Credit Union loans hit £1.87bn record high

Analysis from Freedom Finance found that more and more people in the UK are taking out loans from Credit Unions as the cost of borrowing reaches new highs.

The latest data released by the Bank of England revealed that 1.94 million people in the UK were members of a Credit Union in the second quarter of 2022, a rise of more than 28,000 compared to the same period last year.

As well as growing membership in the UK, Credit Unions are also loaning record sums to members with total borrowing surpassing £1.87 billion in Q2 2022. It marks an increase of £244 million (15%) since the same quarter in 2021.

The findings come amid an economic environment that has driven the average quoted household interest rate on credit cards to their highest level since before the millennium, with personal loan rates also at their most expensive in many years.

Credit Unions, as cooperative societies, are often able to offer smaller, shorter-term loans that can be difficult for borrowers to find through other institutions. Other specialist lenders can also charge very high interest rates with the majority of Credit Union loans made well below the maximum interest rate, an APR cap of 42.6% set by the government.

Earlier this year, a report from the Centre for Social Justice (CSJ) – Swimming with Sharks2 – revealed as many as 1.08 million people are victims of loan sharks and called for changes to the Credit Union Act 1979, including the creation of a new Credit Union Mergers Fund. Freedom Finance, a supporter of the CSJ’s Debt Policy unit, supports the call for reform.  

Emma Steeley, CEO at Freedom Finance, said “Credit Unions play a vitally important role in plugging the gap for affordable credit, a problem that has become increasingly acute following the withdrawal of many short-term credit providers from the market.”

“Credit Unions are a financial lifeboat for many people in the UK who struggle to access low-cost borrowing from other reputable lenders for what can be a variety of reasons. However, awareness of Credit Unions is a major problem and in the absence of other sources of legal borrowing, consumers can be forced into taking a dangerous course of action when they feel there are no other options open to them.”

“The CSJ’s report estimated that over 1 million people could have exploited by a loan shark. The victims suffer from extortionate repayments as well as threatening behaviour, ruining livelihoods and lives.”

“Given the economic emergency, we as a lending industry need to be offering consumers a wide variety of products from reputable providers. Technological developments like Open Banking and soft searches can be used to ensure that even people with thin credit files can access the credit market, avoid declined applications and shop around to get the best products that they are eligible for.”