If you’re thinking of getting a loan, your credit union might be a cheaper option than a bank. However, if you’re behind on loan repayments, you might be worried about telling them. Don’t be afraid to let your credit union know if you’re struggling to repay. They will try to work out a repayment plan that suits you.
What is a credit union?
Credit unions are community organisations that provide services and loans for their members. To open an account, you need to have a ‘common bond’ with other members. This means one of the following applies:
- Members live in the same area
- Members work for the same employer
- Members are part of the same association
Borrowing from a credit union
You need to be a member of a credit union before you can get a loan. In some credit unions, as soon as you are a member, you can apply for a loan. Credit unions have different rules about loans, so you need to check with your credit union about what rules apply to your loan.
By law, credit unions can’t charge more than 12.68% APR but some will charge less than this, depending on the type of loan you get. You are still expected to repay your loan as agreed.
What happens if I don’t pay back a credit union loan?
If you don’t repay a credit union loan, this will affect your credit history. The credit union might:
- Use your savings to repay the loan (this is called offsetting your savings)
- Cancel your membership
- Take you to court
- Follow up the debt with anyone who has guaranteed your loan.
What to do if you’re struggling with a credit union debt and no other debt
If you have a credit union debt, you should look at where your money is going and explore ways of increasing or making the most of it so you can make a realistic offer to repay.
The easiest way to do this is to make a budget using our free tool and negotiate this debt with your credit union. Read more about increasing your income.
If it is clear from your budget plan that you cannot afford your repayments, contact your credit union as soon as possible to explain your situation and find out how they can work with you. Or you can ask for time while you work out a tackling debt plan.
How your credit union can help
Your credit union must work with you to help you find a solution for your repayments. For example, they might offer to:
- Lower or pause your payments for a while
- Offset your savings on the loan (use your savings to repay some or all of the loan)
- Stop adding interest to the loan for a limited time
- Support you with a claim against insurance if you are critically ill and have cover
- Help you work out a plan to pay what you owe
Being open and honest about your circumstances will show them that you have missed your payments not because you are unwilling to make them, but because you are unable to.
How to approach your credit union
You can produce a financial statement to send to your creditor with a letter explaining your circumstances and making your offer officially.
You can adapt and use standard letter B to send with your financial statement and step 5 of the 5 steps to tackling debt will guide you through putting your plans into action.
Sending a financial statement is often an effective way of persuading your credit union to accept reduced payments over a longer period of time. Be prepared to give your lender more information about your situation, such as bank statements and payslips.
Don’t agree to pay more than you can realistically afford. Any offer you make should be based on what you have left over after paying your essential commitments such as housing, food, heat, light and so on. Read more about reasonable living expenses.
See our tips for:
If your credit union does not accept your offer and you’re unhappy with the solution offered or you need help approaching your lender, contact MABS.
What to do if you are struggling with several debts
If you’re finding it hard to keep up with repayments on your credit union loan and other debts, you can read information about what to do if you are struggling with several debts.
Need some advice and support?
If you get stuck along the way or just want some free and confidential advice and non-judgmental support contact MABS or read more about how MABS can help.
If you decide to contact MABS, it would be useful to note all your questions and have your most recent letters, emails or court documents from your creditors to hand and any credit agreements (contracts) if you can find them.
You can also arrange to email either your Full Financial Picture or Financial Statement for a MABS Adviser to look at before your appointment if you wish. But even if you don’t have this information, still make the call and MABS will help.
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