As questions continue to develop around the major banks’ decision to raise their variable interest rates despite the Reserve Bank of Australia deciding to hold rates steady, more and more individuals and businesses are turning to alternative types of financing. More specifically, many customers are turning away from the big four when it comes to mortgages and loans, looking towards smaller lenders.
Also gaining attention in the news headlines is the important role credit unions play in the financing mix. Credit unions have always been an integral part of our nation’s history and may be re-emerging as a critical player in today’s economy.
Whether you’re looking to make a future home purchase or are seeking out for alternatives to small business finance, it’s worth investigating the role of credit unions as a potential provider of your finance needs.
What is a credit union?
Credit unions are established to serve its members and customer base, instead of standard financial institutions that are owned by shareholders. A very similar type of structure exists for community based building societies which are also member run. Both credit unions and building societies are generally classified as non-profit, which means that all revenue generated by the business is used for operation or development purposes, instead of being paid out as dividends to shareholders.
Building societies were first established in 18th century in the UK. It was a simple arrangement where local townsfolk met in taverns and coffee houses and paid a monthly fee to a central pool of funds that would then be used to finance the construction of houses for its members (hence the name of the term). The first building societies in Australia were founded in the 1850s to serve similar purposes. By the 1940s, credit unions had been introduced into the financing mix, with the first official credit union, Universal Credit Union established in October of 1946.
The formation of credit unions surged globally and the number of registered Australian institutions peaked at 178 in 1985. Many of those remain in operation today.
Are credit unions a good finance option?
Credit unions are certainly worth considering as a finance alternative to the big banks for those concerned about rate rises and fluctuations. Due to their limited size, scope and niche interests, credit unions and building societies can often be more competitive when it comes to their lending rates.
Since 1999, Australian credit union and building societies report to the Australian Prudential Regulation Authority, the same as the major banks, so their activities are subject to the same regulations and monitoring.
And because credit unions tend to rely on deposits for their funding as opposed to investments, credit unions have actually been shielded from the effects of the economic downturn to small degree, making them a healthy industry in the current market.
It’ll be worthwhile to consider a credit union in your research to finance your next purchase. Credit unions can be a great option for households looking for a mortgage or businesses seeking commercial finance.
Author Bio: Paige writes on small business and commercial finance for entrepreneurs and owner-operator establishments. She is based in Sydney.