Need to Borrow Money? Comparing Payday Loans, BNPL and Credit Union Loans

As the festive season gets closer, understanding the differences between different types of borrowing products can help you avoid rushing around and making decisions without proper consideration later.

StepChange’s 2025 YouGov polling found that around 27% of British adults expected to struggle to afford Christmas, while 8% – around 4 million people – expected to rely on credit to fund their festive spending.

Of those using credit for Christmas, 43% expected it to take more than six months to repay, while 17% expected repayments to last more than a year.

Why Might People Consider Borrowing for the Holidays?

The Christmas season can bring plenty of extra costs, including presents for family and friends, food, travelling, social or work events and other festive spending. Naturally, this can lead people to borrowing products to help spread those costs.

StepChange research found that 60% of people planning to use credit for Christmas in 2025 expected to borrow more than they did the year before. 87% of those borrowers said the higher cost of living was a reason they needed credit.

Previous StepChange research also found that in 2024, 38% of people using credit to help fund Christmas planned to use Buy Now Pay Later (BNPL).

If you need to spread the cost of one or more items this Christmas, understanding which form of credit is most suitable for you is important. Different products can have very different repayment structures and costs.

How Do Payday Loans Work?

Payday loans generally fall under the FCA’s category of High-Cost Short-Term Credit (HCSTC). The FCA began regulating consumer credit in 2014, with a price cap for high-cost short-term credit coming into force in January 2015.

These rules cap interest and fees at 0.8% of the amount borrowed per day, default charges at £15, while total interest, fees and charges cannot exceed 100% of the original amount borrowed.

In other words, you should never have to repay more in interest and fees than the amount you originally borrowed.

Despite these caps providing important protection, high-cost short-term credit can still be considerably more expensive than other borrowing options.

When comparing loans, one of the most important figures to consider is the total amount repayable, rather than just the repayment amount or how quickly the lender can issue the money.

How Does Buy Now Pay Later Work?

Buy Now Pay Later allows consumers to spread the cost of a purchase, often interest-free across several payments. Even where no interest is charged, BNPL is still a form of borrowing and credit.

Major third-party BNPL products became regulated by the FCA from 15th July 2026, including products offered by providers such as Klarna, Clearpay and PayPal.

Regulated providers must now assess whether customers can afford the repayments before lending and provide stronger consumer protections. Customers can also access the Financial Ombudsman and, in qualifying cases, receive Section 75 protection.

These regulations mainly cover third-party BNPL providers. If BNPL is offered directly by a retailer, it may not fall under the same FCA regulation.

While many BNPL agreements are interest-free, late or missed payments can result in fees or interest depending on the agreement and could affect your credit record.

The most important thing when using BNPL is to keep track of your agreements, how much is still due and when each payment is due. Several manageable instalments for different purchases can quickly become a much larger monthly commitment when they overlap.

How Does Borrowing From a Credit Union Work?

Credit unions work differently again. To use a credit union, you normally need to join as a member. Money deposited by members is then used to provide loans to other members.

As credit unions are not-for-profit organisations, loan products can differ between organisations, with both small and larger loans available.

Generally speaking, a credit union loan for a few hundred pounds may cost less than borrowing through high-cost short-term credit, although it may not necessarily cost less than borrowing from a bank.

Here at Cambrian, we offer Personal Loans from £200 up to £7,500, at rates from 15.9% to 39.9% APR. Everyone applying for the same loan amount receives the same rate, so you don’t need to worry about being offered a higher APR than you expected.

What’s the Difference?

Payday loans are generally designed for short-term cash borrowing and can come at a relatively high cost.

Buy Now Pay Later is typically used to spread the cost of a specific purchase rather than providing cash directly, with many agreements offering interest-free instalments.

With a credit union loan, the member borrows an agreed amount and repays it over an agreed period with interest.

Although these products can solve similar problems, they are not directly interchangeable. Comparing the overall cost, repayment period, flexibility and whether you can afford the repayments alongside your existing commitments can help you decide which option is most suitable for you.

What Should You Check Before Borrowing?

APR – useful for comparing the annualised cost of similar credit products.

Total amount repayable – how much will the borrowing actually cost you in pounds by the time it has been fully repaid?

Repayment amount, frequency and period – check how much you will repay, how often payments are due and how long you will be making repayments for.

Fees and charges – some products have late or default fees, while others may charge for early repayment.

Existing borrowing – check balances on credit cards, overdrafts, existing loans and BNPL agreements. BNPL payments can be particularly easy to lose track of when different purchases have different payment dates.

If you are already relying on credit for everyday essentials or struggling with existing repayments, MoneyHelper recommends seeking support rather than simply taking on additional borrowing.

Planning Ahead for Christmas

With StepChange estimating that around 14.3 million British adults would struggle to afford Christmas in 2025, and 43% of those borrowing expecting repayments to last more than six months, planning earlier can help reduce some of the pressure when December arrives.

September or October might feel early, but Christmas tends to come around quickly. Try setting an overall Christmas budget and splitting it into categories such as presents, food, travel and events.

Even saving part of your estimated budget can help reduce how much you need to borrow later.

Cambrian’s Christmas Saver is designed to help members plan ahead, with savings locked from January until October to encourage saving throughout the year.

If borrowing is still necessary, working out roughly how much you actually need can help you compare different products instead of taking whatever is available at the last minute.

You can also use Cambrian’s Personal Loan calculator to see a breakdown of how different loan amounts could be repaid.