Loan Policy

Loans Policy

The objectives of this loan policy are:

·         To safeguard the loan assets of the credit union by limiting the credit union’s lending risk

·         To promote consistency and objectivity in lending practices

·         To promote a common understanding of the thinking of the Board of Directors and relevant committees in relation to lending

·         To provide clear procedures and limits for staff, directors and volunteers

·         To minimise the number of loans going to the Credit Committee/Board of Directors for approval

·         To ensure that this credit union provides the most efficient lending service possible for members and maximises the opportunity for the Manager/Loans officer(s) to determine loan applications

·         To maximise the lending of the credit union and to protect the members interest through sensible lending.

The amount which can be applied for is determined by the amount of savings the applicant has at the time of application, the good character of the applicant, the “provident and productive” purpose of the loan, the reasonable expectation that the full repayment will be made, the completion of the application form fully, and the financial situation of the credit union at the time of the loan.

Major determinants in receiving loans are; record of regular saving in addition to having repaid previous loans as agreed.

The credit union trusts your honesty in providing accurate information at the time of the application, unless your actions contradict such trust. The loan policy will alter as circumstances change concerning the financial situation of the credit union.

1.     Standard Loans, savings based. Members who save regularly for 12 weeks are eligible to apply for a loan

2.     Exception to rule above - Homemaker & Instant Plus loans granted on meeting criteria

3.     Exception to rule above - member saves 6 weeks, loan may be granted when amount at risk is relatively small

a.     Example, member saves 6 weeks savings balance of £600 request loan of £800, loan granted for the £800

 

4.     Members shall not automatically qualify for a loan on deposit of a lump sum(s) into their savings. 

5.     Individual loan limits shall be subject to Financial Conduct Authority Consumer Credit guidance & compliance with rules as outlined in policy.

6.     Maximum Standard shall be subject to multiple of savings balance.  First loan can be up to 2 times savings balance with subsequent up to 3 times, subject to saving and continuous repayment history and the financial situation of the credit union at the time of the loan.  

7.     It is recommended that Holiday and Christmas loans be repaid over a maximum 12 months

8.     All loans to be paid either directly to members Bank account via BACS, or loaded onto pre-paid card

9.     Loans, wherever possible, to be processed within 5 five working days of approval and Loan agreement signed. If further details are needed to process the loan application, then the time period is increased accordingly

10.  Repayments are expected as detailed on the loan agreement

11.  Standard Loan Interest rate charged at 1.5% per month on the outstanding balance equal to 19.6% APR (Annual Percentage Rate). Such interest is payable using a nationally recognised formula. Late and irregular payers will incur greater interest than borrowers who make repayments as agreed.

a.     With exception to above when share balance is equal to or greater than loan request a lower rate of interest and longer terms can be applied at the discretion of management/Credit Control

12.  Interest charged on Homemaker loans at 3% per month.  The minimum amount loan is £500, but not exceeding £500 for a first loan, and £1500 maximum for any subsequent loan. Subject to the availability of funds subsequent values may be lower than £1500. It is recommended such loans will be repayable over a maximum of 12 months.

13.  Instant Plus loans; minimum loan value is £2,000 monthly interest rate charged variable, interest from 0.57% (7%) to a maximum 3% (42.6%) subject to Credit Score and standard of application

a.     Applicant must be over 20, in full time employment and earn a take home pay £1,300, excluding working tax credit & overtime

b.    No CCJs in the last 7 years & have a full address history for the last 3 years and a minimum credit score 560 with CallCredit credit reference  agency

14.  In the case of hardship and if freezing interest appears to be a sensible strategy, due consideration will be given to each case by the Credit Control manager.

15.  The standard loan will generally be repaid within a maximum of 60 months. Changes to the lending period will be made at the discretion of the Credit Control/Manager should additional lending be agreed or re-financing be necessary.  In this instance a new loan agreement will be produced.

16.  Based on the ethos that ’one member’s shares are another member’s loan’, the credit union will encourage members to maintain a healthy share balance and to consider loans rather than share withdrawals where practicable.

17.  Top Up loans - Additional lending – where a member has made regular payments, a request for additional lending may be considered. The amount of the new loan will be subject to compliance with rules outlined in policy.

18.  For Standard Loans, Member’s share balance will be treated as security for an outstanding loan.  Shares will not be allowed to be reduced below the value of the outstanding loan. In exceptional circumstances at the discretion of the Manager access to savings may be permitted.

19.  While a member is repaying a loan they are expected to SAVE

20.  Members must read their loan agreement carefully, remember this is a legally binding document.

21.  Members must inform the Credit Union of any change in circumstances as soon as possible, this includes but not exhaustive to Address, email, telephone & bank, failure to do so will delay loan application.

22.  Members have no right to appeal a decision to refuse a loan application.  The decision of the Loans Committee/Credit control/Manager and or the Board is final and no route of appeal is open.

23.  The Board/manager/Credit control have the authority to grant loans in the event of the Credit Committee not functioning.

24.  Data protection, from time to time we may need to contact members for additional information in supporting loan application, this may be invariably by telephone, your home or place of work, unless you inform us otherwise

25.  From time to time it may be necessary to forward loans to Debt Recovery Management Agencies once all avenues of recovery by the credit control team have been exhausted.  Any additional costs associated in the recovery of such debt will be applied to outstanding loan balance.

Updated: 04/01/2017

Knowsley Mutual Credit Union Tel: 0151 545 3380 Email: knowsleymutualcu@yahoo.co.uk
Knowsley Mutual Credit Union is authorised by the Prudential Regulation Authority & Regulated by the Financial Conduct Authority and the Prudential Regulation Authority FRN 213483