Hull & East Yorkshire Credit Union’s main aim is to help our members to manage their money wisely.
Because we are owned by our Members, and everything we do is for their benefit, you can trust us to look after your interests when it comes to money matters and getting a good deal. This is very important as today’s financial services industry is large and complex, and many of the firms operating in it are run for the benefit of their shareholders, rather than their customers. In credit unions our customers are all shareholders, so that conflict doesn’t arise! We can say fairly and proudly we won’t rip you off; we’re on your side.
If you want to find out more about financial products, there is an excellent website where you can get impartial information, with no selling, no jargon, just the facts. It’s updated by the Financial Services Authority (FSA) - the Government’s regulator of the financial services industry.
Why not log on to www.moneymadeclear.fsa.gov.uk and see for yourself.
The Money Made Clear website contains:
- basic guides to different types of financial product likely to interest people of all ages and with different needs;
- comparisons between providers of products such as mortgages, pensions and Payment Protection Insurance;
- useful tools that you can use to help you work out your family budget or do a quick healthcheck on your financial situation;
- tips for making the most of your money at significant times in life, such as starting a job, buying a house, having a baby or preparing for retirement.
From time to time we will look at different aspects of You and Your Money on this page. Watch out for our latest topic below. And - if you live in Hull - don’t miss our regular monthly Cash column in Hull in print, the City Council’s residents magazine. It’s full of lively topics and tips to help you make your money go that bit further.
THE CREDIT CRUNCH - August 2008
We’ve heard a lot in the news about the Credit Crunch lately, so you may be wondering: What does this mean for me? How can I manage my money when things get a bit tough?
What is the Credit Crunch all about?
A credit crunch means basically that it will be more difficult to borrow money in the future. In recent years lenders have been giving higher mortgages than the value of the property to far too many high-risk borrowers. As the world economy has slowed down, the banks have start to rein back on their lending which has led to a much reduced number of new mortgages.
Much consumer spending over the last few years has depended on house prices rising and borrowers taking further loans and charges against the increasing value of their home. With lending becoming very selective, borrowers’ choices are now much more restricted.
You will also have noticed an increase in prices when you fill up your car at the petrol station and when doing your weekly shopping. So it looks like the next 12-18 months will be a very challenging time for many people in the UK and around the world. But with a little thought you can take steps to manage your finances well in the months ahead.
What can I do to manage my money better?
With the credit crunch likely to be around for the next 18 months or so, now is a good time to review your financial situation.
1 Start by reviewing your finances. This may sound obvious but working out how much money you have coming in and going out each week or month is the first step towards taking control. Visit the Moneymadeclear website for a handy budget calculator / financial healthcheck.
2 Try and safeguard your credit history. Even one late payment of a debt, such as a credit card bill or standing order, could have a serious impact on your credit status and ability to obtain competitive credit in the future. Talk to your lender as soon as a problem arises.
3 If you have a fixed-rate mortgage coming to an end in 2008, talk to your existing lender without delay. See what they are willing to offer. This will give you plenty of time to shop around if they are not competitive.
4 If you are struggling to meet your mortgage commitments, speak to your lender to discuss the options open to you. This may include changing to an interest-only basis, extending the mortgage term, or if possible, taking a payment holiday.
5 If you have unsecured debt (like credit cards or store cards), work out how much you are paying in interest and the total cost of using this credit. Look around for other cheaper options.
6 Above all, seek help. There are lots of free money advice services who may be able to help you*, so don’t let it get to the point where you are in serious trouble. Worrying about money can have a knock-on effect in other areas of your life such as family, relationships and work. So be pro-active and get things sorted before it becomes a problem.
*some examples are:
- Citizens Advice www.citizensadvice.org.uk
- the Consumer Credit Counselling Service www.cccs.co.uk
- The National Debtline www.nationaldebtline.co.uk
BEWARE OF CREDIT BROKERS - October 2008
We are concerned to hear of firms called loan brokerage companies offering to search the market place and find loans for people. They then refer their clients to credit unions like ourselves and charge them up to £50 for the privilege!
DO NOT be taken in by this – if you live or work in our area (East Yorkshire) you can apply to join our credit union and apply for a loan without going through a loan broker. We do not take referrals from credit brokers. The only fee you need to pay is our £3 one-off joining fee, and that is only if your loan is approved (It’s just to help pay for our stationery etc as we are a not-for-profit business).
Simply read this website, download and complete the correct forms and bring them in with your ID documents.
As many of you know already, a Credit Union Loan offers a fantastic deal*, with some of the lowest interest charges around. Don’t spoil it by paying money to an unnecessary loan broker!
*all loans are subject to approval
COMPARING THE REAL COST OF LOANS - May 2009
If your perceptions of the cost of a loan are based on the headline rates you see on the High Street or in the newspapers, then you could forget there was a credit crunch at all, with “offers” as low as 7%. The reality, however, is very different.
For those who can get a loan at all, the interest rates, hidden charges and penalties can be way beyond the rates advertised in the shop windows or on the internet.
However, as Mark Lyonette, Chief Executive of the Association of British Credit Unions, explains “Credit union loan interest rates are generally much lower than those charged for unsecured loans from other providers. They’re certainly in a different league to the four or five digit APRs that illegal loan sharks are known to charge.
“Legal home credit providers often charge £300 to £400 in interest for a £500 loan repaid over a year and illegal lenders could charge much more. The same loan from a credit union would cost no more than £68 in interest and could be a lot less. If loan sharks and legal doorstep lenders only charged credit union rates there would be a lot more money in people’s pockets.
Decreasing balance
The interest that credit unions can charge is set by law at no more than 2% per month (26.8% APR) on the decreasing balance of a loan. Many credit union loans are at 1% per month or even less. As interest is charged on the decreasing balance, the faster you pay it off the cheaper it will be. This is one of the key advantages of borrowing from a credit union.
Credit union loans come with no hidden charges and no penalties for repaying the loan early, unlike unsecured loans from many other providers. Life insurance is included at no cost to the borrower and when someone borrows from a credit union, they are encouraged to carry on saving too, so by the time they finish repaying the loan their savings will have grown as well.
The table below compares the cost of borrowing £500 over a 12 month period. As it shows, credit union loans:
-
are cheaper than loans from most other providers for smaller amounts;
-
do not incur the set up fees, administration costs and early redemption fees often charged by loan companies;
-
are significantly cheaper than loans from doorstep lenders.
|
Loan Provider |
APR |
Payment per month/week |
Total Interest |
Total to repay |
|
FLM Loans*# |
42.6% |
£50.24 per month |
£103 |
£603 |
|
UCC Loans*# |
17.9% |
£45.50 per month |
£46 |
£546 |
|
Black Horse Platinum Loans# |
19.9% |
£45.91 per month |
£51 |
£551 |
|
|
|
|
|
|
|
Home collection / doorstep lenders |
|
|
|
|
|
Provident# |
189.2% |
£70.72 per month |
£349 |
£849 |
|
LoansatHome4u.co.uk^ |
281.5% |
£16.65 per week |
£367 |
£867 |
|
|
|
|
|
|
|
Credit Union loan at maximum rate |
26.8% |
£10.84 per week |
£63.32 |
£563.32 |
|
|
|
|
|
|
|
Notes: * subject to set up costs, admin fees and early redemption fees. # figures from MoneySupermarket.com ^ figures from LendersCompared.org.uk |
Pay day loans
For urgent, short term loans the cost of borrowing is often even higher. As the table below shows, anyone who gets a payday loan could pay over 2,000% APR!
|
Pay day loans – cost to borrow £300, repayable on the borrower’s pay day (31 days) |
|
Loan provider |
APR |
Total interest |
Total to repay |
|
Payday UK# |
1,286.1% |
£75 |
£375 |
|
Uncle Buck Payday Loans# |
2,100.4% |
£90 |
£390 |
|
Maximum cost to borrow £300 from a credit union for one month |
26.8% |
£6 |
£306 |
|
# figures from MoneySupermarket.com |
Credit cards
Credit cards may look like a quick and easy option to pay for goods, or to access cash quickly, but a late payment can incur heavy charges and, if you only pay the minimum off each month, you can soon build up huge amounts of interest. In the absence of affordable credit elsewhere, more and more people are turning to store and credit cards.
|
Credit union versus credit card |
|
Loan provider |
Amount |
APR |
Cost to clear |
Time to repay |
Interest charged |
|
Credit card balance# |
£1,500 |
17.9%* |
£4,473 |
31 years, 3 months |
£2,973 |
|
Credit Union loan at maximum interest rate |
£1,500 |
26.8% |
£1,702.07 |
1 year |
£202.07 |
|
* typical #figures from Moneysavingexpert.com |
Glasgow Credit Union points out that paying the minimum payment each month on a debt of £1,500, using a card with a rate of 17.9% APR would result in paying back almost three times the amount of the original debt, based on minimum payments of 2% or £5 (whichever is greater). This works out at a massive £4,473 to clear the debt! It would also take 31 years and 3 months to repay – a longer term than the average mortgage.
June Nightingale of Glasgow Credit Union says: “In the absence of traditional forms of credit, the exorbitant rates on these cards are not the only option. As a responsible lender we discourage the use of high interest cards and would advise anyone looking to consolidate that the only way it will benefit them is if they stop using their credit and store cards.”
“As local, ethical financial organisations, credit unions have always taken a more restrained approach to lending,” adds Mark Lyonette. “They take a responsible attitude to those who approach them for loans and have a thorough application process.”
James Berry of Bristol Credit Union says, “At a credit union decisions are made on a case by case basis. We talk to people and work out what’s best for them. Simply taking on more debt may not be the best solution for everyone.”
| 
06 September 2010
