Payday loan companies provide short-term loans – often for people who’ve found it difficult to get credit in ‘traditional’ ways.

Under the right circumstances, this kind of debt can work out exactly as people expect: they borrow the money and pay it back as arranged, along with the interest. The annual interest rates can be very high, but these loans aren’t designed to be repaid over the course of a year, so many people consider the cost to be reasonable. The Daily Mail provides a look at some figures.

Borrowing £200 for a fortnight, for example, would cost someone around £23. Even though that’s an APR (Annual Percentage Rate) of 4,214%, what matters to the borrower is the actual cost – £23. As the paper points out, this can be cheaper than using an unauthorised overdraft.

The problems can begin when someone doesn’t repay the money on time. With one lender, for example, a debt of £100 would cost a borrower £87 if they didn’t repay anything for two months or longer.

A spokesperson for the IVA Forum commented: “If someone has to turn to payday loans on a regular basis, it could well be a sign that they have underlying financial issues that need addressing. Anyone in that situation should take a good look at their finances and try to identify what they could do to improve them. Talking to a debt adviser could really help them here.”