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Should I use a Credit Union Rather than a Payday Lender?

Generally, we may have heard bad things about payday lenders and good things about credit unions and this may make us think that we should use a credit union over a payday lender. Although this could be beneficial to us, there are fundamental differences between how the two work and so it may be that one is much more suitable to your needs than the other. It is worth finding out more about how each of them work so that you can decide which one you think will be best for you.

Credit Unions

Credit unions tend to be local lenders associated with a group. They might be run by a local church, for example and they will have restricted membership. It might be that you will have to be part of the group in order to be able to use them or that you have to live in a certain area. Some local areas may have more than one with different joining criteria. If you are interested then you will need to find out whether there are any local to you and if you are able to join.

Credit unions tend to run as non-profit companies and their staff are often made up of some volunteers. This means that they do not have the same costs as regular lenders and they can therefore lend at cheaper rates. However, they may have criteria attached to lending. Some will want you to have been a member and making regular deposits into a savings account for a certain amount of time and others may require you have a certain level of savings. All rules will be different and so you will have to contact them to find out.

They will often be prepared to lend to those who do not have a good credit rating or have been turned down for loans elsewhere. As they deal with each case individually then they will need to talk to you and ask you to explain how much money you need and how you plan on repaying what you have borrowed. They may even set the number of repayments to suit your budget. They will then have to apply for you and it may take a while before they can get back to you and let you know whether you can have the loan or not. You will probably have to go to the local branch to discuss it with them and some are only open a few days a week during normal working hours. You will therefore need to make sure that you are available at this time.

Payday Lenders

Payday lenders normally lend to anyone in the UK as long as they have a bank account and an income. There are likely to be a lot of different payday lenders that you will be able to choose from. It is usually very easy to apply for a loan with them online or over the telephone and some can arrange those loans within a few hours. There may be some that have local branches, but this will depend on where you live and whether you have high street lenders. There are more to choose from if you look online. You will have to prove that you have an income so that they can set up a direct debit on the day you get paid so you can repay the loan in full on the day that you get paid. This can be good as the loan does not last long, but it can be harder to manage the repayment as you will have to find it all at once. You also then need to manage for a whole month until you are next paid on significantly less money.

Which is best?

It can be very difficult to choose between these lenders but it will depend on a number of factors. Obviously, you will need to have a local credit union that will accept you as a member and lend you the money that you want and you will have to be available at the times that they are open to arrange it. You will also need to be prepared to wait a while for the loan to be organised. A credit union tends to lend at lower rates and you will have more flexibility over repayments. They will want to set the repayments so that you can afford them.

A payday loan can be set up much more quickly and they are more likely to accept you. You will also be able to choose between lots more lenders. However, they are likely to be more expensive and you have to repay the loan in one lump sum, which can be tricky to manage.  

So which is best can depend on what is available to you, how quickly you need the loan and how easy it will be for you to manage the repayments.

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