Applying to borrow from a credit union

To borrow from a credit union you normally have to be a member of that credit union first, and some will ask you to build up savings before they will lend to you¹. Membership is the foundation of the whole arrangement: credit unions are financial cooperatives owned by their members, and the money members save is used to fund loans to other members². That is why the application process feels different from a bank loan. The credit union is not deciding whether you are a profitable customer, it is deciding whether a loan is affordable for you and sensible for a fund that belongs to everyone in the common bond.

Every credit union must consider affordability when it assesses a loan application, looking at what you have left after your bills are paid³. Some will lend to you as soon as you become a member, while others only lend after you have saved with them for a set period⁴. Decisions are often quicker than people expect: Pennyburn Credit Union, for example, states that once your application is processed you will typically receive a decision within one to two working days⁵. Loan sizes vary widely, from small loans of around £50 to £3,000 at most credit unions⁶, up to much larger amounts at some.

You usually need to be a member and saving first

The first rule of borrowing from a credit union is that you have to belong to it. You need to be a member of a credit union to get a loan from it, and some will ask you to build up savings first¹. Membership depends on the credit union's common bond, the shared link such as where you live, where you work or the association you belong to. If you have not joined yet, the guides on the common bond, how to join and finding a credit union you can join cover that step.

The savings requirement is not a gimmick, it is how the model works. Members' savings are used to fund loans to other credit-worthy members of the credit union⁸, so a record of saving shows the credit union two things at once: that you can put money aside regularly, and that you understand the mutual arrangement you are joining. Business Debtline puts it plainly: if you join a credit union and start saving with them, you will also be able to apply to borrow money once you have proved you are a reliable saver⁹.

How strict this is varies. Some credit unions lend as soon as you become a member; others only lend after a set saving period⁴. For long-term loans and mortgages the expectation is usually firmer: Shelter Cymru notes that you normally need a history of saving with a credit union before you can borrow over the long term¹⁰. If you need to borrow quickly, ask before you join, because the answer differs from one credit union to the next. The narrow guide on borrowing as a new member and the comparison of whether you need savings to get a loan go into this in more detail.

Who can borrow: age, purpose and affordability

Credit unions exist to provide borrowing to people who share their common bond, and they are set up with particular groups in mind. StepChange describes their role as offering support to people on a low income, or people who have never borrowed before². Welsh Government guidance adds that credit unions are good for those who find it difficult to borrow from banks due to having a poor credit history¹¹. Neither of these is an entry test: people on higher incomes borrow from credit unions too. But it explains why the assessment leans heavily on affordability rather than on a credit score alone.

Affordability means the credit union looks at your income and outgoings and checks what money you have left after paying your bills⁴. Welsh Government guidance states that credit unions always consider affordability when assessing loan applications³. This is not unique to credit unions, it is a legal requirement on all lenders, but credit unions tend to do it manually, looking at your actual circumstances, rather than relying only on an automated score.

Purpose matters as well. Because the loan fund is members' own money⁸, credit unions lend for purposes their loan policy supports, and many specialise in particular needs: Christmas loans, school uniform loans, season ticket loans, green loans for home energy improvements, and Child Benefit loans repaid directly from that benefit. The full range is covered in types of credit union loan.

Documents and details to have ready

Gathering your paperwork before you apply saves the biggest delays. MoneyHelper states that you will usually need to provide two recent documents to prove your identity and address, and gives examples: a passport, driving licence, student or work ID card, bus pass, birth certificate, bank statement or energy bill⁷. If you have recently moved address, organisations may ask for further documents, such as bills or bank statements dated within the last three months¹².

For the loan itself, expect to give details of your income and outgoings. The kind of information benefits applications ask for is a useful checklist of what lenders also want: your bank details, how much your rent or mortgage is, evidence of your income and savings such as bank statements, household information such as who lives with you and your childcare costs, and your national insurance number¹³. You will also need to give details of any other outstanding credit you have¹⁴.

A practical list to have ready:

• Two recent documents proving identity and address⁷
• Bank statements covering recent months¹³
• Evidence of income, including benefits if you receive them¹³
• Your rent or mortgage amount¹³
• Details of other credit you are repaying¹⁴
• Your national insurance number¹³

If your income includes benefits, the guides on whether benefits can be paid into your credit union account and how to pay money in explain the practical side.

Credit checks: what a credit union looks at

Whether a credit union runs a formal credit check depends on the credit union. MoneyHelper notes that credit unions normally use manual checks to decide whether to lend, and that you usually will not have to pass a credit check, even if you apply for an overdraft on a credit union account⁷. That said, any creditor may check your credit report and use the information on it to decide whether to lend to you¹⁵, and some credit unions do exactly that, checking your record with a credit reference agency in the same way a card provider would¹⁶.

A weaker credit history is not the barrier it can be elsewhere. Because credit unions are geared towards people who find it difficult to borrow from banks due to a poor credit history¹¹, a manual affordability assessment can weigh your actual budget more heavily than a file held about you. If a lender does refuse you credit after checking your credit reference file, it must tell you why the credit was refused and give you the details of the credit reference agency it used¹⁷. You can then check the file yourself and correct anything wrong. The page on credit union loans and your credit file covers how borrowing from a credit union is recorded.

The checks are there to protect you as much as the credit union. The Financial Ombudsman Service has upheld complaints where a lender did not carry out enough checks before granting a loan, finding that a proportionate assessment of income and expenditure would have shown the loan was not affordable or sustainable¹⁸. A credit union that asks detailed questions is doing what the regulator expects of every lender.

How to apply online, by phone or on paper

Credit unions offer the same application channels as other lenders. Personal loans generally can be applied for in person at a branch or by post, phone or online¹⁹, and credit union loans follow the same pattern. Pennyburn Credit Union, for example, lets you apply online, over the phone, or in person⁵. Some credit unions also let you join and apply at the same time: Capital Credit Union offers a combined option, guiding you through both in one process²⁰.

The steps in order:

1. Join or confirm your membership. Some credit unions lend as soon as you join, others after a saving period⁴.
2. Gather your documents. Two recent proofs of identity and address, plus evidence of income and outgoings⁷.
3. Apply online, by phone, on paper or in person⁵.
4. Respond to any follow-up requests. Pennyburn Credit Union states it may request additional documents or a guarantor for loan approval⁵.
5. Wait for the decision. At Pennyburn this is typically within one to two working days of processing⁵.

An incomplete or inaccurate application is the most common cause of delay. If the credit union cannot verify your identity, your address or your income, it will come back to you, and the clock effectively restarts. Answering fully the first time, and sending exactly the documents asked for, is the fastest route to a decision.

Borrowing up to your savings: faster decisions

The amount you can borrow is usually tied to the amount you have saved. If you are a member of a credit union, you can usually borrow at least two or three times the amount you have in savings, depending on the loan policy of your credit union²². Advice NI gives the same picture from the other direction: credit unions allow you to borrow at least twice more than you have saved once you have been a member for a certain length of time²³.

This link between savings and borrowing is why applications from established savers can be decided quickly. The credit union can already see your saving record, so the affordability check has much of its evidence in front of it. MoneyHelper also notes that interest rates on credit union loans are capped, but that you might need to have a certain amount saved with the credit union before you can borrow⁷. The narrow guide on borrowing against your savings covers this route in detail.

For newer members the position is different. Some credit unions lend as soon as you become a member, others only after a set saving period⁴, and proving yourself a reliable saver is what unlocks borrowing⁹. If you have no savings history with the credit union, expect a fuller assessment and possibly a smaller first loan.

Larger loans and extra checks

Bigger amounts bring more scrutiny. Pennyburn Credit Union, which lends up to £35,000 above a member's savings subject to affordability and its terms and conditions⁵, also states it may request additional documents or a guarantor for loan approval⁵. A guarantor is another member or person who agrees to repay if you cannot, and being asked for one is not a sign of distrust, it is how larger loans are secured within a mutual fund.

At many credit unions, larger or less straightforward applications go to a committee of members rather than being decided by a single loans officer. This is part of the governance of a cooperative: elected members oversee the lending of the shared fund. It adds time, so if you are borrowing a larger amount, ask the credit union whether the application will need a committee and how often it meets.

For comparison, government-backed schemes show the shape of small-sum borrowing elsewhere. A Budgeting Advance or Budgeting Loan is usually repaid over 2 years²⁴, and a Universal Credit advance is repaid within 12 months of starting to repay, with the claimant choosing the length within that limit²⁵. Credit union loans, by contrast, come in a much wider range of sizes and terms, from small loans of around £50 to £3,000⁶ to five-figure amounts for members with a saving history¹⁰.

Choosing how often you repay

Repayment frequency is one of the practical choices you make at application stage. Credit unions typically collect repayments in line with how members are paid: weekly, fortnightly, four-weekly or monthly, and often straight from payroll where the employer takes part in a deduction scheme. The comparison of payroll deduction or paying in yourself explains how each works and what your employer sees.

Matching repayments to your pay cycle matters for affordability. A weekly repayment suits someone paid weekly, because the money leaves in small amounts as it arrives, whereas a monthly repayment from a weekly budget requires the discipline of holding money back. Because the credit union always considers affordability³, it will usually suggest a frequency that fits your income pattern, but you can ask for a different one.

The term you choose affects what each payment looks like. Government schemes give a sense of the shorter end: Budgeting Advances are usually repaid over 2 years²⁴, and Universal Credit advances within 12 months²⁵. Credit union loan terms vary by loan type and amount, and the credit union will show you the payment schedule before you sign. If you want to save while you repay, Save As You Borrow explains how many credit unions build a small saving into each loan payment.

Pledged shares: what happens to your savings while you owe

When a credit union lends, it often holds some or all of your savings as security for the loan. These are known as pledged shares, and while they are pledged you generally cannot withdraw them. Cranhill Credit Union states the rule directly: members can withdraw their savings provided they are not pledged as security for a loan²⁶.

The detail that matters is the difference between savings you held when the loan was approved and savings you build afterwards. Under a typical set of rules, savings held at approval are pledged as security if they are equal to or less than the loan, while money saved after the loan was granted may be withdrawn if the loan is not in arrears. Ask your credit union which of your savings are pledged and when they will be released, because policies differ.

There is also a consequence if things go wrong. If you miss payments on a loan, the credit union may be able to use your savings to repay the loan²⁸. That is the security working as intended, but it means a missed payment can quietly take money you thought of as savings. If you are struggling, the page on falling behind on a credit union loan explains the steps to take, and the narrow guide on withdrawing shares while repaying a loan covers the rules in detail.

Loan limits: from £50 to £35,000 at some credit unions

Credit union loans start small. Welsh Government guidance says credit unions provide loans starting from £50³, and StepChange describes most credit unions as lending small loans of around £50 to £3,000⁶. In Wales, the Welsh Government has described credit union loans as running from as little as £50 up to £15,000²⁹.

The legal maximum has changed over time and differs between Great Britain and Northern Ireland. A Northern Ireland Assembly research paper records that the 2006 order increased the limit on loans from £10,000 to £15,000 in Great Britain, and that the Order also increased the maximum loan amount available to members in Northern Ireland to £15,000³⁰. The same paper notes that in the rest of the UK loans could be made to members up to a maximum of £5,000 in excess of their share capital³⁰, meaning the amount a member can borrow above what they hold in savings was itself capped.

Individual credit unions now lend well beyond those older figures. Pennyburn Credit Union states members can borrow for anything up to £35,000 above their savings, subject to affordability and its terms and conditions⁵. The practical limit for any individual is set by the credit union's own loan policy, by the two-or-three-times-savings rule many apply²², and above all by affordability³.

Applying without a bank account

You do not necessarily need a bank account with a high street bank to borrow from a credit union, because some credit unions provide accounts themselves. MoneyHelper notes that some credit unions offer current accounts, usually with no credit check or overdraft⁷, and some offer prepaid cards with no monthly or annual fees and low everyday fees³¹. Turn2us suggests that people with a bad credit rating who have been refused bank accounts could ask to open a basic bank account or see if they can open an account with a credit union³².

There is a limit to this. Official guidance records that a credit union will not be required to open an account for a person who is unable to fulfil its membership criteria³³, so a credit union can decline an account application where membership itself is not possible. Since membership is the entry point for loans as well¹, the common bond is the first thing to check.

If your income is benefits, the same account can serve both purposes: you will be asked for bank, building society or credit union account details when you claim³⁴, and a credit union account can receive those payments. The guides on current accounts and prepaid cards from credit unions and benefits paid into your account cover the mechanics.

What protects you, and where to get help

Credit union lending sits inside the same consumer credit framework as other lenders, with some historic exemptions. Official guidance records that credit unions are exempt from certain Consumer Credit Act requirements, including the credit licence requirement³⁵, because they are regulated separately as mutuals. The interest a credit union can charge is capped⁷, which is the core protection on cost, covered in the maximum interest a credit union can charge.

The affordability rules protect you before you borrow. The Financial Ombudsman Service can and does find against lenders who failed to check properly, as in its case study where the lender had not carried out enough checks and a proportionate assessment of income and expenditure would have shown the loan was not affordable or sustainable¹⁸. If you are refused after a credit reference file check, the lender must tell you why and give you the agency's details¹⁷.

Where to get help:

• MoneyHelper offers free guidance on credit union accounts and borrowing⁷.
• StepChange provides free debt advice and describes credit unions as an alternative borrowing option to payday loans².
• The Financial Ombudsman Service handles complaints about lending, including affordability complaints¹⁸.
• Citizens Advice explains how lenders decide whether to give you credit and your rights when refused¹⁷.

If a loan would be for essentials while you wait for a first benefit payment, a Universal Credit advance gives a decision straight away when you apply²³ and is repaid within 12 months²⁵, while Budgeting Loans are usually repaid over 2 years²⁴. The comparison of no interest loan schemes with low-cost loans sets out where a credit union loan fits among these. For everything a credit union offers beyond loans, see what credit unions offer and the credit union directory.