How to tackle payday loans

We've identified the cities most likely to be struggling with payday loan debt, as well as seven issues that need to be tackled if we are to get these loans under control.

When a person finds themselves in a difficult situation with money, it can be tempting to go for a quick, seemingly hassle-free option and take out a payday loan. This very rarely makes the problem go away however, and thousands of people across the UK find themselves in a cycle of relying on payday loans just to get by.

We’ve identified the five UK cities who are suffering from the biggest rise in average payday loan debt in the last two years – our payday loans infographic is here. It details how much the average payday loan debt is in these and other cities, and how much more indebted their inhabitants find themselves since 2011.

And between 2011 and 2012, the average payday loan debt of our clients in the top five, London, Cardiff, Liverpool, Leicester and Birmingham, rose between £397 and an a staggering £563.

Seven key concerns we’d like to see addressed

Given these figures, there are seven key concerns we have with the payday loan sector, especially relevant given the Office of Fair Trading’s decision to refer payday loan companies to the Competition Commission.

1. Poor lending checks

The OFT has found evidence of “widespread irresponsible lending” across the sector and that only six of the largest 50 firms carry out proper income checks.

In a society where high-interest lending is on the increase, we fear this could cause real problems in the long term.

2. Rising numbers and balances.

Between 2011 and 2012 the average national payday loan balance of a StepChange Debt Charity client rose from £1,267 to £1,657. In 2012, the charity was contacted by 36,413 with payday loan debts, more than double the number in 2011.

3. Rollovers

The OFT says that three quarters of lenders are renewing loans without question. We feel that this is a clear warning sign that a person is experiencing money problems.

4. Multiple payday loans

7,221 people contacting us had five or more payday loans in 2012, up from just 716 in 2009

5. Repeat borrowing

The University of Bristol found that the average payday loan customer takes out five payday loans every year.

6. Misusing Continuous Payment Authority

We’ve seen cases where money has been taken from people’s accounts leaving them unable to cover food and housing costs. This can feed into the problem of ‘rolling over’ payday loans so the person in debt can stay on top.

7. Default interest and charges

We hear from clients of punitive charges and interest being added that far outweigh the original loan amount

Thinking of taking out a payday loan?

Please don’t take out a payday loan to pay off a debt. We always recommended that you get some free and confidential debt advice before you borrow any more money. And if you’re struggling with payday loan repayments taken straight out of your bank account, we also have a step-by-step guide on how to deal with a continuous payment authority.

Our online advice tool Debt Remedy can look at all your options in just 20 minutes and give you a personal action plan, so you can avoid being affected by payday loan debt.

More on debt:

Six dangerous ways to borrow

Your debt is not normal!

Where to get free debt advice

The shocking truth about debt and mental health

Numbers struggling with payday loan debt doubles

Government seeks to secure debts against homes

Problem debt: will I ever be able to get a mortgage?

Can't afford to go bankrupt? A debt relief order may be the answer