Lending and Loans Policy

Emergency

Education

Character – general consumer type

Mortgage – real estate in nature

Business Investment

Holiday

Back-to-School.

 (ii)      Loan Evaluation:

 (a) Capital: The consistency with which the member has subscribed to shares.  The amount of equity injected into the project or purchase.

 (b) Conditions:  This relates to the accompanying conditions under which the loan is to be granted or applied for.  Economic and sector conditions must also be considered.

 (c) Collateral:  This is the security provided by members and includes assignment of salaries/payment for the purposes of the repayment of the loan.  Saleability of security and deterioration of security must be taken into consideration vis a vis the period of repayment of the loan, the economic conditions and market value of the security in case of default.

 (d) Capacity:  The debt service ratio and source of funds must be critically examined to minimize delinquencies.  Personal loans are repaid from budget surplus.  The Budget Analysis must be treated with conservatism and caution and must therefore be critically examined.  Consideration must be given to job stability, age of member and prospects for continuity of employment.    This shows whether the borrower will be able to make scheduled payments while meeting other obligations and commitments during the payback period.

 (e) Character: This is related to previous experience with the Credit Union or other financial institutions, judgement, legal action, pending bankruptcy proceedings and general character with regards to honouring commitments.  Character rating supplements inadequacy of collateral but it must never interfere with nor be a substitute for weak capacity rating.

 (f) Prospects of Advantage:  There must be the prospect of advantage to the borrower by way of social and developmental benefits, increased productivity, cost effectiveness, economy, leisure or otherwise.

 (iii)     Terms of Repayment and Security

Interest rates are related to the level of risk associated with a loan and vary between 11-15% for regular loans.

Mortgage Loans – maximum 20 years; interest 11.5%; maximum $350,000.00, 20% of loan amount in shares.

Character Loans – Up to three (3) years, full repayment and 2 years repayment of unsecured balance.  Interest rate 12%, 30% of loan amount in shares.

Payments by Standing Orders from salary deduction (from Employers). Over counter payments may be possible at the discretion of the Board and Management.

 (iv)     Eligibility

Every member whose savings (shares) are free (that is, not hypothecated to secure a loan for self or pledged as a co-maker to secure a loan for another member), shall be eligible for a loan up to three times (or such other multiple as the Board may approve) his free shares held four months prior to the date of application or such other period approved by the Board.  The Board however reserves the right to decline loans where it is evident that members use this to ensure that their loans always exceed their shares.

Not before six months after becoming a member.

Savings of members must be REGULAR.  A lump sum increase in Shares (in order to qualify for a required amount in loan) less than four moths prior to the loan application is not acceptable in qualifying members for loans.  Only in rare and serious circumstances will the Board entertain a waiver of this Policy.

 Members are to be encouraged to make regular payments.

(v)      Financial Calculations in respect of loans:

Interest is calculated monthly on the reducing balance. 

The following represents a comparison of loan interest calculated when a loan is taken at the Credit Union vs a commercial bank:

Loan Principal - $10,000   Period - 5 years

Interest Rates:

Credit Union - 12% per year on the monthly reducing balance

Bank - 10% per year on the principal

Credit Union Payments:

Payments:  $221.84/month x 5years      = $13310.40

Principal                                  = $10000.00

Interest                                     = $ 3310.40

Annual Interest (effective rate)       =   (3310.40 x 100) / (10000 x 5) =  6.62%

Commercial Bank Payments:

Payments:  $250.00/month x 5years      = $15000.00

Principal                                          =  $10000.00

Interest                                             = $5000.00

Annual Interest (effective rate)   =  (5000 x 100) / (10000 x 5) = 10%