SUMMARY: Where do you turn when you are desperately needed a loan ( unsecured loans ) and the banks say no? Why not join a credit union? Or better still, start your own.

Take control over your money - start your own credit union

Author: Melinda Varley

When you are on a low income, it is very difficult to get credit. And yet,

Run by a volunteer board of directors which are elected by its members, a Credit Union is basically a financial cooperative, owned and controlled by its members.

They offer affordable loans and encourage members to save. By law, the maximum a Credit Union can charge is 12.7% and this is charged on an ever reducing balance, which means that every week or month, you will pay less and less interest. There are no hidden charges and you will not be penalised for repaying the loan early.

Anyone can join a credit union, as long as they are part of the 'common bond'. This could be people living in a shared area, working for the same employer or belonging to the same association.

So how do you start your own credit union?

The average time it takes to establish a credit union is between one and three years. The minimum number of members required for the initial set up is 21 and the maximum number of members once you are established is limited to just 5,000 people.

After you have secured enough members to start your union, there are a number of tasks which will need to be completed.

• Firstly, decide on a common bond - where your credit union will operate

• Get a group together with the necessary range of skills and experience to develop a successful community business

• Carry out a pledge drive - find out just what demand there is for a credit union in the area you wish to service and use the information obtained to inform your business plan projections

• Join The Association of British Credit Unions (ABCUL) as a Study Group member - for just £35 a year, you get a full manual and access to all of ABCUL's information services

• Discuss and research your plans with the regulators - The Financial Services Authority (FSA) will need to approve your common bond and satisfy itself that your business plan and policies and procedures meet its standards. The FSA website www.fsa.gov.uk gives the regulatory requirements Credit Unions now have to meet to safeguard member's money in the same way as banks and building societies

• Obtain funding & sponsorship -and include the figures in your business plan

• Choose officers - Officers and employees of the credit union will need to obtain 'Approved Persons Status' from the FSA, and will need training for their roles

• Think about marketing & promotion and how you will meet your business plan targets

• Launch your credit union.

It is also vital to secure sponsorship from local sources, such as employers, housing associations, business groups or councils as setting up your own credit union can initially be an expensive process. ABCUL estimates the costs at between £30,000 and £70,000 in setting up a scheme with premises and staff for the first three years.

Click here for part 2

Did you know?
Unsecured loans tend to attract higher interest rates. That's because the lender is taking a bigger risk by lending without taking a legal charge against your property. Then, if you default, the lender must resort to the Courts to recover the money you owe.

Did you Know?
According to the Council of Mortgage Lenders, last year over 200,000 homes in the London area were financed by an interest only mortgage without a repayment vehicle being in place. Of these, 60,900 buyers were first-timers.

We cannot find national figures for the total number of homebuyers with interest only mortgages. However, the market share for interest-only mortgages has been running between 10 and 20% over the past 10 years.

Now it looks as if mortgage brokers have been arranging more than half of these interest only mortgages. So when these mortgages reach maturity, if the mortgage holder hasn't enough cash to repay the mortgage debt, many of these brokers could be up with a claim for miss-selling.

Did you Know?
The European Health Insurance Card (available through UK Post Offices) allows UK citizens to receive medical treatment in other EEC member state for free or at a reduced cost, if medical treatment becomes necessary during their visit or if they have a pre-existing condition which necessitates medical care (such as kidney dialysis).

The scheme's intention is to enable people to continue their stay in an EEC country without having to return home for medical care. As such, it does not apply to people who have visited a country for the purpose of obtaining medical care. Nor does it cover medical care that can be delayed until the visitor returns to the UK.

Furthermore, the European Health Insurance Card only covers healthcare which is normally covered by a statutory health care system in the country visited, so conventional travel insurance is still necessary.

Did you know?
A survey conducted by Experian, the largest UK credit reference agency, found that 54% of applicants for personal loans were refused. Of those accepted for a loan, 43% were offered a higher rate than the rate they saw advertised. That's why, if you're searching for a personal loan, it's a good idea to apply through a loan broker who will know the lenders who'll best suit your circumstances.

Did you Know?
The concept of medical insurance was proposed in 1694 by Hugh Chamberlen. In the late 19th century, early medical insurance was actually disability insurance, in the sense that it only covered the cost of emergency care for injuries that could lead to disability. This insurance model continued until the early 20th century when patients were expected to pay all other health care costs out of their own pocket under what is known as the fee-for-service business model. Modern medical insurance programs emerged mostly after the 2 nd World War.