For consumers who have been turned away from high-street banks and considered going down the road of getting a payday loan, credit unions should be one of the first ports of call.
After being refused credit, consumers may also want to consider getting a credit report and score to see what level of borrowing they are able to have, or compare bad credit credit cards to see if they can improve their credit rating that way while borrowing.
Read our guide to learn more about credit unions, what they offer, and what your alternatives might be.
Credit unions are not-for-profit organisations that allows people within a community or organisation to save and borrow money.
They provide a valuable alternative for people who require personal loans, savings accounts, and even mortgages.
As credit unions don't have third-party shareholders borrowers can get highly competitive rates while those struggling financially are less likely to be turned away.
Through saving with a credit union, members are able to take out loans with built-in life insurance up to the value of around £3,000 (although you can get much smaller amounts – and even more with some credit unions).
The UK has around 500 credit unions, serving roughly 2% of the population, and the government hopes to encourage more people to start using them in the coming years.
You can find your local credit union through findyourcreditunion.co.uk or by calling the Association of British Credit Unions (ABCUL) on 0161 832 3694.
Credit unions are run by members with the leadership composed of membership-elected volunteers.
In order to use the products, consumers must already have a savings account with the credit union – although there are an increasing number of credit unions who no longer insist on this.
Members are usually united by a common bond, such as living or working in the same area or belonging to the same trade union or church.
Organisations are also allowed to join, and restrictions have been relaxed to make it easier for credit unions to accept more new members.
Profits made by the credit union are used to improve the service and provide a better return to savers.
This means that credit unions can provide a great alternative to the usual banks and payday loans for those in need of easy access to credit, while also making the credit marketplace a little more competitive.
The interest on credit union loans do well to compete with the usual personal loans marketplace.
Their rates of around APR are higher than the cheapest credit cards and cheapest loans, but for those with bad credit or who are often turned down for credit, these rates can work out much cheaper than what they would normally get on the high street.
Credit union loans also come with the added benefit of no hidden charges and no penalties for early repayments.
Life insurance is included as standard, so that there are no worries for your family in the event that you pass away before the loan is repaid.
Most credit unions offer personal loans over a five-year repayment plan and ten years for secured loans, although there are some who may offer longer repayment periods.
Aside from loans, credit unions also offer savings accounts, which are not only ethical but can also come with competitive interest rates.
Credit unions aim to improve financial education and encourage better money management, so you may find that you are required to regularly deposit a small amount (usually no more than £30 a month) into your savings account in order to keep it active.
Interest rates range from around 2.5% to 6% per annum, which may not always beat the high street current accounts for savings.
However, considering you will only need a small monthly deposit and that you won’t need a perfect credit history to apply, credit unions make saving money much more accessible.
Some credit unions will even offer mortgages (mostly in Scotland) but these do not usually compete with the usual offerings from banks and building societies.
If you are seeking a loan, you could also borrow on a credit card.
A credit builder credit card can help improve your credit rating and give you access to credit that may have otherwise been unavailable to you.
If you have had County Court Judgements or have been made bankrupt in the past, credit cards for people with bad credit are still willing to consider applications.
Check your credit score for an idea of what your credit history is like as missed payments or one too many rejected applications may have caused your score to plummet.
However, if you do apply for a credit card be aware of the high APR attached to credit builder credit cards. If you do plan to borrow on a bad credit credit card, then make sure you pay it off quickly or you could be straddling debt for a long time.
You'll also want to prove to the credit card provider and for the sake of your credit score, that you can manage credit and pay off your balances in a timely fashion.
A loan may not always be the best option if you're already struggling with debts, but they can prove to be a lifeline for some who have no other options.
Ensure you get the facts and do your research before rushing into filling out applications to take out more credit.