Numbers struggling with payday loan debt doubles

The number of people contacting StepChange Debt Charity for help with payday loans more than doubled between 2011 and 2012.

Last year we gave payday loan debt advice to 36,413 people, an increase of 109% on 2011. Not only that, but we’ve seen some deeply concerning behaviour from some of the companies that provide these loans.

The struggle to keep going

Firstly it’s worth considering: what is a payday loan? They’re a byword for short-term, high-interest loans, designed to help tide people over until their next payday. With mainstream forms of credit becoming increasingly hard to come by in recent years, more and more people have turned to payday loans to make ends meet.

The average monthly income of the people who contacted us with payday loan debt in 2012 was £1,320; the average level of payday loan debt was £1,657. This obviously means that most people we speak to with payday loan simply have no chance of clearing their loans within the short timescales they were taken out.

We believe this suggests that payday lenders are offering credit to people who are clearly not in a position to repay. This then forces people into an unsustainable cycle of dependency on these loans.

One couple who contacted us for advice had 36 payday loans between them. Though this is extreme it illustrates the ready availability of these types of credit.

Low paid the worst affected

In 2012 nearly three quarters of the people contacting us for advice on payday loans had an annual income of less than £20,000. Anecdotal evidence suggests that payday loans are particularly attractive to lower earners due to the tightening of criteria for cheaper forms of credit like credit cards and overdrafts.

And perhaps unsurprisingly payday lenders were the biggest source of complaints to our charity last year, despite only about one in five of our clients using them.

In one case a borrower contacted us having taken out eight separate loans with one lender, totalling £9,000. When his mother attempted to help by making small payments, the lender took £6,000 from her credit card without permission. Interest and charges continued to be added until the total debt had reached £15,000 and the client was forced to declare bankruptcy.

Widespread problems

Recently the Office of Fair Trading (OFT) withdrew the credit licence of one payday lender. While we’re glad to see the OFT getting tougher on payday loan firms we still think there are widespread problems across the sector.

We think that payday loan companies and their trade bodies need to show that they’re committed to reform and we are willing to work with them to improve practices. Otherwise we believe that there’ll be prompt and serious action taken by regulators to protect borrowers from payday loan companies that don’t want to play by the rules.

Don’t get a payday loan to pay off debt

If you’re still tempted then we’d strongly recommend exploring all the alternatives to payday loans first. It’s worth adding that payday loans are a particularly bad idea if you’re using them to try to resolve a debt problem. It’ll usually result in more debt and only very short-term relief.

What should you do if you can’t afford to repay a payday loan?

If you’ve taken out a payday loan and you’re unable to repay it then we at StepChange Debt Charity can help. Most lenders take your bank card details when you sign up to the loan, so they can take payment from your account, called a continuous payment authority.

If you’re in this position read our article on how to cancel a continuous payment on a payday loan. Following the advice on there will mean you can stop the repayment being taken from your bank account.

Once the payment has stopped you can then work out an alternative way of repaying the debt. Our online debt advice tool, Debt Remedy, will assess your budget and provide a tailored debt solution in about 20 minutes. It’s free, available anytime and you don't have to leave your name.

More on debt:

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Where to get free debt advice

What to do if your children are in debt

Demand for debt help rockets

Self-employed suffering with double the debt of employed

Debt schemes that prey on those in need of help

What to do if your children are in debt