You may have noticed that across our loan products, the amount of interest (APR), tends to be higher when you borrow smaller amounts.
The reason for this is to ensure we meet the costs of administering your loan.
When you apply for a loan, there are certain steps that we need to go through in order to reach a decision. We need to carry out some of these steps regardless of how much you are borrowing. There are also are one-off costs such as carrying out credit checks, as well as the overall cost of running the credit union, paying our staff and keeping the lights on.
Interest rates are based on a percentage of the amount borrowed. So 4% of a £1000 loan will generate £40 in interest, while 4% on a smaller £100 loan will generate just £4 for the credit union. However, many of the costs we incur administering the loan are the same.
Because of this, we, like most lenders, have to charge a higher percentage of interest on smaller amounts in order to generate enough interest to cover our costs.
As a credit union, we don't aim to make a profit, and any profit we do make is either returned to our members, or spent on improving services. For that reason, we aim to keep our costs down, and our rates as fair as possible, to ensure they reflect the actual cost of your loan.