What are Credit Unions?
We’ve all seen credit unions or advertisements for them, but do you know what a credit union is? What’s the difference between banks and credit unions? How did we end up with credit unions in Canada?
What is a Credit Union? - it is a non for profit money cooperative. Members pool their money to lend to other members for car loans, consumer loans and mortgages. The profits are not paid out to stock holders but they are returned as dividends to the members.
How did this cooperative system enter the Canadian financial system?
In 1900 Alphonse Desjardins read about a man in Toronto who borrowed $150 and ended up having to pay $5000 in interest to pay is loan off. At the time, banks were for well off people and your average working class individual had to borrow from loan sharks . Desjardins studied the cooperative banks in Europe and opened his first branch in the Quebec City suburb of Levis that year. At the time of his death in 1920 there were 163 branches in Quebec and 18 in Ontario.
The first credit union branch opened Alberta in Edmonton in 1938. Credit unions can now be found in all provinces and territories.
Why do mortgage brokers use credit unions? They do not fall under the rules of the Canada Bank Act and sometimes we can get better terms for a client that is not available from a bank or other lending institution. Credit unions often tend to follow the guidelines set out for banks but sometimes they can be more understanding as the lending decisions are made locally and not in an office in Toronto.
Next time you need a mortgage or a line of credit speak to your favourite mortgage broker. A credit union might have the right product for your particular needs.
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