Understanding A Credit Union's Reasoning

tempnam

I have €3K savings with my credit union. No loans with them at present, but had a small loan a few years back with them (c. €3K) - which I paid off early.

I'm a regular saver - with a monthly standing order set up to transfer money into my CU account once I get my salary. Admittedly, the monthly amount decreased recently since my OH was on unpaid maternity leave - but I kept putting a small amount away each month.

Getting married in a couple of months, and after organising everything & paying deposits on some things etc. we realised we could have done with say an extra €1,000 to cover everything (on top of the €3K I had in savings) - so I thought "no problem, I'll apply for a loan" – which I did…. For €4K

So the CU called me (in fairness, same day – very prompt) to advise that they could only give me a loan of €3K. I explained that I actually needed €4K so that’s why I had applied for that much. The lady I spoke to informed me that since I had not recently taken any loans with them I would not be eligible for any more. I would have thought that since I was saving regularly, and NOT taking loans, this would look more favourable on my part…. But apparently they like you to have a history of taking loans in order to consider you more suitable to loan to?...

As well as this, she kept trying to get me to apply for the loan in the amount equal to my savings. When I said to her “but, if I need €3K I’ll just withdraw my savings instead of taking a loan and paying back interest. Why would I take a loan on an amount I have in savings?” she seemed stumped….

I’m just trying to understand the mindset….

Do they see regular borrowers as better income generators – ie paying back interest? Is there an element of risk involved with lending to someone with (what I’d have considered) a decent record..?

Your thoughts are welcomed!
Thanks.

scheister

tempnam wrote: »

I have €3K savings with my credit union. No loans with them at present, but had a small loan a few years back with them (c. €3K) - which I paid off early.

I'm a regular saver - with a monthly standing order set up to transfer money into my CU account once I get my salary. Admittedly, the monthly amount decreased recently since my OH was on unpaid maternity leave - but I kept putting a small amount away each month.

Getting married in a couple of months, and after organising everything & paying deposits on some things etc. we realised we could have done with say an extra €1,000 to cover everything (on top of the €3K I had in savings) - so I thought "no problem, I'll apply for a loan" – which I did…. For €4K

So the CU called me (in fairness, same day – very prompt) to advise that they could only give me a loan of €3K. I explained that I actually needed €4K so that’s why I had applied for that much. The lady I spoke to informed me that since I had not recently taken any loans with them I would not be eligible for any more. I would have thought that since I was saving regularly, and NOT taking loans, this would look more favourable on my part…. But apparently they like you to have a history of taking loans in order to consider you more suitable to loan to?...

As well as this, she kept trying to get me to apply for the loan in the amount equal to my savings. When I said to her “but, if I need €3K I’ll just withdraw my savings instead of taking a loan and paying back interest. Why would I take a loan on an amount I have in savings?” she seemed stumped….

I’m just trying to understand the mindset….

Do they see regular borrowers as better income generators – ie paying back interest? Is there an element of risk involved with lending to someone with (what I’d have considered) a decent record..?

Your thoughts are welcomed!
Thanks.

Credit Unions can be very strange at times when it comes to loans. It used to be about your savings but its now ability to pay. I went to the credit union at the in December as i was thinking of getting a new car this year to find out my account was no longer valid as i had something like €4 in it but things speeded up and needed the new car earlier and ended up getting 3500 from them with alot less in the account. It appears it can be down to each credit union and the persons mood on the day. It can be very annoying when your left in a position like you are

phormium

Ask to appeal the decision. A lot of people actually like to keep their savings and borrow on the basis that they might not replenish the savings but they will pay the repayments so credit unions very often give loans equal to or even less than a customer's savings. Odd but that is a large part of their business.

In some stupid way you would probably be better (from their point of view) looking for 5k which would mean you would have 1k left in your savings account. You could always overpay the repayments after the wedding to bring you back to square one.

sedric

I agree appeal, the officer's position in that CU does not make sense, unless they have severely restricted lending.
Usually the CU would be delighted to have a steady saver like yourself, take out a loan.

matt70iu

Yep sounds to me like it's more likely the credit union have seriously restricted lending. If your history is as you describe it, there shouldn't have been an issue IMO.

My credit union have restricted lending in a different way.

Max loan term is now 3 years and no loans over 20K and even these must be secured on a considerable amount of shares.

I heard my lot got a slap on the wrist from the central bank, hence the restrictions.

Jhcx

Someone had mentioned to me that all loans are based in your savings so can only take out a loan against what you have saved with them. I'm guess this is should it happen you can't pay at least they still have the funds to cover their loss.

As a non credit union member I seem to find their way of working dodgy. Probably grand once with them but nothing to attract one to them .

If you feel you are a low risk for this very very small loan, just ask the manager what the problem is. Also ask if they have a lending restriction and exactly what it is.
Credit unions survive on lending and at least 75% of members borrow more than their savings
Unfortunately every CU is different, each with a unique lending policy and you might as well be comparing BOI with Barclays as comparing two CU's!
As a member of a CU don't forget that YOU own the CU and pay the wages of the staff, so be confident when enquiring why the loan was declined.