Breaking the cycle of short-term loans

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CITIZENS Advice Scotland reports that it has been hearing 50 new cases a day involving pay-day loans companies. However, help is at hand.

Q I’m having terrible problems with a pay-day loan company. I borrowed £400 from them in July and then my hours at work were cut, so I missed a repayment. Following this, the company started taking higher amounts directly from my bank account – without prior warning. This pushed me into unauthorised overdraft. I phoned the company and came to an arrangement whereby I would start paying £125 per month until the loan was paid off. However, the company continues to take higher amounts directly from my account with no warning. As a result of the unpredictability of the loan repayments, I’ve fallen behind with my rent and am now being threatened with eviction. When I asked the company about this, their response was to offer me another loan! I was daft to take out the loan in the first place, but I’m trapped and really struggling. I am writing this because I want people to know what these companies are like. I want to stop people taking out pay-day loans and getting into the miserable situation I am in.

AJ, Edinburgh

Citizens Advice Scotland gave this advice:

A Sadly, this is not an uncommon case. The growth of pay-day loans has been massive in recent years. Some companies charge up to 4,000 per cent interest, which is extremely punishing for anyone, but especially for those on low incomes.

Our advice to anyone in financial trouble is to shop around for the most affordable credit. Don’t just go for the lender with the famous name or the best TV ads. Credit unions are less glossy than pay-day loan companies, but they will lend you money at a much safer rate of interest. So, shop around – and don’t borrow at all unless you know how much you will have to repay and exactly how you will do so.

Regarding pay-day loans, there are two pieces of good news. First, following pressure from people like CAS, the UK government has just announced that it is to enable the industry watchdog to cap the interest rates of loan companies. And second, the industry itself has come up with a voluntary code of conduct, which means that all pay-day loan borrowers who took out their loan after 26 November have an extra set of rights, eg to stop the company taking money from your bank account without your permission. For details on this code and how to complain about companies who flout it, go to

• If you have a consumer issue that you would like tackling, contact Claire Smith on 0131 620 8511 or e-mail