Borrowing as a new member of a credit union

You cannot borrow from a credit union until you are a member. That is the rule that catches most people out. StepChange puts it plainly: "You need to be a member of a credit union to get a loan from them. Some will ask you to build up savings first."¹ Transave says the same: before applying for a loan from a credit union, you usually need to become a member.²

The good news is that joining and borrowing are not always separated by a long wait. Knowsley Mutual Credit Union lets new members apply to join at the same time as applying to borrow.³ Liberty Credit Union asks only that you join before applying for a loan.⁴ What varies is how much you can borrow as a new member, and whether the credit union wants to see a savings record first.

On amounts, the range across credit unions is wide. Moray Firth Credit Union says members can apply to borrow any amount from £50 to £15,000, subject to status.⁵ Just Credit Union lends between £300 and £15,000, also subject to status.⁶ But a first loan is often smaller: Moray Firth caps the initial loan at £300 for first-time borrowers whose only income is benefits.⁵

You must join before you can borrow

Membership is the gate. Just Credit Union's payroll member loan requires you to be eligible to join if you are not already a member.¹⁰ StepChange and the credit union sector both state the same requirement.¹

In practice this is less of a hurdle than it sounds, because joining is usually quick and cheap. Some credit unions run a specific product for people who have just joined. SCVO Credit Union's Welcome Loan is "tailored for new members who have recently joined the credit union and need access to funds quickly with lower loan amounts", with up to £1,000.¹² SM Credit Union tells new members they can still borrow from £150 to £15,000 through its other loan products.¹³

The order of events matters for a practical reason: the credit union needs to know who you are, hold your details and set up your share account before it can assess an application. If you are joining through your employer, payroll deduction may be the repayment method, which also has to be set up.¹⁰

The common bond: who can join a credit union

Every credit union in the UK may only accept members who share a "common bond".¹⁴ That is the link that decides whether a particular credit union is open to you. MoneyHelper describes the common bond as living, working, studying or volunteering in a certain area, working in the same industry or for certain employers, or belonging to the same trade union.¹⁵

Capital Credit Union's terms show how broad one can be: membership is open to anyone living or working in its common bond, employed by one of its employer partners, or a member of Community Trade Union, for members aged 16 and above.¹⁶ Find Your Credit Union notes that anyone can become a member, provided they share a common bond with other members.¹⁷

The common bond also extends to households. StepChange says anyone in the house of a person with a common bond can usually join.¹¹ The Building Societies Association goes further: as long as one family member meets the common bond requirements and has joined, other family members living at the same address can usually join too.⁹ Drumchapel Credit Union allows relatives living in the same household as a qualifying member to join.¹⁸ There is a page on who can join a credit union if you want the detail.

Some credit unions ask you to save first

This is the main variable for a new member. StepChange notes that some credit unions will ask you to build savings first.¹¹ The Building Societies Association sets out the two ends of the spectrum: some will lend to you as soon as you become a member, others only after saving for a set period.⁹

Where a savings record is required, the usual pattern is a multiple of what you hold. Business Debtline says credit unions allow you to borrow two or three times as much as you have saved, at a low interest rate.¹⁹ National Debtline gives the same rule: you can usually borrow at least two or three times the amount you have in savings, depending on the credit union's loan policy.²⁰ Shelter Cymru adds that you usually need a history of saving with a credit union before you can borrow long-term loans and mortgages.²²

So a £100 balance might support a £200 to £300 loan at one credit union, and nothing at another until you have saved for a few months. Business Debtline's household budget guidance describes the sequence: join and start saving, and you will be able to apply to borrow once you have proved you are a reliable saver.²³ There is more on this in do you need savings to get a loan?

What a new member can borrow: around £50 to £15,000

What a new member can borrow depends on the credit union and on their circumstances. Moray Firth Credit Union states that members can apply to borrow any amount from £50 to £15,000, subject to status²¹. Just Credit Union gives a range of £300 to £15,000, also subject to status, with £300 the minimum for a member loan¹⁹. Its loan of up to £1,200 has the same £300 minimum²².

Some credit unions set a lower ceiling for a first loan. Moray Firth Credit Union states that for first-time borrowers whose sole income is derived from benefits, the initial loan will be up to £300²¹. Its Welcome Loan, aimed at people who have recently joined and need funds quickly, offers lower loan amounts, up to £1,000¹⁷. New members who are not already a member can still borrow from £150 to £15,000 through other loan products¹⁸.

The headline range across credit unions runs from £50 to £15,000, but new members rarely start at the top.⁵ The figures below are what individual credit unions state about their own lending.

Affordability is checked, not just membership. The Building Societies Association says lending decisions look at the money left after paying bills.⁹ That is why two members with the same savings balance can be offered different amounts.

A first loan is often deliberately modest. Moray Firth's £300 cap for first-time borrowers on benefits is the clearest example in these figures.⁵ Just Credit Union's minimum member loan is £300.²⁵ If you need more than a few thousand pounds as a brand new member, a credit union may not be the quickest route, though it may still be the cheapest for a smaller sum. Which? notes that loans from credit unions are generally cheaper than loans from most other providers for smaller amounts and do not incur set-up fees, administration costs or early redemption fees.²⁶

Interest capped by law: from 1% to 3% a month

Credit unions cannot charge whatever they like. By law, the maximum interest rate a credit union can charge its members for a loan is 3% per month.²⁷ Which? gives the same cap as an APR of 42.6%.⁷ The Northern Ireland Assembly research paper states that the maximum interest a credit union may charge on loans is 3% per month, and that the same cap applies to hire purchase and conditional sale agreements.²⁸

The cap was raised to 3% by the Credit Unions (Maximum Interest Rate on Loans) Order 2013, which increased the limit on interest chargeable on loans made under the Credit Unions Act 1979.²⁹

Interest capped by law: from 1% to 3% a month

By law, the maximum interest rate a credit union can charge its members for a loan is 3% per month²³. That is an APR of 42.6%²⁴. The same 3% per month maximum applies to loans made by credit unions in Great Britain, and Schedule 14 caps the interest a credit union can charge on hire purchase agreements and conditional sale agreements at 3% per month²⁵.

The current limit comes from the Credit Unions (Maximum Interest Rate on Loans) Order 2013, which increased the limit on the interest a credit union may charge on loans made by it under the Credit Unions Act 1979 to 3% per month²⁶. Older figures of 1% per month and 2% per month, with corresponding APRs of 12.68% and 26.82%, appear in the legislative record as historical limits rather than the current rule²⁷.

The cap is a ceiling, not a price list. A credit union may charge less, and many do. The rate you are offered depends on the credit union's own policy and your circumstances. There is a full explanation on the maximum interest a credit union can charge.

If you miss a repayment

Missing a payment on a credit union loan has a specific consequence that other lenders do not have: the credit union may be able to use your savings to repay the loan. National Debtline, Business Debtline and National Debtline's consolidation guidance all state this in the same words.²⁰

Riverside Credit Union's terms set out a further step: should you miss more than two consecutive loan repayments without consultation or permission from the credit union, it reserves the right to periodically deduct any outstanding interest from your shares without prior notification.³²

Capital Credit Union's loan terms go further still. On default, cessation of employment, a Trust Deed or bankruptcy, the entire balance outstanding becomes immediately due and payable, together with all the interest that would have been payable if the loan agreement had run its full term.³³ That means the full interest for the original term can fall due at once, not just the interest accrued so far.

Arrears also affect your credit file. Celtic Credit Union states: "If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit rating which may limit your ability to access credit in the future."³⁴

There is more on this in falling behind on a credit union loan and credit union loans and your credit file.

What protects you, and where it stops

Savings held with a credit union are covered by the Financial Services Compensation Scheme. Enterprise Credit Union states that members' savings are safeguarded by the FSCS up to £120,000.⁸ That protection applies to the savings, not to the loan: a loan is money you owe, so there is nothing to compensate.

The FSCS does not cover credit insurance claims.³⁵ If you are relying on a policy sold alongside borrowing, that is outside the scheme.

Many credit union loans include free life cover. The Building Societies Association says that when you borrow from a credit union you normally get free life insurance to cover the value of the loan, so the loan is repaid if you die before paying it back in full.⁹ Islay & Jura Credit Union includes life insurance at no cost to the borrower.³⁶ Enterprise Credit Union describes free protection on life savings and loans.³⁷ Cover terms vary between credit unions, so the individual policy is what counts. There is more on loan protection insurance.

On cost, credit union loans do not incur set-up fees, administration costs or early redemption fees.²⁶ That is a meaningful difference from many personal loans, where an early repayment charge can apply.

Joining: what it costs and what you need

Membership normally means being asked to pay a small fee, for example £2, or saving a certain amount such as £10.¹⁵ Salford Credit Union charges an initial £3.00 non-refundable membership fee.³⁸ Fees are set locally, so the only reliable answer is the credit union's own.

For identity, you will usually need to provide two recent documents to prove your identity and address. MoneyHelper lists passport, driving licence, student or work ID card, bus pass, birth certificate, bank statement or energy bill as examples.¹⁵ BAG Credit Union asks for two forms of identity: a passport or driving licence with photo ID, and a utility bill with your home address on it.³⁹ Pennyburn Credit Union, for a junior account, needs the child's long-form birth certificate or legal paperwork, plus photo ID and proof of address from the parent or guardian opening the account.⁴⁰

To find a credit union, start with the common bond. Find Your Credit Union advises visiting or calling your chosen credit union to confirm what information you need to join.¹⁷ RMT Credit Union, for example, takes membership form requests by email or download.⁴¹ If you are joining through work, there is a page on joining through your employer, trade or profession, and a credit union directory to search.

How credit unions are run

Each credit union has a volunteer board of directors.⁴² Each member holds a £1 share, and each gets one vote, no matter how much they have in savings.⁴² That structure is why credit unions describe themselves as member-owned, and it is the reason the common bond exists at all: members are meant to share something beyond a bank account.

For a new member, the practical effect is that decisions about lending policy, savings requirements and membership fees are made by that individual credit union, not set nationally. Two credit unions a few miles apart can have different rules on whether you must save before you borrow, and how much a first loan can be.