How to Get a Credit Union Loan With Bad Credit

Updated: December 03, 2023 Author:

Key Takeaways: Having a poor credit score doesn’t mean you can’t access a loan, and a Credit Union may be able to help.  You do need to be a member before applying for a Credit Union loan and loan interest rates are usually higher but there is a capped limit depending on where you live in England, Scotland or Wales. Same-day loans aren’t offered by Credit Unions and to access a Credit Union loan, you must meet certain criteria.  Bear in mind, you may need to wait a few weeks before receiving your loan answer. 

    A credit union is a financial co-operative institution, giving its members access to financial services such as loans and savings (amongst other financial products).  Currently, over 1.2 million people in England, Scotland and Wales use credit unions.  One of the main reasons why they’re so popular is because they don’t concentrate their efforts on maximising their profit, rather they focus on delivering quality service.

    Credit unions are also perceived as a better choice for borrowers with bad credit history as generally, they are more lenient.  So if you’re seeking a loan with more favourable rates and terms than other providers, a credit union might be the best option.  Of course, it is harder to get a loan when your credit history is poor or if you have a CCJ, but it is possible, depending on certain criteria.  Find out how you could get a credit union loan in this article.

    Credit Unions and Checking Your Credit

    A credit union will check your credit report and score, much the same as a bank would too.  Money lenders have a minimum credit score for loan products.  They also have specific standards set relating to income, and what’s known as DTI (debt-to-income ratio) which relates to the percentage of your gross monthly income used to pay your monthly debt.  This amount indicates your borrowing risk.

    Credit Unions and Loans for Bad Credit Customers

    If your credit history is less than ideal, due to the way that credit unions are organised, they are more likely to consider your application.  This is because their setup is different to banks’ setups.  

    Credit unions are owned by their members, concentrating on their members’ needs.  Some credit unions are open to all, others service particular groups, such as trade union members, employees of specific companies, or groups in a certain industry.  Furthermore, as credit unions are not-for-profit, any financial gain is channelled back into their institution, usually in the form of programmes or products for their customers.  This makes credit unions better options for those with bad credit, as they’re more likely to accept borrowers with risk attached to them.

    What is The Lending Criteria for Credit Unions?

    There is no one-size-fits-all answer to this question!  Each individual credit union has its own set of standards, interest rates and fees.  However, there are legal limits.  Generally though, it’s fair to say that individuals with poor credit history will usually be required to pay higher rates and fees, perhaps with larger down payments compared to other borrowers with stronger credit scores.

    In England, Scotland and Wales there is a cap on the amount of interest a credit union can charge on a loan of 3% per month (or 42.6% per year APR).  In Northern Ireland, the cap is 1% per month – 12.68% APR. As you pay off your credit union loan, interest is based on a reducing balance, so the amount of interest you pay will reduce over the loan term.  

    New members of credit unions tend to pay higher rates than longer-term members, but this is not always the case and depends on length of membership time, whether or not you have savings with the credit union in question and your financial standing.

    What Types of Loans Are There Available for Individuals With Bad Credit?

    For those with bad credit seeking loans from credit unions, these are the most commonly available (although this list is not exhaustive)

    A Secured Credit Union Loan

    A secured loan involves using your property or other significant funds as collateral.  This means your property or others are at risk, so if you fail to pay your loan, you may lose your loan collateral to the credit union who may seize it to cover loan repayment.

    A Home Equity Loan

    This is another type of secured loan and could be available to you if you own your property and have equity.  Failure to repay this type of credit union loan could result in you being forced to sell your home to repay the loan.

    An Unsecured Loan or Personal Loan

    This type of loan is not secured against your home or other significant fund, neither is it a home equity loan.  It simply provides you with the finance you need for use as you wish.  The terms of repayment usually involve monthly instalments, with interest until the sum is repaid. Interest rates, loan amount and your eligibility will depend on how much you earn, any other debts you have in place and your credit score.  If you don’t have a property or other significant fund, this type of loan is deemed riskier, so if you apply through a credit union and get accepted, you will likely pay higher fees and interest rates.

    A Payday Alternative Loan

    Many credit unions allow small loans of up to £3,000 – these are not the same as payday loans as their interest rates are lower, but they are still higher than other types of loans.  However, if you’re in need of cash on the same day, they may be the best option for you.

    What are the Advantages and Disadvantages of Using a Credit Union for a Loan? (H2)

    As with any lender, there are pros and cons to consider before you apply for a bad credit loan:


    You Can Borrow Low Amounts. Credit Unions allow for small loans, from £50+, whereas mainstream lenders will not offer this type of borrowing.  However, interest rates will be higher.

    Credit Unions Apply an Interest Charge Cap.  There is a cap on loans in England, Scotland and Wales of 42.6% APR (Northern Ireland’s cap is 12.68%).  Other lenders may have higher interest rates.

    Credit Union Loans Come With Free Insurance.  When you take out a loan with a credit union, you get free life insurance, so if you die before the end of the loan repayment term, your loan will still be paid off through the insurance scheme.

    Credit Unions are Often The Best Option for Bad Credit.  Often, people turn to credit unions when they can’t get a loan from a bank or other – making it a better option for so many.

    Credit Unions Support Their Members.  Due to the way credit unions are set up and because they are non-profit, by being a member, you will help to support others.


    You Must Be a Member.  Plus, you must be accepted before you can apply for a loan.  Some credit unions insist that you save with them before you can apply for a loan. Furthermore, there may be a fee attached to membership.

    Credit Unions Are Not the Cheapest Lenders.  As many people with bad credit history use credit unions, they never offer the best interest rates.  

    There Will Usually Be a Borrowing Limit.  You might not be able to borrow the amount you want.

    Credit Unions Don’t Usually Offer Same-Day Loans.  You may need to wait a few days for application approval and receipt of monies.

    Applying for Your Credit Union Loan

    The loan application process is similar to other lenders, but you must become a member in order to apply.  Before you start the process, check your credit score as credit unions do have a minimum score for loan applications. You should also check the credit union’s website or speak to customer services to determine eligibility requirements and whether or not you qualify for membership.

    Once you’ve covered off the above, join your preferred credit union, this will require you to open a deposit account.  Bear in mind, depending on the individual credit union’s criteria and the loan you’re looking for, you might have to wait up to 3 months before you can apply to borrow money.  Once you’ve waited the designated time, you can submit an application, have your proof of ID and any other paperwork such as proof of income ready so the credit union can run a credit check.  

    Next, it’s a waiting game – the lending decision may take days or weeks.  Should your application be refused, it’s best advised to talk to your credit union to find out why and what you can do to improve your eligibility, including your credit score for the future.

    In Summary

    Millions of people in the United Kingdom have a low credit score but that doesn’t mean you can’t access a loan through a credit union, which may be your best option.  Do your research before deciding on the right credit union for your needs.  Bear in mind that you will need to apply to become a member and you may not be able to apply for a credit union loan for 90 days following membership approval.  You also might not meet the criteria for taking out a loan, in which case, try to improve your credit score for future application. Credit union loans have higher fees and rates attached to them than other banks and loan providers – but there is a cap on interest rates, and life insurance is included when you take out a credit union loan. So, if you pass away during the repayment process, any outstanding amount will be covered.