List of Pros and Cons of Credit Union

Credit Union is a nonprofit cooperative or association where members can borrow money from the available pool of money that has been accrued by the deposits made by members and in some cases funds raised or received from other sources. The two key differences between a bank and a credit union are the latter is nonprofit and a cooperative. A bank can be a corporate subsidiary, a parent company, an extension of a large private fund or a government owned enterprise to offer financial services. In each of these circumstances, a bank needs to churn profits unless it is explicitly nonprofit. Even government owned banks need to turn in a profit. Credit Union works with the sole purpose of benefiting the members and not furthering its own cause or any other.

List of Pros of Credit Union

1. Borrower comes First
No matter how many times a bank tells you that the customer comes first, it is actually the bank and its interested that are of paramount importance. There are lobbies that favor corporate bigwigs but then those are not ordinary cases. In case of a credit union, the borrower or member comes first. One doesn’t have to be the chief executive of a tech giant or the hotshot investor in a major hedge fund to wield influence. A credit union welcomes all members equally, unless one is a defaulter or has erred in the past dealings with the cooperative. The need of the borrower comes ahead of any other requirement. A credit union is like a society or you can even consider it to be an extended family where collective financial interests are taken care of.

2. Lower Rates of Interest & Fees
A credit union will always have lower rates of interest than banks or private lenders. Do not compare with payday loans or unsecured short term loans as they are very expensive. Credit card interest rates are also exponentially greater than the rates charged by a credit union. In most cases, the rate of interest levied by a credit union will be the least you can get, unless you opt for an interest free loan from your family or friends. The same applies to the fees. Processing fees, disbursement fees or application fees, call it what you may, are almost nonexistent or very reasonable.

3. Lenient Terms
One only needs to be a member of a credit union to be eligible for a loan or any of the financial services offered by the cooperative. The qualifying factors or eligibility criteria are not steep. Application process is quite simple and the approval process is rather quick. The terms of repayment are very simple and generous in some cases. Unless you are asking for a loan amount that a credit union simply cannot afford or you don’t qualify for, unless you have a purpose that you cannot explain or you have been a repeat defaulter with loans, the terms will be least stressful and you would get the loan.

4. Similar to Banking without the Demerits
A credit union can have multiple branches. It can have cheques, ATMs and internet banking or even mobile banking. A large credit union can be similar to a bank without its demerits. The payment charges, minimum balance requirements and various other obligations that you have to agree to with a bank may not be relevant with a credit union.

List of Cons of Credit Union

1. Eligibility Constraints
A credit union will almost always define explicitly define who can become a member and who cannot. Banks will usually entertain you if you have the proof of identity, address and can put in the minimum balance or account opening fee. In some cases you may not have to pay any fee and it could be a zero balance account. A credit union has predetermined purposes and will only have members whom they had originally intended to benefit.

2. Fewer Associated Advantages
A credit union doesn’t have the entire body of financial services that a bank or a large private financial institution can offer. For instance, you may not be able to deal a trading account through a credit union. There may not be any home loan or car loan as such. There can be small home improvement loans. Major investments call for substantial loans and that may not be possible with a credit union unless it is one of the largest in the country with possibly millions of members.

3. Limited Leverage & Resources
A credit union doesn’t have a seemingly endless supply of cash. The reserve is modest and hence the resources are limited. As a result there isn’t much leverage and hence the borrowers can only get limited help.

4. Outdated Systems & Practices
A small or medium sized credit union may not have state of the art offices or branches. It may not have its own servers or secured networks. The practices too may be outdated. Modernization and technology require money and a motivated as well as purposeful compulsion to do so. A credit union may not have either.