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Capped by law at 3% a month. What that means, who can join, and how repayment on benefits really works.

Written by the benefitmoney.co.uk editorial team · Last reviewed 9 September 2026

You normally have to become a member before you can borrow, and membership depends on a “common bond” — usually where you live or work.

What the cap actually is

“The rate specified for the purposes of section 11(5) of the Credit Unions Act 1979 is three per cent per month.”

The Credit Unions (Maximum Interest Rate on Loans) Order 2013, Article 2↗↗

Two things follow from that wording.

It is a legal ceiling, not a price

Many credit unions charge well below 3% a month. Compare the actual rate you are offered, not the maximum.

Northern Ireland has a lower cap

The Credit Unions (Northern Ireland) Order 1985 limits interest to 1% a month on the outstanding balance, inclusive of all administrative and other expenses — about 12.68% APR on the same compounding basis. The Order allows a different rate to be set by order; we found none in force on 9 September 2026.

Source: Credit Unions (Northern Ireland) Order 1985, art 28(5). Checked 9 September 2026.

Why 42.6% is more than our arithmetic

Three per cent a month compounded over a year is about 42.6% APR. That figure is not only a conversion we have made: the Regulated Activities Order uses it.

Under article 60G, a loan from a credit union where the total charge for credit does not exceed 42.6% is an “exempt agreement” — it sits outside most consumer-credit regulation. Two things follow.

• The FCA’s consumer-credit conduct rules do not formally apply to such a loan, including its creditworthiness rules. How a credit union assesses what you can afford is its own policy, not an FCA requirement.
• The credit union itself is still an authorised firm, regulated by the FCA and the Prudential Regulation Authority. You can check any of them on the FCA Register.

Sources: Credit Unions (Maximum Interest Rate on Loans) Order 2013, art 2↗↗; Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, art 60G(2). Checked 9 September 2026.

Why it is usually the better option

• Interest is capped by law, and the cap is far below what short-term lenders charge.
• Many credit unions lend to people receiving Universal Credit, PIP, ESA and other benefits.
• Decisions weigh your circumstances and what you can afford, not only a credit score.
• Some credit unions build a small amount of savings into your repayment, so you finish the loan with something behind you.
• They are regulated financial firms, and you can check any of them on the FCA Register.

Who can join

Almost every credit union requires membership first, and membership depends on a common bond — a shared connection among members. Usually one of:

• living or working in a particular area
• working for a particular employer
• belonging to a particular organisation, trade union, church or community

Each credit union sets its own rules, including whether it lends to people whose income is entirely from benefits. That varies genuinely, so ask before you apply.

How much you can borrow

Amounts vary by credit union and by how long you have been a member. Broadly, new members are often limited to a smaller first loan, and larger amounts open up once you have a repayment history.

Some credit unions offer loans repaid by payroll deduction through your employer, or repayments taken directly from your benefit payment. Those arrangements often come with a lower rate, because the risk to the credit union is lower.

Can repayments be taken from your Universal Credit?

Not in the way people expect. The DWP can pay a credit union directly from your Universal Credit only under the “eligible loans” rule — and that rule applies only when you are in arrears on the loan.

So if a credit union offers to take repayments “from your benefit”, it usually means one of two things: your benefit is paid into an account at the credit union and the repayment comes out of that account, or you set up a standing order. Neither is a DWP deduction. Ask which arrangement they mean, and what happens if a payment is missed.

Source: Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Claims and Payments) Regulations 2013, Schedule 6, paragraph 11. Checked 9 September 2026.

What you will usually need

• Proof of identity and address
• Proof of income — benefit award letters or bank statements showing your payments are usually accepted
• Details of your regular outgoings
• In some cases, a small savings deposit to open membership

How to find one

1. Use the credit union finder at findyourcreditunion.co.uk and search by postcode.
2. Check the common bond — whether you qualify to join at all.
3. Check whether they lend to people on benefits, and what the rate is.
4. Ask whether membership requires saving first, and for how long.

If there is nothing local, some credit unions accept members across wider areas or online. Community development finance institutions (CDFIs) are another regulated option for people who cannot get mainstream credit.

If a credit union will not have you: community lenders

Not everyone passes a credit union’s common bond, and not every credit union lends to people whose income is entirely benefits. The next regulated step down is a community lender, also called a Community Development Finance Institution (CDFI).

What they are

Specialist finance organisations, most of them not-for-profit or with a social mission, set up to lend to people banks turn away — low incomes, benefit income, thin or damaged credit files. They are authorised by the FCA and appear on the FCA Register, like any other lender.

How they differ from a credit union

A credit union is owned by its members and its rate is capped by statute. A community lender is a separate kind of organisation with no statutory rate cap, so it can and does charge more. In exchange it is usually easier to qualify for, there is no membership or savings requirement, and early repayment is normally free.

Where they sit

More expensive than a credit union, materially cheaper than doorstep lending, payday credit or rent-to-own. That middle position is the whole point of them. Ask any community lender for the APR and the total amount repayable before you apply — the range across the sector is wide enough that a figure quoted elsewhere will not tell you what you would pay.

Check the firm on the FCA Register before applying, and ask for the total amount repayable, not the weekly figure.

How it compares

Frequently asked questions

This page is independent. It is not run by any credit union, the Department for Work and Pensions or GOV.UK. We are not a lender and not a credit broker.