Payday Loans UK's most expensive form of borrowing

Payday loans may seem like a handy tool for people that require cash before they get paid, but studies suggest that these loans can be the most expensive form of credit available in the UK.

Payday loans provide consumers with fast and easy access to cash, and are one of the few forms of small loans available with terms from 7-30 days.

Research carries out by uSwitch suggests that some payday loan schemes can carry massive annual  percentage rates (APR) of up to 9889.3%, with a £750 loan increasing to a £1,687.50 debt if repayments remain unpaid for 2 months.

Frances Walker of the Consumer Credit Counselling Service (CCCS) has said that payday loans are most popular amongst young people who require fast access to money.

Ms Walker said that most lenders require a valid piece of identification, a post-dated cheque and proof of employment in order to take out a payday loan. This makes borrowing money extremely easy which can encourage people to get into unnecessary debt.

According to Credit Action, in November 2008 the total personal debt in the United Kingdom was £1.456 billion.

It is recommended that people should only ever use Payday loans as a last resort, as the interest rates offered tend to be significantly higher than standard loan rates.

Director of the Association of Finance Brokers Robert Sinclair said that payday loans can offer an effective solution to some borrowers.

"Payday loans offer one option for borrowers who are looking for short-term finance and we are finding that brokers are starting to offer them as part of a wider product offering," he said.