Credit union loans were always a cheaper alternative to bank loans - traditionally based on interest rates of not more than 1 per cent per month even when mainstream rates were much higher.

Recently, however, they have become less competitive, ranging from 9 to 12.68 per cent compared to the average bank loan rates which are hovering between 5 and 7 per cent for mortgages and 9 to almost 14 per cent for personal loans. Family Money readers have continued to raise this issue and to ask if there is any further sign of a reduction in credit union loans.

"What has happened is that many credit unions have reduced their loan rates and some are now as low as 8 or 9 per cent. However, those who have not reduced have been in the past, or this year for the first time, paying a rebate of interest," says Mr Pat Fay, head of monitoring services for the Irish League of Credit Unions (ILCU).

"Rebate of interest is a percentage return varying from, say, 5 to 25 per cent of interest paid by the member, given back at the end of the year. Such rebates effectively reduce the cost of the loan in the same way as a reduction in the interest rate charged," he said. Members should ask about the estimated rebate rate before taking out a loan at their credit union.

"The rebate of interest is in keeping with the co-operative mutual ownership of credit unions. The surplus is distributed back to members," says Mr Fay.

Community-linked membership may cause problems for consumers looking for the cheapest loan. Loan and rebate rates are determined by each individual credit union and membership is available based on a customer's place of residence or employment. Unlike banks, consumers may not avail of a lower loan rate or higher rebate percentage at a neighbouring credit union because they won't be eligible for membership. So, if the ESB credit union currently charges 7 per cent, only ESB employees may avail of the rate.

There are, however, many benefits attached to credit union loans which are not available on the equivalent bank service. Credit unions charge interest on the reducing balance of the loan rather than the initial balance, thereby reducing the amount of interest paid over the life of the loan.

Insurance services are also available on loans. "In credit unions, there is an insurance protection on the savings and the loan at no extra cost to the borrower," says Mr Fay. In effect, this repayment insurance allows debt to die with the borrower or cease if they become permanently disabled.