Credit union credit cards provide a viable alternative to borrowing money from a bank. Credit unions services are more competitive because they are a non profit organisation. This means that any money they make is shared with their members. The main difference in the way an individual is treated is that they are a member, not simply a business customer.
Advantages of Credit Union Credit Cards
- Lower credit card charges. There is absolutely no difference in terms of functionality, but the fees are normally a lot lower. The cost of over-limit fees is $18 less.
- Competitive interest rates. The rate of APR is about 20% lower than that offered by the banks.
- Avoid debt. Less interest on unpaid balances means that any debt repayments will be lower.
- Balance transfer fees. As many as 88% of banks charge a fee of about 4% for performing a balance transfer, yet only 25% of credit unions do so.
- Lending criteria. As greed isn't the motivation for operating, credit unions will only lend money to those who have sufficient disposable income to repay the debt.
- Financial difficulties. Those who are unable to keep up with the repayments are likely to be treated with greater understanding than they would be by a bank.
Disadvantages of Credit Union Credit Cards
- Membership. People join on the basis of a common interest, such as locality, vocation or religion. If none of these apply, that person isn't related to an existing member or the individual lives in an area that doesn't have a credit union, joining may not be a possibility.
- Personal debt. Regardless of whether the rate of interest is more competitive, borrowing money will lead to a debt that needs to be repaid. The interest payments on unpaid credit card debt will leave less money for bills in future months.
- Insolvency. Credit unions aren't immune from financial difficulties (due to higher default rates amongst members) and a number of unions have gone into administration during the recession.
- Cross-collateralization. All of the different products and services provided are linked to each other. This means that those who get a loan to buy a car will subsequently find that the unpaid balance on their card becomes secured. This could mean that the collateral is repossessed in the event of the borrower defaulting on the credit agreement.
A credit union credit card should be given serious consideration as the terms and conditions are more favorable than their private sector equivalent. This is because credit union services don't operate to make a profit. However, regardless of how much cheaper borrowing money is, it can still cause serious debt. Controlling personal spending and proper budgeting remain critically important.
