What is a Credit Union?

A credit union is a financial co-operative run by its members, for its members. Instead of aiming to generate profits for external shareholders, its focus is on offering fair, transparent savings and loan services to those within its “common bond” (for instance, people in a particular community, workplace, or region).

Being a member means you have a say: you vote, you share in surplus (often via a dividend or rebate), and the goal is to help people, not to maximise profit.

Here’s how credit unions differ from banks and what you should know before joining.

Key Features Of Credit Union Loans

Credit union loans tend to have key features that reflect their social and cooperative mission. 

Some of the key features you’ll commonly see are:

• Interest and fees are kept within strict limits. In Great Britain, credit unions cannot charge more than 3% per month on a loan (which is about 42.6% APR).
• In Northern Ireland the legal monthly cap is 1% (≈ 12.68% APR).
• Some credit unions use “save as you borrow” models: part of your repayments goes into a savings pot within the union, helping you build a cushion as you pay off the loan. 
• Early repayment is often allowed without penalty (though it depends on the union). For example, Hull & East Yorkshire Credit Union allows you to pay off loans early without extra fees.
• Loans are typically smaller and for shorter periods than many bank loans. Some unions might lend up to £20,000 (for large, longer-term loans), but many focus on more modest amounts.
• Because loans are member-based, flexibility is sometimes greater: unions may consider personal circumstances (job changes, temporary hardship) more sympathetically than large lenders.
  

How Many Credit Unions Are There In The UK?

As of mid-2025, there are 366 registered credit unions in the UK. Over recent years, many smaller unions have merged or closed, so the number has fallen from earlier decades. 

Membership numbers vary widely. The credit union sector serves millions of people, with many unions focusing on local communities, workplaces, or regions. 

How Do Rates For Credit Unions Compare To Other Financial Products?

Here’s how credit union borrowing stacks up against other common credit options in the UK:

Type of credit	Typical APR / interest	Loan amounts & terms	Key notes
Credit union	Up to 42.6% APR (3% per month) in GB; 12.68% APR (1% per month) in NI	Many loans range from a few hundred to thousands of pounds; some unions like HEY CU offer up to £20,000 over up to 10 years	For many, this is far lower cost than payday or home credit, though higher than prime bank loans
Payday loans / short-term high-cost credit	Often 100%+ APR (and sometimes several hundred percent, depending on term & fees)	Usually small sums over very short periods (days to weeks)	Credit union is almost always cheaper and safer
Mainstream personal loans / banks	For good credit: typically single-digit to low double-digit APRs (e.g. 5–15%)	Medium to larger amounts over 1 to 5+ years	If your credit is strong, bank loans are cheaper; but many people who need credit union loans can’t access those rates
Credit cards / overdrafts	Varies widely; could be 15–30%+ depending on card / usage	Revolving credit (no fixed term)	Risk of accumulating debt if not managed carefully

Let me give you a concrete example: if someone borrowed £500 over a year:

• At 12.7% APR (a midcredit union rate), their monthly repayment might be ~£44.60
• At 42.6% APR, their monthly repayment might rise to ~£54.00

That shows the spread: credit union rates aren’t always at the cap, but the cap ensures the cost never spirals out of control.

Why Use A Credit Union Instead Of A Bank Or Other Lender?

Credit unions are often more flexible than banks, especially if your credit history isn’t perfect. They look at whether you can afford repayments rather than relying only on your credit score.

They’re also safer than payday lenders. Interest rates are capped, fees are transparent, and decisions are made with members’ interests in mind. Any profits go back into services or are shared with members.

Many people like the personal approach too. Credit unions are often tied to a community or workplace, so support can feel more tailored. Some even help you save while you repay. The trade-off is that they’re usually smaller and slower than big banks.

What To Consider Before Applying For a Payday Loan in the UK?

Before applying for a payday loan, check if you’re eligible. Most unions require a “common bond,” such as living in a certain area or working for a specific employer. You may also need to pay a small joining fee or deposit some savings.

Some unions only lend after you’ve built a savings record, so ask about requirements in advance. It’s also worth checking the loan amount, repayment terms, and whether early repayment is allowed.

Make sure you understand the total cost, how repayments are collected, and expect a basic affordability check. And remember, your savings are protected by the FSCS, just like with banks.

What Is The Criteria For Joining Or Borrowing?

The criteria for joining a credit union are that you’ll need to meet the union’s bond, be at least 18, and provide ID and proof of address. Most lenders also require a small deposit when you sign up.

Some ask you to keep a minimum balance, and most will check you can afford any loan you apply for. The checks are usually more flexible than those of a bank, and once you’re a member, you can apply for a loan that suits your situation.