Clients asking for payday loans are usually masking debt problems

Marketed as being a quick way of tiding financially stressed workers over until the end of the month, with credit of up to £750 available online or through the high street, payday loans have seen a marked increase in popularity during the recession.

But according to John Fairhurst, Managing Director at Payplan, more should be done to make people aware of the long term consequences of a payday loan.

He said:

“A payday loan might appear to provide a quick and straightforward  solution, but we often see people drawn into repeatedly taking out these expensive loans to try and keep up with unaffordable repayments to other creditors. Instead of improving their situation, people often find that use of these loans exacerbates an already serious debt problem.”  

Interest rates differ from one loan company to the next, but Payplan quotes an average example of £25 interest paid for every £100 borrowed. The cumulative cost of taking out regular payday loan can easily make it the most expensive form of credit consumers have.

John Fairhurst added:

“I would strongly urge advisers to be careful dealing with clients who are looking for a quick fix to debt problems. At best, payday loans might seem to offer some cashflow advantages but advisers need to understand that requests for payday loans can, in many cases, hide an underlying debt problem where the best counsel they can give clients is to seek impartial debt advice rather than borrowing more money.”