Beat the interest! The credit union says it can be an alternative to banks and loan sharks

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FROM banks with high costs and strict rules to loan sharks that hand out cash quickly but charge high fees, people in debt can feel like there is no escape.

But there’s an answer to making sure you stay financially healthy long-term — and it comes in the form of credit unions. Credit unions are cooperative financial institutions that can offer exactly the same services as the average bank, but don’t have to pay high-flying managers and don’t charge exorbitant interest rates.

Based in Islington, London Capital Credit Union is the oldest example of an increasingly popular money management style.

Originally formed as Hornsey Credit Union in 1960, their background is one of bigotry.

Managing Director Martin Groombridge explains: “The Credit Union was founded by families who had migrated from the Caribbean. Some people had been to a major bank to set up accounts and were told by the manager that they “didn’t want your kind here”.

“Credit unions were well established in the Caribbean, so they decided they didn’t have to let institutions with such horrific views get their habit.”

Based at Ferme Park Baptist Church in Hornsey, the credit union has offered and continues to offer financial aid to hundreds of people.

Now together with other credit unions it has over 16,000 adult members and has £19 million in savings.

Mr Groombridge said: “Most of our members had no savings at all when they joined and they do now which shows how well our system can work.”

Although credit unions have been around for 50 years, they played a similar role to building societies, which were better known and had a strong presence. After laws were changed that allowed them to demutualize, they raised interest rates and took risks.

Mr Groombridge explains: “They started acting like banks because that’s what they were except for the name. This meant taking bigger risks in order to increase the bonuses. They were washed away in the 2008 crash.” This led to a surge in credit union accounts.

Mr Groombridge said: “Any member can apply for a loan and it can be of any size. Banks won’t lend less than £2,000 but say you just want to replace a broken washing machine and it costs £400? Why should you have to borrow more than you need and pay more to return it?”

The union offers help in managing expensive debt. Some borrow to get rid of credit card companies or other high-interest lenders.

They pay the union at a rate they can afford. In connection with this, a rule on the loan is that you must deposit at least £1 per day into your savings account while you are repaying the loan.

This money will then be released to you once the loan is completed as a godsend. On top of that, only low interest is charged on the debt. If you borrow £1,000 and pay it back over a year, the fee would reach £67.

Martin Groombridge

Mr Groombridge said: “It helps people who are just managing their debt, servicing interest but never getting out of it. With a credit union loan, you can often halve the amount you pay back.”

The union’s work means members are simply less likely to get into financial trouble.

Mr Groombridge said: “Our main aim is to encourage people to save. This means that if something unexpected happens, they won’t get into debt.”

Other loans can be used for renovations such as double glazing or replacing inefficient boilers. This can also help reduce expenses as the union member has fewer overheads due to energy shortages, for example.

Evidence of whether a credit union works is illustrated by the numbers they use today. In the past decade, membership has increased 420 percent and savings have increased 775 percent.

Mr Groombridge added: “The more people get involved, the more people save with us, the more we can do to benefit the community we live in.”

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