Inside the high street shop where you can get cheap loans if you have a bad credit score as millions sign up

AS I stand outside Lewisham Plus Credit Union, the first thing I notice is how grand the front of the building looks.

When I think of companies that offer loans, I imagine characterless, corporate offices – nothing like this impressive old building with tall white pillars and high ceilings.

But credit unions are a far cry from the payday lenders or even regular bank branches I have at the back of my mind.

Instead, these are community-focused organisations where members pool their savings together in order to lend money to one another at far lower rates than on the high street.

Credit unions have flown relatively under the radar for decades. But over the past few years, they have soared in popularity as households battling with the cost of living have struggled to get mainstream loans.

In fact, more than two million adults around the UK are now members of a credit union, according to the Bank of England.

The government has also recently turned its eye towards credit unions, announcing this week that it will review its rules to help them grow so more people can access them.

I’m here visiting one of the busiest credit unions in the country to investigate why these institutions are on the rise and whether they could pose a threat to mainstream lenders in future – here’s what I thought.

What is it like to visit one?

Nestled in the busy suburb of Sydenham, London, is one of the biggest credit union branches in the capital.

Lewisham Plus Credit Union says it has around £16million in savings and has dished out around £8million in loans to households in Lewisham and Bromley boroughs.

The union, which has four separate branches across the city, has around 16,000 adult members and around 1,300 junior members.

Locals have described the union as “the best way for local employees and residents to have access to banking and access to reasonable loans at low interest rates.”

Every member owns a part share in the union and it’s run by a mix of volunteers and staff, elected by the members.

The branch I’m visiting is a mere two-minute walk up from the station, a prime spot.

When I later learned that it was the previous site of a closed Barclays Bank branch, it helped explain why it was such a gorgeous building.

In fact, once you enter, you do get the comforting feeling that you’re inside a traditional bank, and there’s even a reception desk and a small waiting area to the right.

There are also two counters behind glass where staff sit, with two offices behind.

One of those offices belongs to Liam Carlisle, a founding member of Lewisham Plus who has worked for the union since 1992.

While this particular branch feels comfortingly like a traditional bank, Liam tells me that what sets the organisation apart from high street lenders is its sense of community and respect.

“Speaking from my perspective, I would say most credit unions are more accessible to actually meeting their customers in difficult circumstances and relaying back the answers to people directly,” he said.

“It’s all face-to-face in most circumstances, and that makes a big difference.”

And you really do get a sense of that as you watch people come and go.

In the short time I was there, more than a dozen customers came in just to enquire about their various loans and savings needs, and the conversations were casual and friendly.

The staff clearly have a rapport with each and every customer as they chat and put them at ease, which is not something you’d get in a high street bank necessarily.

You’re also surrounded by a myriad of brightly coloured brochures and newsletters answering just about every question you could possibly have about your finances.

Liam told me that the union doesn’t advertise, so the majority of its business comes via word of mouth.

This puts a huge emphasis on customer satisfaction – something that banks are regularly criticised over.

How do credit unions work?

Credit unions are a form of “co-operative”, similar to a building society, where all members pool their savings to provide credit to one another at a very low interest rate.

They are regulated by the city watchdog, the FCA.

There are currently 240 credit unions across the country with around two million members.

One of the key rules for using a credit union is that all members must have a “common bond”, such as working for the same employer or living in the same area.

There has been a spike in customers joining credit unions over the past few years, according to the most recent figures from the Bank of England there were 2,130,979 adult members in the UK as of October.

What else sets credit unions apart?

Liam says that the main distinction between the two is that is that the union is owned by its members and it has a duty to serve its members – “and to be fair to our members”.

“Fairness can sometimes include not being able to help at this point in time, but ultimately serving their best interests,” he added.

This differs from the model that banks follow which are beholden to their shareholders.

Liam said: “My shareholders are my members. So it’s everyday people and it’s the people who are the owners. And they’re in my local community.

“They even come to the same shops as me. I love it. I’ve been here for 30 years and my contact with people has increased.”

What do credit unions offer?

Credit unions allow members to borrow money at a very low cost compared to mainstream lenders or expensive payday lenders.

They’re particularly helpful for anyone with a poor credit record who may not be able to borrow from a mainstream lender.

They may also offer savings accounts and current accounts for members with historically competitive rates.

Credit Union interest rates are currently capped at 3% per month in England, Scotland and Wales and 1% in Northern Ireland.

Members’ money is protected up to £85,000 if a credit union goes bust through the Financial Services Compensation Scheme (FSCS).

According to Liam, exactly what members can get is dependent on what their needs are.

Every member is taken on on a case-by-case basis, as the union will attempt to find what they need.

The most popular products they offer include a Save as You Borrow loan, personal loans and Loyalty Saver loans.

To borrow £500 over 12 months will cost £50.25 a month.

A total cost of £603, the £103 interest is included in the loan being paid back at £11.59 a week or £50 per month.

Lewisham Plus has a variety of loans – one loan is for members with savings.

The savings are used as security against the loan, this is called a Loyalty Loan and costs 6.2% APR.

A £1,000 Loyalty Loan, paid over nine months at £114 a month and costs £25 in interest.

The same £1,000 loan paid at £60 a month over 18 months costs a total of £47 in interest.

Loans are approved when you prove that you can afford to meet the monthly payments.

One local said: “I had never been able to save money before discovering Lewisham Plus.

“I was in complete financial turmoil until I took out a Save as You Borrow loan.

“Paying off the loan proved to me that I was capable of saving.”

It’s worth bearing in mind though that there is a joining fee of £5 – £4 to join and £1 for your savings.

You can join online or visit a branch with proof of address. This might be an official letter or utility bill.

You also need your personal identification, like a driving licence or passport and the membership fee.

Junior members (under 16 years old) can join for free. A junior account can help them to develop good financial habits, and as of July, the 1,300 juniors had £ 375,200 in Savings.

You can find your nearest credit union through the Association of British Credit Unions Limited’s website.

Credit unions may also be more flexible than mainstream lenders, so you can agree to more bespoke terms for your loans.

They also typically charge lower fees and offer much lower interest rates on loans, too, meaning they are cheaper to borrow from.

However, it is still important to only take out a loan if you have a plan for paying it back.

Bear in mind you need to become a member of the credit union in order to borrow money.

What’s next for credit unions?

Liam expects the popularity of credit unions will only continue to increase over the next year as they are becoming “established” after years of flying under the radar.

The entire union is dealing with around 1,000 new applications every month.

But one of the main factors putting people off signing up is self-exclusion.

Liam said: “People not understanding that everybody can join a credit union, whether they’re a child, whether they’re working, whether they’re not working, whether they’re a pensioner, is putting them off.”

The government’s consultation into credit unions, which is looking to reform the need for a “common bond” tying members together, ends in March 2025.

It said it hopes reviewing this could help credit unions grow more sustainably in future.

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