According to research by insolvency trade body R3, 3.5 million adults will be considering taking out payday loans in the next six months.
The research also suggested that of those who had taken such a loan in the past, 60% regretted the decision and 48% believed that the loans made their financial circumstances worse. Only 13% believed that the loan had had a positive impact on their finances.
Payday loans are designed as short term borrowings repaid when the next pay day comes around. However, if the money is not repaid in time the debt may quickly become unmanageable.
R3 President Frances Coulson explained:
"Payday loans are not the best way to resolve debt struggles. We know that many who take them out find them to be a negative experience, often escalating financial troubles."
The rise in such debt has created a new group of "zombie" debtors. According to Coulson:
"We hear talk of 'zombie' businesses, but seeing individuals run their finances in the same way is troubling. 'Hanging on' each month simply cannot be maintained forever. This group will have very few options should interest rates rise or their circumstances change."
"Having a financial buffer is crucial to weathering periods of difficulty. If struggling to payday becomes a regular occurrence, seeking financial advice should be a priority over short term high interest credit."
The research comes at a particularly pertinent moment as Christmas approaches and many will be stretching their budgets to the limits.
Debt expert Martyn Saville from the consumer organisation Which? commented:
"Payday loan companies are moving aggressively into a lending market that currently fails to cater for too many low earners and those unable to access mainstream lending.
"Unfortunately, poor lending practices by some payday loan providers risk leaving many consumers vulnerable to unmanageable problem debt."
However, the Consumer Finance Association (CFA) which represents the interests of many short term lender criticised the research.
John Lamidey, chief excecutive of the CFA said:
"We are surprised to see some of the figures and assertions in the R3 research. Our own independent research, and that of our members, has shown that on the contrary, 94% of payday customers are satisfied with the service and crucially that more than nine out of ten customers of a CFA member said they had never felt they were being pressured by staff to extend existing loans. This is in contrast to the R3 assertions."
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