Many consumers are unaware of credit unions and the benefits their memberships can offer.
Importantly, they are unaware that credit unions can sometimes beat the rates on the high street for saving and borrowing.
Taking out credit is a financial decision that many make – so why are consumers still not entirely clear on the full cost of this decision?
In the following blog, we cover what credit unions can do to educate consumers on interest rates and what they should be made aware of ahead of taking out credit.
Increase in member communication
Information needs to be readily on hand for consumers, through online and digital content as well as printed leaflets that guides them on topics to:
Educate them on credit
Consumers need to be advised on how credit is an agreement between them and a company or financial institution, like a shop or bank, that lets them have goods and services before full payment is made.
Whether it’s car finance, a phone contract, a loan or a store card, it’s likely that they have multiple lines of credit at the moment.
Identify what credit interest is
Talk them through credit interest and highlight how in many credit agreements, the lender takes a fee on top of the actual cost of the goods and services.
Reveal how credit interest is calculated
Alongside the above, they need to be aware of how credit interest is calculated, for example – the lender chooses their own interest rate which is added as a percentage of the cost.
Explain interest rates
Consumers need to also be guided on how interest tends to vary depending on the amount of money owed and the length of time agreed to make repayments.
Highlight what they should also be aware of
There are many things consumers should be wary of when taking out a line of credit as many deals aren’t as good as they seem – as a credit union, it’s your responsibility to help guide them on these issues.
Consumers are aware of interest free credit as it’s an incredibly popular kind of credit for short-term lending – whether it’s a store card or a pay in installments deal such as Klarna or Clearpay, they need to be made aware of the small print.
For example, allowing the agreement to go past the interest-free period can result in late payment fees and extremely high interest added to the top of the amount they owe.
Many people are unaware of the dangers of same day payday loans. Consumers need to be educated that while quick cash to see them through until payday may seem appealing, these lenders prey on vulnerable people with bad credit, strapped for cash and nowhere to turn, adding to their financial troubles instead of easing them.
The interest rates for these loans skyrocket to thousands of percent. For example, many lenders have an interest rate of 1,500% – this means that borrowing £100 could mean a repayment of over £1,600!
They need to be informed that high interest loans for bad credit are not a solution as they’ll end up in more debt.
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