The first thought of many people who need to take out a loan is to turn to banks. But there are other institutions in the financial system that you can apply to for a loan, such as Payday Depot or a Credit Union.

Brief Credit Union History

The first Credit Unions appeared in the 19th century. In 1934, president Franklin Roosevelt adopted the Federal Credit Union Law, thereby creating more favorable conditions for their development and dissemination. It stated that a credit union could be established under federal or state law. The adoption of this law was followed by the creation of the National Credit Union Share Insurance Fund regulated by NCUA, and their deposits have become insured at the federal level. Now that you know a bit of history, let’s try to understand what the credit unions are and how they work. 

What Is a Credit Union?

Credit Union services are quite similar to bank services, but with one significant difference. Banks attract customers and provide them with their services, whereas a Credit Union is а member-owned, member-controlled financial cooperative. Serving millions of people, Credit Unions are managed by a Board of Directors with a principle of one participant – one vote. Credit unions are open to everyone, and all members can participate in the elections of the Board of Directors. According to federal laws, these people serve credit unions as volunteers and don’t get compensation.

Credit Union vs. Commercial Bank

While commercial banks operate exclusively based on the profit received from their customers, the goal of Credit Unions is to provide their members with the necessary financial resources at more convenient conditions. Credit Unions work on the not-for-profit principle, but this doesn’t mean that they are charitable foundations. Credit Unions still need to provide some profit for themselves to cover operating expenses. The services provided by Credit Unions include:

• Deposit accounts and boxes
• Debit and credit cards
• Consumer loans
• Car loans
• Mortgages
• Home Equity Loans and many more

Thanks to the Credit Unions’ business model, many of these services will cost less. 

Types of Credit Unions

Credit Unions can be classified based on the level at which they are registered. This classification has two types:

• Federally Chartered Credit Unions, regulated by the NCUA.
• State-chartered credit unions, regulated by the government. It is worth mentioning that not every state has a state-chartered Credit Union. 

Besides, Credit Unions differ depending on who can become members of the Credit Union in question. Here are some examples:

• Local Credit Unions
• College Credit Unions
• Military Credit Unions
• Employer Credit Unions
• Group Credit Unions

Bottom Line

Along with reasonable prices for services, credit unions also have restrictions. Firstly, it is necessary to be a member and make contributions to benefit from them. Secondly, the Credit Union network is not as widespread as the banking one. In addition, they do not own large assets like banks, and because of this, they may have stricter limitations when it comes to providing services.