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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 added. 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 following 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.

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

£26.82
Total Interest Paid

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 2
APR illustration, ie a loan with no repayments

Month

Repayments

Balance after repayment

Interest added
at month end

New
Balance

£100.00

1

£9.27

£90.73

£1.81

£95.52

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

£11.24
Total Interest Paid

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Loan Calculator

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