CUDA Q&A – Irish Independent

By December 15, 2020News

 

CUDA has had the pleasure of contributing to numerous Q&A pieces in the Irish Independent throughout 2020.  A summary of the contributions can be found below.

  1. Published 12th December 2020

I have some savings with my local bank and some more in the credit union. A few years ago, I used to get some interest on these savings in the bank and a dividend from the credit union at Christmas. 

Now I get nothing and am reading in the media that they may charge me to look after my money. Surely, this can’t be true?

There has been a move by lenders to extend the categories of business customers who will be charged for saving money, according to the chief executive of the Credit Union Development Association (CUDA) Kevin Johnson. This is to be done by changing account holder’s terms and conditions to enable banks to charge what is termed negative interest. It has led to fears that personal banking customers may be next in line to face such charges.

He said it has long been the case that large corporate clients and wealthy individuals are charged negative interest by banks, and it is also clear that the sector is currently undergoing further change in this direction. The outlook for this being extended to the average consumer in the short-term is very unlikely, Mr Johnson said. However, if you are not being charged negative rates, your money is losing value because of inflation, he said.

Consider how much you would need for a rainy day (like unexpected drop in income) and use the balance to clear any expensive debt such as any credit card balance you might have. You could also consider starting or topping up your pension.

  1. Published 12th December 2020

We are in our mid 30s and have just had our first child. We realise that we should have life insurance cover, but only have about €10 a week to spend on it. Is that too little?

That is not too little, according to the chief executive of the Credit Union Development Association (CUDA) Kevin Johnson. Life cover, particularly if you don’t smoke, is generally far less expensive than many of us perceive, he said. He asked one of his member credit unions to price cover for you.

He found that, for two policy holders aged 35, People Insurance would offer life cover of €200,000 on a joint-life basis, over 20 years, for €29.15 per month. This is well within your budget. Admittedly, if both of you smoke, the premium would be considerably higher at €53.67 a month.

Some providers offer a ‘price matching’ service for life cover, which means that they will check their quote against all providers to ensure that they match the lowest premium offered in the market.

The outlook for the average consumer being charged negative interest on savings in the short-term is very unlikely.

  1. Published 21st November 2020

House prices seem to be booming considering that we’re supposed to be in recession. I am in a stable job unaffected by Covid and have an opportunity to buy the house I rent from the local council under the Tenant Purchase Scheme for about 60pc of its value. Is now a good time to do this?

Buying a house is a really long-term decision, according to Mr Johnson. This means the timing should generally be focused around when you are ready to buy, rather than trying to second guess the market. As it is a local authority house, the purchase will come under the regulation of the Tenant Purchase Scheme, a scheme that facilitates the sale of local authority housing to their tenants, according to certain eligibility criteria. Under the scheme you will pay the market value of the house, less a discount.

Mr Johnson said that in your case this will be 40pc. Depending on an applicant’s income, the discounts generally vary between 40pc and 60pc. On completion of the sale, the authority will place an incremental purchase charge on the house, which is equal to the discount you initially received on the property value. This charge will remain in place for 20, 25 or 30 years, proportionate to the amount of discount you received, so you can’t just sell it on and pocket the difference, he said. Many credit unions specialise in tenant purchase mortgages and are happy to support these purchases, particularly as the loan-to-value ratios are typically relatively low and the existing tenants invariably have a proven payment record, Mr Johnson said.

  1. Published 21st November 2020

Since the start of Covid, I have been reading that banks and credit unions have tightened the criteria for loan approvals. I am in a semi-state job that hasn’t been hit by the pandemic, other than having to work from home. Will I now find it more difficult to get a personal loan when I change my car in January?

Lenders have generally taken a cautious and supportive approach to those that have been financially hit by Covid, according to the chief executive of the Credit Union Development Association (Cuda) Kevin Johnson. He said most lenders, especially credit unions, are keener than ever to lend to those that can clearly demonstrate their ability to meet the ongoing repayments. Most will look for nothing new beyond the standard documentation currently required for a personal loan as a result of Covid. His said this was particularly the case with you, as your income hasn’t been impacted by the pandemic. Talk to your local credit union or bank and get loan approval before doing the deal on your new car, he advised. Or apply online if you prefer. Either way, you will be welcomed by a credit union. There are many flexible loan options, most of which have competitive interest rates.

  1. Published 24th October 2020

My wife and I are looking at retrofitting our home to increase our BER. We heard there is a scheme available through the credit union, and it turns out our local branch will be launching it from next month. Would I better off going with this combination of a grant and a loan, or opting for SEAI grant funding and using some savings we have put aside?

The ProEnergy scheme was developed last year by CUDA in partnership with SEAI and REIL to help homeowners with the cost of upgrading their home energy efficiency. The scheme covers retrofits to a range of energy systems, including attic insulation, external wall insulation, the installation of solar panels, and upgrades to windows, among others.

Presently, SEAI grants will fund up to 35% of the cost of your retrofit. In our experience of running the scheme, the cost to the average household of bringing their home up to the recommended B2 level rating will cost approximately €30,000 – €40,000. So, just accounting for 35% of that cost through grant aid will leave a bill of roughly €26,000 for works.

Certainly, if you have additional savings, we recommend homeowners to use these to help lower the cost of any additional borrowing to cover the remaining bill, or indeed to cover the full cost of works, depending on how much you have saved. For example, take a cost of €40,000 to get a home to a B2 rating – the 35% grant will cover €14,000, which leaves €26,000 for the homeowner to cover. Say you have €10,000 saved – this reduces the amount to be financed by a ProEnergy loan to €16,000. A 5-year loan to cover this cost would see monthly repayments of around €300, which is the average repayment amount on a typical home improvement loan. If you were to finance the full €26,000 through a loan, your repayments would be around €500 per month, which would be a significant stretch for many middle-income families.

  1. Published 10th October 2020

I have just bought a house in Dublin and want to transfer my credit union savings and open an account in the local branch here. Can I transfer from one credit union to the other and would I have to go through any specific waiting period before I could apply for a loan?

Each credit union is a separate legal entity, and membership is open to anyone who meets the common bond, according the chief executive of the Credit Union Development Association, Kevin Johnson. He said this is usually referenced to residing or being employed in a particular locality, or following a particular occupation. When you move to another common bond, you can become a member in your new location credit union and open a savings account, and you also have the option to keep your account in your original credit union if you choose.

In respect of applying for a loan with your new credit union, most credit unions don’t require any established savings record and members can open an account and apply for a loan on the same day, Mr Johnson said.

Some may require new members to build up a record of savings before applying for a loan, but as you are bringing a record with you this should not be an issue. The primary consideration will be your ability to repay the loan.

  1. Published 3rd October 2020

My fiancée and I are planning our wedding for next year. Even though we’ve had to scale back our initial plans due to Covid, we still want to plan something special and are considering taking out a wedding loan for around €10,000. We were initially thinking of putting it on a credit card and paying it off as soon as possible from financial gifts, but would we do better with using our savings and getting a personal loan to cover the rest?

You should be wary of sourcing lump sums of credit from a short-term source, according to the chief executive of the Credit Union Development Association Kevin Johnson. Credit cards are some of the most expensive forms of credit out there, and using credit cards can be a fast way of getting into a cycle of debt that can be very difficult to break free from, he says. Credit unions offer very competitive loan rates with an average of around 10.5pc APR (annual percentage rate). The maximum ceiling of APR payable on all credit union loans is 12pc.

If you were to borrow €10,000 over five years with an APR of 10.5pc it would mean that you would make 60 weekly repayments of €49. Mr Johnson said. The cost of credit would be €2,707, with the total amount repayable standing at €12,707. If you were to combine your savings and a loan, you might also consider availing of a much shorter loan of, say, 36 months. If you were to halve the loan amount, using €5,000 of savings and borrowing the remaining €5,000 at an APR of 10.5pc your loan repayment will be €37 per week, the cost of credit €789, giving a total amount payable of €5,789, he added. In terms of repayment, many credit unions offer flexible loan terms so that can pay off your loan early, make additional lump-sum repayments or increase your regular repayments, all without penalty or charge. This might benefit you specifically as you mentioned your hopes to repay the financing from cash wedding gifts.

  1. Published 4th July 2020 

We have a new baby on the way at the end of July, and I want to take out a loan with my credit union to get a more reliable car. My employer has placed me on the Temporary Wage Subsidy Scheme and so my income is reduced. I can still afford the repayments but I’m wondering if my application will be accepted now. Should I wait until after the summer when I will hopefully be back on full pay?

Do not write yourself off just yet, advises Kevin Johnson, CEO of the Credit Union Development Association (CUDA). If you can afford the repayments and you can demonstrate this to your credit union, then it is likely you will be granted your loan application, he said. A good credit history and the ability to repay are the two primary considerations for each credit union when deciding whether they can offer a loan to a member. Credit unions take a balanced approach, understanding that people’s financial circumstances change from time to time and there can be reasons for a reduced income that are beyond someone’s control, Mr Johnson said.

They will act in your best interest, factoring in many things, for example whether your employer’s business is likely to return to some degree of normality after this pandemic, to ensure the loan is affordable for you and not place you in an unmanageable situation. You will need to provide certain documentation. In general, you will need proof of income in the form of recent payslips, proof of identification and a utility bill.

You may also need an invoice for the car you want to purchase, particularly if car loans in your credit union are subject to a lower rate.

A mortgage rate of 4pc is much too high. You could move to a two-year fixed rate of 2.3pc and save thousands of euro in interest.

A good credit history and an ability to repay are the two primary considerations for a credit union when deciding whether it can offer a loan.

  1. Published 6th June 2020 

My work is temporarily suspended and I’m looking after our 13-month-old full-time, while my wife works. The little guy likes his naps, so I have a bit of time on my hands. I have made a bet with my wife that I can save us €1,000 on our yearly expenditure. The prize is Sunday lie-ins for a month. How do I win this bet?

This wager is a source of entertainment. But it could possibly be a very lucrative one, both financially and sleep-wise, according to the CEO of the Credit Union Development Association, Kevin Johnson. Consider switching your mortgage, particularly if you haven’t done so in more than three years. For many, this is a sure-fire way of saving money, Mr Johnson says. If you have a credit card balance that you are struggling to get down, consider taking out a short-term personal loan to clear it, cancel the card and just use a debit card from now on, he added.

If your car insurance renewal is coming up, then make sure you shop around for your cover or get a broker to do it for you. Do not just accept the renewal price quoted. Some motor insurers are now offering small rebates on premiums, because they know that there are fewer cars on the road, so it’s less risky in terms of claims.

Also, review your home insurance if it’s due soon. Health insurers are also refunding some premiums to policy holders. So, look into this and review at renewal, Mr Johnson says. Banking fees and charges can add up over the years, so consider switching. Use a cost comparison website to figure out which energy provider could offer you a better deal. You could also look at switching your phone and broadband provider.

Technically speaking, rental income is taxable on a receivable rather than a received basis, according to tax experts. If you have a credit card balance that you are struggling to get down, consider taking out a short-term personal loan to clear it.

  1. Published 18th April 2020

I am one of the many people who have recently lost their jobs in the hospitality sector. I have a mortgage with one of the banks and a personal loan with my credit union. I am a good chef, so I have no doubt that I will get work again once the economy restarts. But I’m worried that any deal I make with the bank or credit union will affect my long-term credit rating, which might prevent me from trading up as the kids get older. I have got confirmation from the bank that the three-month moratorium won’t hit my credit rating, but the credit union says it is still awaiting confirmation from the Central Bank on the issue.

The good news is that the Central Bank, which is responsible for monitoring the Central Credit Register, where everyone’s credit history is kept, has now confirmed that if you form an agreement with your credit union that involves no payments, or reduced payments during the defined suspension period, the credit union will have no obligation to report these changes to the register.

Therefore, it will not affect your credit rating, according to Kevin Johnson, CEO of the Credit Union Development Association.

The Central Bank has also confirmed that all borrowers and all short-term forbearance arrangements on unsecured loans, which include personal, car and home improvement loans, etc, will be treated the same. Arrangements such as reduced payments, or a payment moratorium, won’t impact upon people’s credit record, Mr Johnson says.

This announcement has allowed credit unions to continue working to support affected members like yourself, who find themselves under unforeseen financial strain, on a case-by-case basis, ensuring that each person is able to avail of a restructure agreement that best suits their situation, he added.

  1. Published 21st March 2020 

Like so many people, I’m already bearing the financial brunt of the Covid-19 national emergency. I usually work part-time but my hours have been completely cut until further notice. I’m concerned because I need to pay my rent to keep a roof over my head, but I also have a car loan with the credit union that I repay monthly. There is no way I will be able to afford everything while this continues.

Firstly, you should apply for the Jobseeker’s Benefit from Welfare.ie. In relation to repayments of loans, Kevin Johnson, who is the CEO of the Credit Union Development Association, says you can be assured that all credit unions will be understanding and flexible toward their members’ genuine financial limitations over the coming months.

He says the credit unions have also asked the Central Bank for further guidance on short-term forbearance measures granted to people who are in danger of missing loan payments, to ensure their long-term credit rating is not negatively affected. Credit unions will engage fully with all members in difficulty, Mr Johnson says. He advises you make contact with your credit union and explain your situation.

The best way to do this at the moment would be via email or over the phone.