Banks and credit unions are financial institutions that provide similar services. Customers will be able to open savings and settlement accounts here, take out loans for the purchase of cars and real estate. However, there are also differences between financial organizations. A bank is a separate institution, the purpose of which is to generate profit for shareholders. Credit unions accept clients into the ranks of their members who together own the organization. However, the differences do not end there.
What is a credit union?
A credit union is a non-profit financial organization founded by individuals or trade unions who provide services to their members. For the provision of loans, funds are taken from the fund, where the participants contribute membership fees. This is a kind of financial assistance to those members of the organization who need it.
Important! For the opportunity to borrow funds to solve their problems (vacation, travel, treatment, education, purchase of real estate or a car, etc.), participants will receive a reward – interest.
Features of a credit union
All members (or a certain part) place money on bank details. And if the participant needs funds, he or she can get them. Within the agreed period, the money must go to the bank account but this time together with interest.
Attention! A credit union must have a charter. The document specifies the amount of monthly fees that all participants must pay.
Credit unions resemble banks only at first glance. They have a similar scheme of actions – issuing loans for profit. However, credit unions do not set the goal of getting rich through interest. Officially, they work for the common good – improving the financial condition of each site and promptly solving the problems that have arisen.
The main differences
Banks are often compared to credit unions since the activities of organizations are directly related to lending. Parallels are drawn to identify similarities and differences in the activities of each organization. However, there is still a difference:
- Banks are very demanding of their customers. To provide a loan, a financial institution checks the borrower. Attention is paid not only to his/her place of work, family composition and income, but also to his/her credit rating. Often, banks prefer to work only with those who are served by them (salary project, deposits, etc.). If a potential client has loans from other banks or does not have enough funds to pay the body and interest on the loan, he/she may be denied a loan. To approve a loan to buy a home or a car, conduct business, or purchase expensive equipment, banks may require collateral and attract a guarantor;
- Credit unions are often unable to provide large amounts because they only have funds that members contribute. The terms for providing loans are not always long – they are often insignificant;
If borrowers delay payment, banks accrue fines, penalties, and may seize property. All this is done in order to protect the interests of shareholders. In credit institutions, all shareholders decide on the need to collect fines. If the reason is valid and the delay is insignificant, then the borrower can get an extension or even be released of the debt;
- Credit institutions distribute the received interest among all participants. Often the profits obtained are used to expand the scope of activities, improve the quality of services provided. Often, banks treat interest and fines as additional profits that are sent to shareholders.
All activities of a credit union depend on the charter. The more members such an organization has, the broader the opportunities. Large organizations offer to deposit funds through terminals that are installed in crowded places.
Important! Lending organizations often provide online loans. They work through the network, provide an opportunity to pay for obligations and deposit funds remotely.
Unique features of credit unions
Such organizations simplify their work as much as possible. Benefits include:
- Ability to receive funds without wasting time. The loan is provided as quickly as possible. Often the application can be submitted virtually;
- Lack of guarantors. To get borrowed funds, you will not need guarantors, collateral or a package of certificates;
- Features of management. Each member of the organization has the right to take part in the work of the company. This does not depend on the length of stay in the ranks of the members of the company, as well as on the amount of contributions already made;
- Possibility of writing off penalties, if such is agreed with the founders.
There are also minor drawbacks. Only a member of the union can receive credit funds. There is no way to borrow a large amount for a long time. That is why they turn to credit institutions when there is no way to get loans for buying a car or real estate in a bank that is ready to wait a long time and provide a large loan.
Important! Another feature of credit unions is interest on loans. They are often higher than in banks.