Credit Union secured loans - taking out a loan when you have shares

Brendan Burgess

Brendan Burgess

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I have moved these posts from the thread on the Bank of Ireland Life Loan as they were derailing the thread.


Even today, people who apply for a loan from the credit unions are often encouraged to borrow the amount they need in full while leaving their shares intact.

So you will often have someone with a €10k loan on which they are paying 6% and €10k in shares earning nothing.

Try pointing out to them or the Credit Union that this is irrational.

And the Credit Unions call these "secured loans".

This is how the Credit Union I am a member of portrays them:

capitalcu.ie

Explaining A Secured Loan - Capital Credit Union

What Is A Secured Loan? A Secured Loan is a product closely associated with Credit Unions. A Secured Loan allows members to pledge their savings to get a much-reduced loan rate. This means that if a member has €5,000 in their shares and wants to borrow €3,000, they can get a reduced rate if they […]
capitalcu.ie capitalcu.ie

Brendan
 
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Its not often that Mr Burgess is wrong but this needs to be corrected.
Since time immemorial (c.1971) CUs gave free life savings assurance to its members.
Whilst the cost has soared, many CU still offer what was there since the 1970s.
Others because of cost have reduced it.
Originally it was to ensure liquidity with some at 95% lending (now the best is 40%)
This needs to be taken into account and its is multiples of what you would get in the best bank over a number of years.
Just to reiterate, the LS is free to members.
 
WizardDr said:
Its not often that Mr Burgess is wrong but this needs to be corrected.
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you are wrong on both counts.

1) I am often wrong
2) In this case, I am correct.

It makes no sense to have €10,000 in shares while borrowing €10,000 and paying 6% interest.
OK, you get a bit of life insurance but the premium would be a lot less than €600 a year for €10,000 of cover.
There is no need to bundle these products.
If someone wants it, let them buy it separately.
 
WizardDr said:
Just to reiterate, the LS is free to members.
Click to expand...
No such thing as a free lunch. The cost of this is subsumed somewhere else. A bit like the cost of the disastrous CU computerisation project a while back.
www.rte.ie

Hi-tech flop hits credit unions with a £27m bill

Extensive management failings have been identified in a confidential report on the flawed multi-million pound computer system proposed for Irish credit unions, writes the Irish Independent today.
www.rte.ie www.rte.ie
 
Brendan Burgess said:
So you will often have someone with a €10k loan on which they are paying 6% and €10k in shares earning nothing.
Click to expand...

Is it correct to say that the secured loan is 100% backed by Cash, the cash is held by the institution granting the loan and you cannot access any of the cash while there is a loan balance outstanding? And you're charged 6/7% for the privilege? That's more secure than a mortgage!
 
Itchy said:
Is it correct to say that the secured loan is 100% backed by Cash, the cash is held by the institution granting the loan and you cannot access any of the cash while there is a loan balance outstanding?
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It is in my Credit Union anyway

capitalcu.ie

Explaining A Secured Loan - Capital Credit Union

What Is A Secured Loan? A Secured Loan is a product closely associated with Credit Unions. A Secured Loan allows members to pledge their savings to get a much-reduced loan rate. This means that if a member has €5,000 in their shares and wants to borrow €3,000, they can get a reduced rate if they […]
capitalcu.ie capitalcu.ie

What Is A Secured Loan?​

A Secured Loan is a product closely associated with Credit Unions. A Secured Loan allows members to pledge their savings to get a much-reduced loan rate.

This means that if a member has €5,000 in their shares and wants to borrow €3,000, they can get a reduced rate if they pledge €3,000 from their shares against the loan.

I think that a customer-centred credit union would tell the member to withdraw €3,000 and not borrow any money when they don't need to.

But, hey people love credit unions. The Irish Times or Joe Duffy won't pile in on this nonsense.
 
As an example, you can find the RTE Credit Union accounts here


They have loans of €16m and from PDF page 38, you can see that they have "attached shares" of €3.5m

They charge 5% on "covered" loans

1793699666910.webp


And increased the dividend from 0.1% to 0.5% last year.
 
And the source of funding is other customer deposits. So their cost of capital is determined by - themselves! In a bad year they can choose to pay 0 dividend, at will. At the very least the rates should reflect the risk, which is a fraction over 0!
 
I know many people who find it hard to save but will repay a loan, in my opinion this is the attraction of a secured loan, they will honour the monthly committment but could quite easily flitter it otherwise! Yes they are paying a service charge you could say for this transfer of 'willpower' to the CU but are happy to do so.
 
Brendan Burgess said:
Even today, people who apply for a loan from the credit unions are often encouraged to borrow the amount they need in full while leaving their shares intact.

So you will often have someone with a €10k loan on which they are paying 6% and €10k in shares earning nothing.

Try pointing out to them or the Credit Union that this is irrational.
Click to expand...
Credit union's are not meant to be banks. They are a collective, the point of them is to encourage people to save and to help those that otherwise might not get loans to be able to borrow. So people would borrow to pay for a motorbike for their son, or for an annual holiday and then pay it off over the year, or to buy a car, or to replay a credit card debt (( suppose). The demographic was generally people with no money. Who a bank would not even look at. They are part of the community and work in the interests of the community.

My credit union used to let you borrow 3 times your shares. I did 2 stupid loans with them, paid them back early, to build up a record and then borrowed part of my house deposit ! Told them it was for a car I think. Still with them, but they made me take out money because they no longer want people to have savings with them.

There was also a 20K payment if you died, or something like that, they did away with that, they also had a free will service, and car raffles. One of my siblings borrowed the money to build a house. Very informal compared to the banks.

They are great at teaching people to save and to borrow responsibly.
 
Itchy said:
et they charge interest at a higher/the same rate as a bank for less (no!) credit risk?
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I agree with @Bronte, they are in general for people who a bank won't bother with. I've worked in banks and I've been involved in CU credit committee and as director, it's a different demographic, some crossover obviously but CU is the only lending option for many.
 
Monbretia said:
I agree with @Bronte, they are in general for people who a bank won't bother with. I've worked in banks and I've been involved in CU credit committee and as director, it's a different demographic, some crossover obviously but CU is the only lending option for many.
Click to expand...

I'm sure Bank of Ireland would be delighted to issue a 100% cash collateralised loan at @6%!

What was your rate in your credit union, for offering secured loans? Did that fairly reflect the credit risk, in your opinion?
 
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