CREDIT unions are for life, not just for Christmas.

That's the message from the Scottish League of Credit Unions, which is concerned its 31-strong network has been misrepresented as an alternative to the payday loan sector and a way for Scots to access quick cash during the festive season.

Dermot O'Neill, chief executive of the organisation, argued credit unions are now being expected to offer smaller loans to vulnerable citizens in December, typically charging only £2 in interest on every £100 loan made over three months, at a time when they need to attract financially stable members who save and borrow all year round in order to survive.

The Church of Scotland encouraged its 450,000 plus members last year to shun payday loan companies and "take advantage" of locally-run credit unions instead.

Meanwhile, the Scottish Government has said desperate borrowers can access money "in a short timeframe" from some credit unions in the run-up to Christmas.

One of Scotland's largest credit unions, Scotwest, now offers same-day approval on £500 loans for existing members who work for certain companies, while unsecured loans of the same amount can also be provided for all-comers, both at an APR of 26.8 per cent.

Capital Credit Union has a similar Swift Loan product with free insurance, and both credit unions say they are "ethical" products, with no hidden charges and plenty of time to repay. But Mr O'Neill said smaller credit unions have resisted political pressure to lend anywhere near their maximum legal rate, 42.6 per cent APR, to avoid being seen as an "emergency solution to a lack of financial planning" in the run-up to Christmas.

Mr O'Neill said: "The language being used to describe credit unions needs to be tempered.

"They have been positioned as alternatives to payday lenders, but our members have opposed that because it fundamentally fails to look at the factors that drive short-term borrowing.

"It also reinforces the idea that credit unions are just a poor man's bank. The danger is that many people feel a credit union is irrelevant for their financial needs and they move further away from them."

Britain's biggest payday lender Wonga revealed last year that one million customers have struggled to meet repayments, raising fears over the potential impact of loan defaults for credit unions. Mr O'Neill revealed a typical credit union requires 14 successful loans to offset a loan worth £1,000, lent at 12.7 per cent APR, which hasn't been paid back.

That means credit unions are determined to woo those inclined to borrow larger amounts to pay for long-term projects, like buying or extending homes.

For instance, Capital Credit Union, which recently opened up to residents in four new areas in the central belt, is keen to attract aspiring property owners with its First-Time Buyer Deposit Match, promising to lend the equivalent of whatever a member has saved between £5,000 and £15,000. Loans between £5,000 and £10,000 are available at 7.4 per cent APR and those between £10,001 and £15,000 are set at 9.1 per cent APR. Both kinds of loan are to be paid back over five years.

Marlene Shiels, chief executive of Capital Credit Union, said: "There is no doubt disenchantment with banks is still rife and this is presenting a great opportunity for us to demonstrate our credentials to a new market and a different group of customers who would not normally engage with us."

She added: "We are nimble enough to be able to react to opportunities as they arise and can develop products and services very quickly, something that gives us a competitive edge over banks."

Mr O'Neill said this kind of activity "subsidises the low value loans, generates the surpluses and means credit unions can engage in training, build their premises, improve and empower the community they operate in".

He also warned a £38 million government programme aimed at transforming credit unions into pseudo-banks could "depersonalise" smaller financial co-operatives, causing them to lose touch with their communities. "If a credit union needs that crutch, it's in financial ill health and we must address the reasons for that instead of injecting extra funding."

His comments come as Johnstone Credit Union opens a £350,000 extension to its office in Renfrewshire today, entirely funded by members' deposits, to mark the success of its no-frills service. Mr O'Neill said: "All of the local community uses it and it's not seen as an option for poor people."

Even larger independent credit unions in Scotland are getting back to basics amid fears about the high cost of competing with banks.

Kenny Macleod, chief executive of Scotwest, said: "Scotwest's focus is on delivering quality member services within our current portfolio of products. Until such time as we can obtain parity of access to the UK payment system, we see little benefit in offering our members transactional banking services which they could obtain cheaper elsewhere."