As a result of the credit crunch, more and more people are being forced to look for alternative sources of credit, and ‘money shops’ are springing up around the country.

However, according to the Association of British Credit Unions (ABCUL), credit unions offer a much better deal than money shops and payday loans.

Lucia Webster, head of membership services at ABCUL, said: “Credit unions offer a great alternative to money shops and payday loans for people needing small loans over relatively short periods.

“Credit unions charge no more than 2% on the reducing balance of a loan and many charge just 1%, which would mean that £1,000 taken out for a month and paid back weekly would accrue just £5.76 in interest at 1%.

“I would recommend that anyone needing a small loan first looks to their own bank or building society or credit union for a loan, rather than using doorstep lenders or money shops, if they want a good deal.

“Credit unions are not as well known in Great Britain as they should be but they are basically financial co-operatives which aim to get the best deal for their members. In the US and Ireland, for example, credit unions are mainstream financial institutions with millions of members.”