Credit Unions have the reputation of a saint in Irish financial circles. They are a community based lender with voluntary staff in most cases and are viewed as a holistic type of lender compared to banks and other forms of lending. They are regarded as the bank of the common people and it is true that they provide a much needed service for people in Ireland who are scared of dealing with faceless large institutions.
But are they as benign as they seem? For starters, in order to get a loan from them one must have a certain amount of savings. The amount you can borrow is then a ratio of the savings you have accumulated. So, for example, you have €3000 saved with your local credit union. This entitles you to a loan of €10,000. They give you the €10,000, keep your savings and charge 1% per month interest on the loan. The €3,000 earns an unspecified dividend that depends on the performance of the investments of the credit union. It may earn nothing at all as has been the case in many instances over the last few years.
There are a few anomalies here. Firstly, you should not have to borrow €10,000 when in fact all you needed was €7,000 along with the €3,000 you have saved. Secondly with ECB base rates at 1%, 12% per annum is a crazy price to be paying for money, even allowing for the fact that it is being charged on a reducing balance basis. Thirdly you may earn little or nothing on your amount on deposit. Additionally, you cannot access it because of the loan you have taken out.
In a scenario like above you are better paying a bank 6% interest on a personal loan. Credit Unions are good organizations and offer a very personal tailored service to those who may find it difficult to get credit from mainstream institutions. But you pay for it! Check out Loans in Ireland website for more low down.
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