About 500 credit unions across the country offer their members cheap loans, usually at around 1% a month interest. Currently only about 500,000 individuals have credit union accounts, due to strict membership laws that date back up to 100 years. The regulations limiting the reach of these institutions are about to be scrapped in a new move by the government to combat the effects of the credit crunch on the general population. Credit unions will now be able to affiliate themselves with other unions, as well as employment and trade organizations.
The opportunity for low-income and sub-prime individuals could not come at a better time. With mortgage repayments on the increase, wages stagnating and reluctance from high street lenders to open their wallets, the number of non-standard individuals is set to increase dramatically this year. Datamonitor research predicts a 7% increase in the non-standard population this year, representing an increase of 500,000 people to the current base of 7.1 million individuals.
Even though the UK already has the highest household debt levels in Europe, offering more debt may be a viable solution. Credit unions provide a cost-effective alternative for consumers who cannot get credit from the high street. Often these consumers end up dealing with loan sharks and home-collected credit lenders that can charge up to 300% interest. In addition, credit unions are owned and operated by the community or common body that they serve, and require members to save money for some time before they can apply for a loan. At such a low cost, it is easy to see how consumers could use a credit union loan as a debt consolidation tool.
The increased ease of access to credit will no doubt alleviate the pressures brought on by the credit crunch, and it will be interesting to see how mainstream and sub-prime lenders react to this new competitor flooding the market with cheap loans. That said, only time will tell if this really dampens the effects of the credit crunch on the UK population in the long run. 'End Intelliext
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