More and more people are turning to temporary ‘payday’ loans as a quick fix for monthly cash shortfalls.

Payday loans can be used to borrow small sums for short periods of time, but they may have very high interest rates. As you normally pay the money back on your next pay day, you may not have enough money to pay all your household bills for the next month. This will leave you short again and make you reliant on another loan from the company.

What is a payday loan?

A payday loan is a cash advance lent to you over a short period of time, usually until your next payday.

Payday loan statistics

• Each year, 1.2 million of people in the UK resort to payday loans as a temporary means of getting by.
• A total of £1.2 billion is borrowed in the form of payday loans every year in the UK.
• Some of the better known payday loan companies charge interest rates of over 2,500% APR.

What to look out for

Make sure you know what you’re signing up for. Some of the temporary loans on the market carry extremely high interest rates.

Taking out a payday loan is meant to be a temporary measure. Short term loans that aren’t paid back in time will accrue huge interest rates, and your debts can quickly spiral out of control.

Be realistic about your ability to pay back the loan, plus its interest, in time.

What if I can’t pay back my payday loan?

If you can’t pay back your payday loan in time, you might be able to extend the period of your loan, but you will be charged extra for this. Also, until the loan is repaid in full, interest will continue to be added.

If you gave your payday loan lender your debit card details when you took out the loan, the lender is likely to take the repayment from your debit card, even if you have made the company aware that you cannot afford this. Your bank is likely to add charges onto your account if there is not enough money to cover the payment.

If you have agreed to repay by cheque, and your cheque bounces, you will be charged by your payday loan lender and your bank.

Payday loan advice

Rather than take out a pay day loan, if you are having difficulty with your finances it is important that you get free debt counselling straight away.

You can use our free online debt counselling service, which will provide you with immediate advice on an appropriate solution to your debt problem.