IMAGINE not having to pay a high rate of interest when borrowing money. Imagine being able to borrow from an organisation you have helped to set up yourself, with your loan being handled by people you know personally.

For tens of thousands of people across Britain who belong to credit unions, this is not a dream but a reality.

They pay no more than 1 per cent a month interest on their loans, an APR of 12.68 per cent compared to a typical annual rate for a bank loan of between 17 and 30 per cent.

Thanks to proposals floated last week by the Department of Trade and Industry, the cheap loan benefits of credit unions may soon become attractive to a new wave of borrowers.

Until now, credit union members have been allowed to borrow a maximum of pounds 5,000 plus the value of their savings, which was also capped at pounds 5,000. The DTI has now proposed that the Credit Union Act should be amended to allow members to borrow or save up to 1.5 per cent of the union's total liabilities. This means that for a union with a large membership and total assets of pounds 1m, a member might soon be able to borrow up to pounds 15,000.

Michael Parkinson, chief executive at the Association of British Credit Unions, said: 'This is excellent news. We have not seen all the documentation, but we are very pleased with what we have heard.

'The change means that the larger credit unions will now be on more of a par with high street lenders in terms of the amount that can be borrowed or saved. Except that their rates of interest on loans will be far lower. It is bound to help credit unions to grow.'

More than 60,000 people in the UK are already in credit unions, including 7,000 council employees in Strathclyde, Scotland, and more than 1,800 London taxi cab drivers and their families. Staff at British Airways launched their own 'Plane Saver' scheme earlier this year.

Mr Parkinson explains: 'Essentially, they are financial co-operatives, regulated under the Credit Union Act of 1979. Their members all have a common bond, either through the same employer, an association such a church, or they live in the same area.'

Interest is not paid on savings, although the credit union is allowed to pay annual dividends of up to 8 per cent gross of tax. Most pay around 4 per cent, which compares reasonably with building society accounts, says Mr Parkinson.

Karen O'Neil, 26, is a member of the Licensed Taxi Drivers' Association, which set up its own credit union in 1979. She signed up long before she became a London cabbie: 'Family members are allowed to join the credit union, so I did seven years ago. My dad has been a taxi driver for more than 20 years and I have wanted to get my badge since I was five.

'At the moment I have about pounds 2,000 saved up, and I invest around pounds 10 a month. It is an easy way to save. I borrowed money from the union to buy the taxi before the one I have now. I also borrow to pay my income tax or for parts for my cab,' she says.

'The advantage of the credit union is that it is easy to get a loan - much better than going to a bank. You do not have to fill in too many forms and they are flexible.

'While you are repaying the loan you still have to save money, even it is only a little, which means that when it is repaid, you have more in your account than when you started.

'I probably won't put all my life savings into the union, but it is still handy for small amounts. I can draw the money out easily. The best thing is being able to borrow money without feeling that you are being ripped off.'

Association of British Credit Unions: 071-582 2626.

(Photograph omitted)