Credit Union Loan Appeal Letter

deanvallance

Hi all,

I've recently applied for a loan of £7,500 from my local Credit Union. However, it was rejected.

I phoned up too see why it was rejected and she said it is because I have too much debt already and my credit score is bad.

I am going to use the loan to consolidate my existing debts as it will help me financially as I am really struggling to even make the minimum payments of my debts and it will help me shift my debts faster.

She said I can appeal by writing a letter explaining my circumstances and basically explaining why the decision should be overturned.

I am looking for the best advice on what to include in this letter to get the loan approved.

Thanks :j

Stevie_Palimo

Most if not all credit unions used to work on a different basis when offering loans and this was have x amount in savings and we'll give you x amount as a loan, This pretty much stopped a while ago now after a lot of them took hits from people that built up credit histories with them and took out a larger loan then disappeared, Most loans now would be on a credit check basis unless you had 50.000 of savings and wanted a loan of 2000.00 from them.

Appealing this decision will probably not make much difference to be honest and looking at your debts at present would be better plus cutting back on areas to, Do a SOA and then look at who you owe and what amounts these are then write to them and ask if they will accept a lower payment from you together with cutting costs your end should mean getting the debt shifted sooner rather than later.

[Deleted User]

About the only thing you can do is to point out that it is for consolidation and not additional borrowing.

Their expectation will be that you will blow the lot and end up twice as much in debt.

Pixie5740

I think you're wasting your time appealing their decision. You say you will use the money to repay your debts but the reality is that the Credit Union has no guarantee of this so it would be irresponsible for them to lend someone £7,500 who is already struggling with £7,500 of debt.

Consolidating debt to make it cheaper only works if you have tackled the root cause of your overspending which has lead you into debt in the first place.

Rather than spending time composing this letter contact one of the debt charities (CAP UK, National Debtline or Step Change) for advice instead.

poppasmurf_bewdley

deanvallance wrote: »

Hi all,

I am going to use the loan to consolidate my existing debts as it will help me financially as I am really struggling to even make the minimum payments of my debts and it will help me shift my debts faster.


/QUOTE]

The sentence I have outlined in bold above is why the CU have declined your loan.

PIXIE is correct in what she says. You need to look at reducing your current spending, not thinking about taking on an extra loan.

ReadingTim

Only thing I could suggest would be to list all the account details of whatever CCs, loans etc you're looking to consolidate, and ask that the funds be split out and paid to those accounts (rather than just your current account), which are then closed.

However, the key thing is to work out why you're seven and a half grand in debt, and get yourself out of that by spending less and earning more; rather than cook up schemes to get yourself into fifteen grand's worth of debt.

rtho782

The main reason they insist on you saving at the same time (I've known one that insisted on you saving a minimum of 20% of your loan repayments monthly) is to charge a higher effective APR, as their APRs are capped.

If you loan repayments are £100 a month, you have to save £20 a month for a total payment of £120.

So you're paying £120 a month, and rather than £120 going off the loan, only £100 goes off the loan, and they pay you 1% interest on the other £20, while charging you 18.9% APR on the £20 you would otherwise have paid off.

They won't let you pay your savings accumulated off the loan, as that would cost them money.

Anthorn

Wow £7,500 loan from a Credit Union. No wonder it was rejected.

Depends on the credit union. Most credit unions I know of credit check applicants and work on the principle of the more we know you the better. You might join and be invited to apply for a loan of say £500 at say 46% APR. Some credit unions insist that you also save. The credit union I support demands that loan applicants enrol in the Christmas Saving Club which effectively locks away savings until November.

As the CU gets to know you the amount of loan could increase and the APR could decrease. I save and borrow in the CU I support and my APR is 12.7%. But I've been supporting the CU so long I can't remember the date I signed up and I've saved for the whole of that time.

Mainly CUs don't pay interest on savings. They are mainly mutuals and share out the profits amongst members following the AGM. That's if there are any profits to share out.

Credit Unions don't really go down very well with MSE readers and members because savings are kept intact and a loan taken out. MSE would say spend the savings and avoid the loan. A CU might say that they exist on savings and if members don't save the CU won't have any money to loan.

Lastly, you must note that CUs loan out other members money and mainly they are careful with it. The alternative is to go bust which is not exactly a rare occurrence with CUs.

PeacefulWaters

Anthorn wrote: »

Wow £7,500 loan from a Credit Union. No wonder it was rejected.

Depends on the credit union. Most credit unions I know of credit check applicants and work on the principle of the more we know you the better. You might join and be invited to apply for a loan of say £500 at say 46% APR. Some credit unions insist that you also save. The credit union I support demands that loan applicants enrol in the Christmas Saving Club which effectively locks away savings until November.

As the CU gets to know you the amount of loan could increase and the APR could decrease. I save and borrow in the CU I support and my APR is 12.7%. But I've been supporting the CU so long I can't remember the date I signed up and I've saved for the whole of that time.

Credit Unions don't really go down very well with MSE readers and members because savings are kept intact and a loan taken out. MSE would say spend the savings and avoid the loan. A CU might say that they exist on savings and if members don't save the CU won't have any money to loan.

Lastly, you must note that CUs loan out other members money and mainly they are careful with it. The alternative is to go bust which is not exactly a rare occurrence with CUs.

Can a credit union charge such a high APR?

Anthorn

PeacefulWaters wrote: »

Can a credit union charge such a high APR?

Mainly authorised by PRA and regulated by FCA so I suppose so. But credit unions are mainly autonomous and if the members decide on something so be it. But if your only other alternative is a payday loan 46% is pretty good.
Examples:
http://www.rainbowsaver.co.uk/
https://www.eslcu.co.uk/
Umbrella:
http://www.abcul.org/home

PeacefulWaters

Anthorn wrote: »

Mainly authorised by PRA and regulated by FCA so I suppose so. But credit unions are mainly autonomous and if the members decide on something so be it. But if your only other alternative is a payday loan 46% is pretty good.
Examples:
http://www.rainbowsaver.co.uk/
https://www.eslcu.co.uk/
Umbrella:
http://www.abcul.org/home

It looks like 42.6% APR is the legal cap. Higher than I realised.
http://www.thisismoney.co.uk/money/cardsloans/article-2340943/Interest-rate-cap-credit-union-raised.html