Understanding the difference between credit unions and other financial institutions can be confusing because they all seem to offer the same products and services.However, credit unions are different as they were founded on 7 cooperative principles which help to define them as financial cooperatives and give them a not-for-profit tax status.
But how does this make them different?
To answer simply, credit unions hug.
Literally and figuratively.
This hug is expressed in the passion that credit union employees have for their members. They love to help them and ways that you wouldn’t expect from your financial institution. Credit union employees have been known to help change member’s flat tires, in the rain, check on older members during snowstorms, and even, on rare occasions temporarily take care of member’s pets.
But this hug also extends to the products as well.
In the recent mortgage crisis, credit unions worked very hard to keep members in their homes when foreclosure from other financial institutions was looming uncomfortably close.
When monthly energy prices were nearly the amount of an auto loan payment, many credit unions offered qualifying members to skip their auto loan payment to pay their energy bills to keep the lights on.
And the ability to skip a loan payment is nearly a standard offering in credit union credit cards and auto loans. While skipping a loan payment extends the life of the loan, the ability to have that cash available may be a critical way for members to stay afloat. Recognizing this need and creating solutions for it is the hug that credit union offers.
While the credit union hug is lovely, and truly does differentiate them from other financial institutions, there may be an economic benefit from these hugs, specifically in keeping members in their homes and providing methods for an increase in cash flow.If you consider deferring an auto loan payment as a form of a micro-loan, then micro-finance research performed by Harvard Professor Rohini Pande and Duke University Professor Erica Field, indicates a positive economic impact when a borrower is given a chance to defer a payment. Professors Pande and Field found that offering borrowers a grace period of just two months doubled the rate the new businesses were created. The cash flow created by the deferred payment allowed the borrower to take bigger risks that then resulted in bigger rewards. After three years, business profits were 41% higher and household incomes increased by 19.5%.
Does this mean that credit union members who skip an auto loan payment will have a similar economic impact, the research has yet to be done, however an argument can be made that by allowing the member to have the freedom to have additional cash has two positive impacts on local economies. The first is it keeps the member from defaulting on other loan obligations and keeps them in a positive cash flow state, secondly, it makes the member more loyal to the credit union and increases the likelihood that member will not default on the auto loan in the future. And, most importantly, credit unions are, for the most part, the only financial institution that offers this important and needed financial hug. #creditunionshug.
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