Spreading the cost of an annual travel ticket

An annual travel ticket is the cheapest way to pay for a year of bus, tram or rail travel, but it asks for the whole year's money in one go. A credit union season ticket loan is one way to bridge that gap: the credit union pays for the ticket and the member repays it in instalments across the year.

The sums are straightforward. An Annual Bee Bus Ticket in Greater Manchester costs £800 and saves the holder £240 a year, or 23%, compared with buying weekly or monthly tickets¹. Spread over 12 months that is £67 a month, or £16 a week, at no extra cost². One credit union season ticket loan runs from £500 to £4,000 over 12 months³.

What makes credit unions different is the price of borrowing. By law a credit union cannot charge more than 3% a month, an APR of 42.6%, and many charge far less: 1% a month on the reducing balance, an APR of 12.7%, is common⁴. Credit union loans also carry no set-up fees, administration costs or early redemption fees⁴.

Borrowing from a credit union to buy an annual ticket

A season ticket loan works like any other credit union loan, with one difference: the money is tied to a specific ticket rather than paid into your account. The credit union advances the cost of the annual pass, and the member repays it in weekly or monthly instalments over the following year.

The clearest example is the Annual Bee ticket in Greater Manchester, where local credit unions teamed up with Transport for Greater Manchester to spread the costs of annual travel tickets for buses and trams within the area². The ticket itself costs £800 and saves £240 a year against buying weekly or monthly tickets, a saving of 23%¹. Members can spread the cost across weekly payments of £16, or monthly payments of £67 over 12 months, at no extra cost². The credit union's own page puts the same ticket at £16 for 50 weeks¹, and its later pages describe the same arrangement as 12 monthly payments of £67⁶.

The pattern repeats across other tickets. The Annual Bee Bus + Tram Ticket lets members spread the cost of their ticket across the year in monthly instalments at no extra cost⁷, and the Annual Tram Ticket is offered with monthly repayments⁸. One credit union describes its season ticket loan simply as a way to spread the cost with no additional charges⁹.

The amounts involved are modest by lending standards. Credit unions offer personal loans of up to about £3,000⁴, and one season ticket loan specifically runs from £500 to £4,000 over 12 months³. Holiday loans from another credit union average up to around £3,000¹⁰. Some credit unions provide loans starting from £50¹¹.

What a credit union loan costs: capped at 3% a month

The interest on a credit union loan is capped by law. A credit union may charge no more than 3% a month, which is an APR of 42.6%⁴. The maximum interest a credit union may charge on loans is 3% per month¹², and credit unions themselves state that by law they cannot charge any more than 3% per month on the reducing balance of a loan¹³.

That is a ceiling, not a typical price. Many credit union loans cost 1% a month on the reducing balance, an APR of 12.7%⁴. Because interest is charged on the reducing balance, the cost falls as the loan is repaid, and clearing it early reduces the total further.

Fees are where the difference shows most clearly. Credit union loans do not incur set-up fees, administration costs or early redemption fees⁴. That matters because early repayment charges are common elsewhere: one building society charges 1% of the amount repaid early plus fees during year two of a discount mortgage¹⁴, and fixed mortgage products can carry 3% of the outstanding balance in years one and two, 2% in years three and four and 1% in year five¹⁵. A borrower comparing a credit union loan with other borrowing should check what an early repayment would cost, because the answer is not the same everywhere.

Who can join: the common bond

Credit unions work by all members sharing a common bond¹⁶. That bond is usually living, working, studying or volunteering in a certain area, working in the same industry or for certain employers, or belonging to the same trade union¹⁶. Anyone can become a member, but you must share a common bond with other members¹⁶.

The bond is what makes a credit union local or occupational rather than open to all. It also means the credit union you can join depends on where you live and what you do. Anyone in the house of a person with a common bond with a credit union can usually join as well¹³, so membership often extends to a partner or family member through one person's link.

Credit unions are not for profit community lenders providing affordable loans and savings¹¹. They are also small enough that policies vary: some expect a period of saving before lending, some run a Save As You Borrow arrangement, and some will lend to a new member straight away. The common bond is the gate, and the credit union's own lending policy is what happens after it.

Saving up for the ticket instead

Borrowing is not the only way to reach the price of an annual ticket. Saving the same amount over the same period avoids interest altogether, and the arithmetic is easy to see: £800 spread over 12 months is about £67 a month, the same figure as the loan repayment².

The catch is timing. Saving £67 a month for a year means going without the annual ticket, and its £240 saving, for that year. Buying weekly or monthly tickets in the meantime costs more than the annual pass, which is exactly the gap the loan bridges. The saving of £240 a year, or 23%, is measured against buying weekly or monthly tickets², so a saver who waits a year pays the higher weekly or monthly price during that year.

There are other ways to reduce the cost of travel without borrowing. A Senior Railcard costs £35 a year, or £80 for three years, and gives a third off standard and first class anytime, off-peak and advance fares¹⁷. A National Express Coachcard costs £15 a year for older or disabled customers and gives a third off the cost of travel across the year¹⁸. Free bus passes and transport concessions are available to eligible groups¹⁸.

Household budgeting can also free up the money. Council tax payments can be spread over 12 months instead of the usual 10 to reduce the amount asked for each month¹⁹, and Universal Credit is paid every month²⁰, which makes a monthly repayment schedule easier to align with income.

How to apply and repay

The route into a season ticket loan starts with membership. You will need to become a member, which normally means being asked to pay a small fee, for example £2, or to save a certain amount such as £10¹⁶. You will usually need to provide two recent documents to prove your identity and address, such as a passport, driving licence, student or work ID card, bus pass, birth certificate, bank statement or energy bill¹⁶. An older person's bus pass is accepted as a supplementary identity document in some official verification processes²¹.

Once you are a member, the application is a loan application. The credit union assesses it under its own policy, and the amount is usually set by the price of the ticket. Repayment is by weekly or monthly instalments, and the examples in this market are built around the ticket's own cycle: £16 a week for 50 weeks¹, or £67 a month over 12 months².

1. Check which credit union you can join, using the common bond test.
2. Join as a member, paying the joining fee or opening saving.
3. Provide two recent documents proving identity and address.
4. Apply for the loan, stating the ticket you want to buy.
5. Repay weekly or monthly over the year, at no extra cost on the examples here.

A finder website, www.findyourcreditunion.co.uk, can help you locate credit unions²². If you would rather not borrow at all, the same credit union may offer a savings account you can build up instead, and the choice between the two is a matter of whether you need the ticket now or can wait a year.

If you miss a repayment

Missing a repayment on any borrowing adds cost. Extra charges are added if you miss payments on credit card debt²³, and the same principle applies to loans: a missed instalment usually triggers a charge and a mark on the credit file.

The size of a fair charge has a benchmark. Charges of more than £12 for missing a credit card repayment may be seen as unfair²⁴. That figure comes from credit card rules rather than credit union loans, but it gives a sense of the scale at which a penalty becomes questionable.

The bigger risk is not the charge but the pattern. A bad credit rating makes it more expensive and harder to borrow money¹⁴, and borrowers with a poor credit score will likely pay higher interest rates and may not be offered the cheapest deals¹⁵. A missed payment on a season ticket loan can therefore affect what the same borrower is offered next time, including on the credit union's own products.

Where a repayment problem turns into wider debt, free and impartial help is available. StepChange works with credit unions and provides debt advice¹³, and the Bank of England sets out what borrowers need to know about debt¹⁴. A credit union is also likely to be more flexible than a commercial lender about a member in temporary difficulty, because the member is also a part-owner of the organisation.

Is my money in a credit union protected?

Loans and savings in a credit union are protected by the Financial Services Compensation Scheme¹¹. All shares, which is what credit union savings are called, in an affiliated credit union are eligible for protection under the scheme²⁵, and the scheme protects credit union savings up to £120,000⁵.

Some credit unions add protection of their own. Free insurance protection on savings and loans is offered to members by some credit unions²⁶, and members' savings and loans can be protected by life cover at no direct cost, with payouts up to £5,000 or 1.5 times savings and outstanding loan balances cleared²⁷.

The protection matters most for savers, because a credit union holds members' money as shares rather than deposits. The £120,000 limit applies per person per credit union, in the same way as it applies to a bank or building society⁵. A member with more than that across savings and loans should think about how it is spread.