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Interest Rates

As from 7th May 2019 our interest rates are as follows:

Standard Loan rate 3% per month (42.6% APR)
Discount of 0.5% per month for loyal members
Discount of a further 0.5% per month for members with no previous arrears
Rate of 1% per month (12.7% APR) for loans where member has cash cover through savings.

Below is an explanation of how interest rates work and what separates credit unions from other financial institutions. With many loans all the interest is added at the start and that is what you pay, whereas with a credit union loan interest is only added each month on the outstanding balance. If you are making regular repayments the balance is reducing and therefore so is the interest being addrd. The maximum rate of interest which the law allows credit unions to charge is 3% per month (42.6% APR). There is no penalty for paying off a loan early, you only pay the balance which applies at that time.

Interest Rates (and APR) explained

APR (Annual Percentage Rate) is the rate we have to state by law and is the amount of interest you would pay over a full year if you made no repayments. However, the folowing example shows that if you repay a credit union loan in accordance with the loan agreement the actual interest you pay is roughly half than the APR.

Consider a loan of £100 at an interest rate of 2% per month. In both cases the loan is advanced on 1st January and interest is added on the last day of the month. However, in Table 1. there are no repayments, so the (compound) interest continues to mount and the outstanding balance at the year end is £126.82 of which £26.82 is interest, or 26.82%. That is the APR.

In Table 2. the same loan is advanced, but a fixed monthly repayment is made. Each month the repayment is first taken off the outstanding balance before applying the 2% interest. After 12 payments the loan balance reduces to zero and the total amount paid in interest is £11.24, ie 11.24%, which is less than half the APR.

Table 1. - APR illustration, ie a loan with no repayments
Month
Repayments
Balance
after repayment
Interest added
at month end
New
Balance
 
100.00
1
0
100.00
2.00
102.00
2
0
102.00
2.04
104.04
3
0
104.04
2.08
106.12
4
0
106.12
2.12
108.24
5
0
108.24
2.16
110.41
6
0
110.41
2.21
112.62
7
0
112.62
2.25
114.87
8
0
114.87
2.30
117.17
9
0
117.17
2.34
119.51
10
0
119.51
2.39
121.90
11
0
121.90
2.44
124.34
12
0
124.34
2.49
126.82
Total Payments:
0.00
Toral interest paid:
26.82
 
Table 2. - Credit Union loan with regular repayments
Month
Repayments
Balance after repayment
Interest added
at month end
New
Balance
 
100.00
1
9.27
90.73
1.81
92.54
2
9.27
83.27
1.67
84.94
3
9.27
75.67
1.51
77.18
4
9.27
67.91
1.36
69.27
5
9.27
60.00
1.20
61.20
6
9.27
51.93
1.04
52.97
7
9.27
43.70
0.87
44.57
8
9.27
35.30
0.71
36.01
9
9.27
26.74
0.53
27.28
10
9.27
18.01
0.36
18.37
11
9.27
9.10
0.18
9.27
12
9.27
0.00
0.00
0.00
Total Payments:
111.24
Tota interest paid:
11.24