How Credit Unions Work
Many people in the local community save their money with the credit union. The credit union takes some of this pool of money and lends it to other credit union members who need to borrow money. For example, Tony the taxi driver might want to buy a new taxi because his old car broke down. Tony might borrow €/£ 3,000 to buy a second hand taxi. When he borrows the money, Tony agrees to pay it all back to the credit union plus a little bit extra called interest. Tony drives his taxi every week and each passenger pays a fare. Tony uses some of this money to pay back the loan. In total, over the duration of the loan, Tony might pay back €/ £3,200. At the end of the year, the credit union adds up all the interest paid by people like Tony and once it has put aside money to fund the running of the credit union, the funds left over can be paid to savers within the credit union as dividends. So everyone benefits. Savers can get paid a dividend on the money which they save. The money the saved is used to fund loans to other members within the community and the members who borrow the money can do so at a fair interest rate. This is the credit union model – people helping people on a not for profit basis.