Nearly half of the people who have taken out a payday loan have been unable to repay it, according to a new report.
The survey by consumer group Which? found that 48% of those who took out credit through a payday loan could not afford to pay back their debts, while 29% of payday loan users accepted the money in the knowledge that they could not repay it.
In the past 12 months, 57% of people with payday loans have missed a payment and have incurred charges because of missed or bounced repayments (56%).
Almost a third, or 31%, told Which? that they had been “hassled” by debt collection agencies in the past year.
Richard Lloyd, executive director of Which?, said: “Payday loans are leaving many people caught in a spiral of debt and taking out more loans just to get by. That’s when they’re hit by excessive penalty charges and roll over fees.”
He called for the Office of Fair Trading to clamp down on irresponsible lending by introducing better affordability assessments and clearer charges.
One in five of respondents said that they had been hit with unexpected charges after taking out credit through a payday loan.
But Russell Hamblin-Boone, chief executive of the Consumer Finance Association which represents short-term lenders in the UK, said that he would be in contact with Which? to discuss the issues raised by its report.
“Responsible lenders have no desire to lend to people that cannot afford to pay back their loans; it is bad for the consumer and bad for the lender.
“We have worked extremely hard to devise and implement the new good practice customer charter, which comes into force on 26 November.”
He added: “The charter means that customers can expect greater transparency with clear explanations of all charges; robust affordability assessments and significant help for those that do get into financial difficulty after they have taken out their loan.”
Populus, which conducted the research on behalf of Which?, interviewed a random sample of 4,031 UK adults.
Published 12 November 2012