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Why do we regret taking out payday loans?

Payday lenders often come under fire for their money lending practices, so we decided to ask people about their experiences with payday loans. Have you ever taken a payday loan and lived to regret it?

Payday lenders have flooded the market recently and have been criticised for their high interest rates, which can extrapolate out to APRs of over 1,750%. They also claim to help people who have poor credit histories, making it an easier option than a traditional credit card or loan.

So what’s the problem? At Which? we’re concerned that these loans target more vulnerable people, potentially leaving them in a worse situation than they started.

Oui, je regrette mon payday loan

Sadly, our survey found that 69% of people who took out a payday loan have regretted taking out credit, compared to just 31% of people who took out more traditional types of credit (loans, credit cards etc.)

I have to admit, I wasn’t surprised that so many people had regretted taking out a payday loan; especially when half of these people said they’d taken out credit they couldn’t afford to repay. We also found that over 43% of payday loan borrowers agreed that it was too easy to get credit.

This raises concerns about the robustness of checks carried out when people are applying for loans. We’ve previously found that when most borrowers apply for a payday loan, they’re only asked about their income. But we also want credit assessments to take into account expenditure and the ability of a borrower to be able to pay back in a sustainable way. After all, most people can afford to pay back a loan on the day they get paid, but what happens the week and the month after?

Worryingly, we also found that 57% of people with payday loans have missed a regular payment (ie. a debt repayment, a gas bill, rent etc) in the past year.

Turning regret to relief

More and more people seem to be taking out payday loans these days, and often to cover essentials like food and fuel, as you can tell from this table:

What are people spending payday loans on?
Essentials: food and fuel 38%
Emergencies 34%
Regular bills 32%
Repay other debts 24%
Rent 20%
Holidays 11%

Many people are finding it hard to escape from their debt, as they’re forced to take out more payday loans to pay off existing ones. And it can spiral out of control as excessive penalty charges and rollover fees waiting around the corner if they miss their repayments.

We think it’s vital that lenders are clear and upfront about all charges involved alongside the application process. In fact, we’re calling on the Office of Fair Trading to crack down on irresponsible lending with excessive charges being stamped out.

We also think that if someone is struggling to pay back their loan, lenders should do more to help them by freezing penalties and working out suitable repayment plans.

If payday lenders can implement these changes, we’ll hopefully start to see the number of regretful borrowers start to fall. Have you ever found yourself regretting a payday loan?


I guess your research kind of explains why the big banks aren’t wanting to lend money to people, if a third take out loans they know they can’t repay. I think more should be done to educate people to live within their means, although I can imagine that for some it’ll be too little too late now. And for a large number of others it will be a culture shock they’re won’t want to see.

Rob from Australia says:
10 November 2012

I’m from Australia, where the payday debate is similar. The simple point is – payday loans are not the problem, they are a symptom of the problem. If people are borrowing money to buy food, then they do not have enough money in the first place. The problem is simply that – they don’t have enough money. We do not say that banks are to blame because people cannot afford to buy a home, yet they must borrow money to purchase one. It is therefore unfair to link payday lenders to people being unable to meet their daily expenses.
Next, extrapolating payday costs to a yearly basis is clearly misrepresentative. Hotels and car parks do not quote their charges per annum. They are per night, or per hour. Requiring payday lenders to quote per annum gives a false view of their charges, and relies on people incorrectly comparing them with bank housing loans – which are much larger and much longer. That is like comparing a taxi fare with a plane ticket. If a $1 charge on a $100 loan for 1 day gives an APR of 365%, there is something clearly wrong with the reasoning and people are being taken for a ride.

Agree – The point is that a great many CAN’T GET a bank loan – so the ONLY alternative is pay day loans – and if your actual pay and benefits is BELOW the amount to live – which is often the case – you can ONLY use pay day loans. A total travesty. What is needed is a GOVERNMENT “pay day” loan scheme that offers the same interest rates as those that can GET a bank loan – It has very very little to do with planning – It is all to do with poverty and affordable rents..

I spend my time helping the local poor and vulnerable to budget – but it is often impossible – Example – Income £150 a week – Rent for a one bed flat £1000 a month – result you starve or steal or LIE to get more benefits. This situation has rocketed in the last two and a half years.

I currently work for one of the big Payday lenders. I must say that the procedures we have in place to ensure loans are given out responsibly and that the customers are fully aware of all the charges and repayable amounts and very robust. Whilst I do believe that the industry needs stricter governing to ensure that lenders are being responsible I have been very encouraged by the new guidelines the FSA are bringing in to force later this month. My issue is that I do not believe the measures go far enough, I see numerous companies lending ridiculous amounts of money to people who simply cannot afford to pay it back. An example is recently I viewed a customer whom had an income of £11250 per month. One particular lender loaned this person £850. Now I would imagine he would repay somewhere around the £1050, this is completely irresponsible and is a tactic I see used to regularly to trap the customer in to the obscene practice of rollovers. It is these practices that the FSA MUST get to grips with and put an immediate end to. The new affordability guidelines and responsible lending policies will help but are certainly not the cure. I believe the loans I authorize are beneficial to my clients and used correctly for short term financial short falls can be an excellent financial tool.

Just on Richards point above, I understand what you mean “ONLY alternative is pay day loans – and if your actual pay and benefits is BELOW the amount to live – which is often the case – you can ONLY use pay day loans.” But I would have to stress this is the complete opposite of what would be an appropriate use of a Payday loan. To use these products successfully you must be in a financial position to be able to repay them within a very short period of time. If you use them as you have stated you will very quickly find yourself in what we call the debt spiral.

The government do finance the Credit Union which offer short term loans, I know very little about them though to be honest. I would suggest anyone in the position you describe above to seek financial assistance from the citizens advice bureau or the national debt helpline as soon as possible. I would strongly deter them from using payday loans.

Sadly – I doubt if you have any real experience with actually dealing with true poverty – I have – just over 15 YEARS of helping people who do not earn enough to live – EXPERIENCE has shown that credit unions do not help the poverty stricken – Nor do CAB or national debt help-lines – They offer “solutions” that do not solve anything for the truly poverty stricken.

Frankly the poor’s choice is using Pat Day Loans or become homeless or starve – End of.- Starving is NOT an option I support.

This is not new – at one time they used Pawn Shops – I used to collect used Scout Uniforms in the 1950s so that the local poverty stricken children could join in helpful scouting activities – (we had the biggest Scout Troop in the district) A part of the Scout Law is “To help other people at all times”

This allowed the local middle class (who supplied the used uniforms) to mix with the local truly poor and understand the real problems of poverty. It was during this time I became appalled at the discrepancies between my boarding school education and slum state education – I eventually became a slum school Teacher after a few years of very middle class electronic research and running a successful dental design business. For me it was easy to progress – for the poverty stricken virtually impossible.- which is why I’ve devoted most of my retirement helping the poverty stricken – you should try it.