There has been a sharp jump in the number of payday loans, raising concerns about rising consumer debt.
Over 5.4 million payday loans were taken in the year to June 2018, according to financial regulator the Financial Conduct Authority (FCA).
This compares to 4.6 million taken out the previous year.
The amount borrowed has also risen significantly. In the year to June the total value of loans was £1.3 billion, up from £1.1 billion between July 2016 and June 2017. The total amount payable was £2.1 billion.
The average loan value in the year to 30 June 2018 was £250, while the average amount paid back was £413 - 1.65 times the average amount borrowed.
The FCA says that current lending volumes remain well down on the previous peak in 2013, although there has been upward trend over the last two years.
The data revealed that people living in the North West are most likely to take out payday loans, with 125 loans per 1,000 adults.
This was followed by the North-East with 118 loans per 1,000 adults and London with 114 loans for every 1,000 adults.
Londoners are borrowing more than anyone else in UK, taking out loans on average of £284 each, compared to £235 in the North East and £234 in the North West.
Most of the borrowers taking out payday loans tend to be young.
The FCA found that 39% of people taking out a loan were aged 25 to 34. Most were tenants (30%) or living with their parents (26%).
Vicious cycle of debt
People who take out payday loans often have problems paying them back and can end up in a vicious cycle of debt.
The debt charity StepChange reports that in 2017, 15.7% of its clients had a payday or short-term high-cost credit debt, rising to 18.3% for just the first half of 2018.
Sue Anderson from debt charity StepChange says: “The FCA figures show payday lending rising again, and financially stretched young people are still most likely to resort to high cost credit – which matches what we see among our clients.
“All too often this type of credit is what people turn to in order to get by when they are already struggling to meet their commitments – we’d urge people to seek advice before turning to high cost credit as a way of trying to cope financially.”
In 2015, the FCA introduced a payday loan price cap of 0.8% per day on the amount borrowed. Overall, no one will pay back more than twice what they borrowed and default charges must not exceed £15.
However, while rates have been capped borrowers who take out a payday loan still face average interest rates of 1,250%.
Since the cap was introduced the number of providers in the short-term and payday loan market has fallen from 106 firms in 2016 to 88.
Laura Suter, personal finance analyst at AJ Bell, says: “The most high-profile exit from the market was Wonga last year, which at one point charged interest rates upwards of 5,000%, while the regulator’s cap on payday loan interest four years ago has been blamed for others leaving the market.
“These short-term loan figures are just one part of the UK’s debt problem – we also owed almost £45 billion on credit cards at the end of November last year, and another £6 billion in overdrafts.
"What’s more, half of people say that keeping up with their bills and debt is a burden on them, which leaps to 89% of people who have payday loans.”
Reducing your debt
Setting a budget is often the first step to help you get on top of your finances. Knowing how much you have coming in every month and what you need to spend helps you work out the best way to deal with your debts.
Some debts are more important to deal with than others, so make sure you prioritise those first.
Although credit card interest might be higher than your mortgage, missing mortgage payments can have more serious consequences as you could lose your home.
Credit card debt can be expensive, so it makes sense to pay this off as quickly as possible.
Council tax is another important bill to keep on top of. You could be sent to prison for up to three months if you fail to pay it.
Balance transfer cards allow you to consolidate all your debt in one manageable payment. Transferring over to a credit card that offers 0% interest on purchases can make debt repayments easier.
Some of the best deals will allow you to borrow for more than two years, giving you extra breathing space to pay off your debt.
If you are worried about debt you should seek help from a debt advice charity such as Citizens Advice, StepChange or National Debtline.