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Banking and borrowing

Credit unions. What are they and how do they work?

Credit unions are becoming more and more popular as an alternative to the high street banks and expensive payday loans. But what exactly are they and how do they work?

The main difference between a high street bank and a credit union is that a credit union is a cooperative financial institution. This means that the people who use the credit union have a say in how it’s run rather than this being left to shareholders to decide.

There are lots of reasons why people are choosing credit unions over banks but here are a few of the main ones:


  • Having a poor credit rating or having difficulties opening an account with a high street bank
  • Supporting a local cooperative that doesn’t make a profit for shareholders
  • Having the flexibility to save what they can, when they want to
  • Credit unions may be more willing to help people on a low income or who don’t have a previous record of borrowing and they provide an alternative to payday loans

Credit unions have three main aims:


  • To provide loans at low interest rates
  • To encourage all members to save regularly
  • To help members in need of financial advice and help

You'll need to be a member of a credit union before you can get a loan from them, and some will require you to build up some savings first.

To find out whether your local credit union might be able to help you, find a credit union near you, and get in touch with them.

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How do credit unions work?

Because credit unions are cooperatives they operate in a very different way to a high street bank.


  1. They are run by their members on behalf of their members
  2. Lots of smaller credit unions rely on volunteers, only the larger ones have paid staff
  3. Most credit unions use their members money to run the services they offer
  4. Members of the credit union are rewarded rather than paying outside shareholders

How do I join a credit union?

Most local areas have a credit union, but before you can open an account with them you’ll have to have a ‘common bond’ with that credit union. Every member of the credit union will be linked in some way, for example:


  • Living or working in the same area
  • Working for the same employer
  • Belonging to the same trade union
  • Belonging to the same church or other association

As long as one person in your household shares a ‘common bond’ with a credit union then anyone in your house can normally join.

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