A number of you have contacted our Money Advice team because you are struggling to repay ‘payday loans’.

If you urgently need money, it can be very tempting to borrow from firms such QuickQuid and Wonga.com that offer loans quickly and easily, but the high interest rates mean you will end up paying back far more than you borrowed.

With banks reducing their lending and credit and overdraft limits decreasing, more people are turning to payday loans in an emergency. According to a report by the Association of Recovery Professionals, up to 2 million people could be using these loans, but with a charge of around £30 for every £100 borrowed per month, they can be very expensive.

So what can you do?  Well, you can go to a Credit Union. In the past, Credit Unions had a reputation for being only for certain people and hard to access, but thanks to government funding they are now much more flexible about who can borrow and when. There are also more of them these days.
Borrowing from a Credit Union is far cheaper than getting money through payday loans or doorstep lenders such as Provident or Greenwood. For instance, for a loan of £207 from Wonga.com for 20 days at an APR of 4214%, you will need to repay £252.42. For a loan of the same amount from Credit Union for 30 days at an APR of 12.7%, you will only need to repay £209.08.*

To find your nearest Credit Union, call the Association of British Credit Unions Limited (ABCUL) on 0161 832 3694 or log onto www.findyourcreditunion.co.uk/home 

If you are having financial problems, our Money Advice team can give free, confidential advice. Call us on 01234 791000.

Alternatively, call the National Debt Line on 0808 808 4000 or contact your local Citizens Advice Bureau.

* Rate correct at time of publication

What you are really paying:

Interest rates = the amount it will cost you to borrow. So, an annual interest rate of 5% on a loan of £1,000 means you will have to pay back £1,050.

Annual Percentage Rate (APR) = This calculation takes into account the interest rate when it is charged (daily, weekly or annually), any initial fees charged by the lender and any other relevant costs.

Payday lenders will argue that an APR of 2,000% is far cheaper than having to use an unauthorised overdraft which could attract an APR of 819,100% because of bank charges, but payday loans should not be used to resolve long term debt issues.