'm a member since time began and they've never once encouraged me to borrow the same amount as I have saved, they've encouraged me to borrow plenty of times just like every other financial institution does, that's how they survive, it's not a feckin charity they are running

Nigzcurran

I also remember applying for a loan for a holiday and asking to repay it over 18 months and being told that anything that was usually an annual event like a holiday or car insurance should only be repayed over 12 months which sounds like responsible lending to me

893bet

HerrKuehn wrote: »

We aren't talking about borrowing 10k when you have 1k in savings. The credit unions encourage people to borrow 1k while locking their 1k savings away as collateral.

Some people would be more inclined to pay back the 1k loan and than resave the 1k.

lulu1

I have 4 accounts for the children but never received any mail asking to take out loans could be different branches

CIARAN_BOYLE

DaveyDave wrote: »

Please tell me people don't actually get loans out so they aren't touching their savings?

They do. I know credit unions where as much as a third of their loan book are fully secured. Many credit unions have a reduced interest rate for loans that are fully secured by shares.

Cape Clear

A secured cu loan only locks the amount of the remaining balance away from withdrawal as it were. A quick look at
bonkers.ie shows the apr on €1k loan to be slightly under 9% most people who take a secured cu loan pay it back much faster than the agreed term and pay a lot lower than the 5% rate quoted above.

Uncle Pierre

Nigzcurran wrote: »

I also remember applying for a loan for a holiday and asking to repay it over 18 months and being told that anything that was usually an annual event like a holiday or car insurance should only be repayed over 12 months which sounds like responsible lending to me

Probably the most relevant comment yet regarding what my original question was actually about.

Yup, that sounds responsible by your CU all right. Which makes me even more convinced that the email I got from my CU was completely irresponsible.

beauf

Uncle Pierre wrote: »

....This all makes no sense to me. To be honest, have never really seen the attraction of Credit Unions, and this makes me wonder even more. Curious to hear other people’s thoughts.

I guess it comes back to why do you have money in a credit union on deposit if you never intend to take a loan. Kinda missing the point of a credit union.

https://en.wikipedia.org/wiki/Credit_union

Uncle Pierre wrote: »

Probably the most relevant comment yet regarding what my original question was actually about.

Yup, that sounds responsible by your CU all right. Which makes me even more convinced that the email I got from my CU was completely irresponsible.

If you want to borrow from a credit union, they want to see a record of saving AND borrowing. If you never borrow for them you don't have a track record of dealing with credit and loans.

The idea is not never take a loan. Its if you have to borrow money do it in a sustainable, way. Build up good habits over time. Its aimed at people who are generally poor with money.

If everone had money only on deposit, and no loans the CU can't survive. People without loans were probably who the mail shot was targetting.

Uncle Pierre

beauf wrote: »

I guess it comes back to why do you have money in a credit union on deposit if you never intend to take a loan.

It’s a valid question. As I said at the top, it’s a lump sum for the young lad that I just wanted to keep completely separate from my own money. I could just as easily have put it somewhere else, and more and more, am thinking I should move it somewhere else anyway.

beauf wrote: »

People without loans were probably who the mail shot was targetting.

Have no issue with them or any other financial institution encouraging people to take out loans. My issue is with the irresponsible idea of a five-year loan for an annual expense when you’ve already got the money to pay that expense anyway.

beauf

What do you do when you pay that expense and another one pops up. Now you've no money and no ability to borrow.

The credit unions are flexible about adjusting loans. The banks traditionally less so.

Commercial banks engaged in approximately five times more subprime lending relative to credit unions leading up to the financial crisis and were two and a half times more likely to fail during the crisis.[5] Credit unions more than doubled lending to small businesses between 2008 and 2016, from $30 billion to $60 billion, while lending to small businesses overall during the same period declined by around $100 billion.[6] Public trust in credit unions stands at 60%, compared to 30% for big banks.[7] Furthermore, small businesses are eighty percent less likely to be dissatisfied with a credit union than with a big bank.[8]

Uncle Pierre

Okay, let me try to get this straight. And this is a genuine question.

You save €20 a week with the CU, every week for a year. You have just over €1,000 built up and you use this money to pay expected expenses such as car tax and insurance when they fall due together. You’re demonstrating good budgeting and sound financial planning.

You then hit an unexpected €1,000 expense a month later, when your savings are back up to only a little over €100. Maybe it’s house or car repairs or something medical or dental.

Are you telling me the CU wouldn’t then give you a €1,000 loan over 12 months with repayments of approx. €20 per week, because your savings aren’t high enough? Even though you’ve already shown that you can put €20 to the CU every week for a year?

beauf

You should look up their rules. Not all have the same rules.

They often have a set saving to loan rules.

Cakerbaker

Uncle Pierre wrote: »

Okay, let me try to get this straight. And this is a genuine question.

You save €20 a week with the CU, every week for a year. You have just over €1,000 built up and you use this money to pay expected expenses such as car tax and insurance when they fall due together. You’re demonstrating good budgeting and sound financial planning.

You then hit an unexpected €1,000 expense a month later, when your savings are back up to only a little over €100. Maybe it’s house or car repairs or something medical or dental.

Are you telling me the CU wouldn’t then give you a €1,000 loan over 12 months with repayments of approx. €20 per week, because your savings aren’t high enough? Even though you’ve already shown that you can put €20 to the CU every week for a year?

They’d possibly loan you the money but it wouldn’t be a secure loan so would be at one of their standard loan interest rates which are higher. In mine the secure loan rate is something like 4.9% and their interest rates for other loans vary from maybe 6.9% to 9.9% depending on the purpose of the loan.

Uncle Pierre

Uncle Pierre wrote: »

Are you telling me the CU wouldn’t then give you a €1,000 loan over 12 months with repayments of approx. €20 per week, because your savings aren’t high enough? Even though you’ve already shown that you can put €20 to the CU every week for a year?

They would, just at a much higher rate than you'd get otherwise.....almost double, in a lot of places.

AndrewJRenko

beauf wrote: »

I think people are missing the bigger picture.

Like a Prepay Electricity meter is poor value, it promotes good habits for those its appropriate for.

The CU establishes a credit history for those that might have none, that can't get a loan anywhere else, or who just prefer going to a CU instead of a bank.

The difference between a bank and CU, has narrowed a bit in recent years.

That's the thing, I'm not sure that it really does promote good habits.

Persistent borrowing is not a great habit from a financial point of view. If they had their member's best financial interests at heart, they would be encouraging people to save up rather than borrow.

Uncle Pierre

Cakerbaker wrote: »

They’d possibly loan you the money but it wouldn’t be a secure loan so would be at one of their standard loan interest rates which are higher. In mine the secure loan rate is something like 4.9% and their interest rates for other loans vary from maybe 6.9% to 9.9% depending on the purpose of the loan.

Okay, thanks.

Anyway, this is straying further and further again about the original point about suggesting a five-year loan for an annual expense. So I'm bowing out at this stage.

But before I go…bit of an aside. My wife asked me for a loan of €20 this morning as she had no cash herself and she likes to have a bit of “walking around” money. I gave it to her and trust she will pay me back.

Occurs to me though that if I was a Credit Union, my reaction would probably have been along the lines of “okay…you give me €20 first, and then I’ll loan it to you.” :D:D

beauf

AndrewJRenko wrote: »

That's the thing, I'm not sure that it really does promote good habits.

Persistent borrowing is not a great habit from a financial point of view. If they had their member's best financial interests at heart, they would be encouraging people to save up rather than borrow.

Well there is two issues. If you are a person who never needs to borrow then perhaps you don't need a credit union.

Also the rules that changed, mean that deposits aren't making money and they have too much money on deposit.

Nollog

Uncle Pierre wrote: »

It’s a valid question. As I said at the top, it’s a lump sum for the young lad that I just wanted to keep completely separate from my own money. I could just as easily have put it somewhere else, and more and more, am thinking I should move it somewhere else anyway.

Most banks do junior saver accounts with a decent interest rate.

emeldc

Uncle Pierre wrote: »

I gave it to her and trust she will pay me back.

Wow :eek:

silver2020

Some people like the idea of a low cost secured loan.

Like the OP, a lump sum is put in for future needs of a child, some may put it in for funeral expenses or something else.

They can then have a mindset that this lump sum is not to be touched, so by using it as security and paying back a separate loan can make more sense and effectively leave that fenced lump sum sitting there.

Not every credit offer is suitable to everyone - that why there are so many loan options out there

Turbohymac

That advice from the credit union to the original poster seems there trying to go down the same route as our banks..
Yes regardless whether you have a lot of money saved away or not. Just borrow some more from us at way higher rates than we'd ever give you for the money you've put into savings..
Sounds a bit like the regulated money lender's that charge eye watering interest rates..but are still allowed..
Totally mad

beauf

Turbohymac wrote: »

...
Sounds a bit like the regulated money lender's that charge eye watering interest rates...

Well it isn't. Nothing like that and misleading to suggest it is.

silver2020

Uncle Pierre wrote: »

But before I go…bit of an aside. My wife asked me for a loan of €20 this morning as she had no cash herself and she likes to have a bit of “walking around” money. I gave it to her and trust she will pay me back.

Occurs to me though that if I was a Credit Union, my reaction would probably have been along the lines of “okay…you give me €20 first, and then I’ll loan it to you.” :D:D

€20 to your wife?. You can write that off now as a bad debt

You should have asked to hold her fav perfume as security!

Uncle Pierre

Just to report my wife paid me back today. :):)


And I reckon that's probably the end of this discussion.....

Johnny_Fontane

For about the tenth year in a row, no dividend from my local credit union.

Are any of the credit unions paying dividends?

They basically say that the only way they will pay you a dividend in the future is to take out a loan.

Its a mad mad system.

silver2020

Johnny_Fontane wrote: »

For about the tenth year in a row, no dividend from my local credit union.

Are any of the credit unions paying dividends?

They basically say that the only way they will pay you a dividend in the future is to take out a loan.

Its a mad mad system.

Interest rates are at zero. In many EU countries deposit rates are negative. So a zero return is better than the eu average