A million people turn to payday loans to cover bills

More than one million people are turning to expensive short-term lending to meet essential costs such as water, energy, and council tax bills.

Three in 10 Brits currently use credit cards, overdrafts, and a range of other sources of cash to cover the cost of household bills each month, borrowing £3.6bn or £259 per person, according to research from Santander.

But 2 per cent of the population, more than a million people, are turning to payday lenders to the tune of £2bn a year to keep a roof over their heads, the equivalent of £1,836 each.

"This is very worrying indeed," says Una Farrell, a spokesperson for debt charity the Consumer Credit Counselling Service. "If you start using credit for day-to-day expenses I just don't know where you'll end up, especially when payday loans are so expensive. Credit unions and even short-term lending from your bank could be so much cheaper.

"With so many people struggling at the moment, especially those from the lower end of the socio-economic spectrum, this shows just how big the market is."

Men are more likely to use alternative sources to cover bills than women, and younger people are also more likely to borrow money to cover bills, with 38 per cent of people aged 18 to 34 doing so, compared to just 30 per cent of those aged 35 to 54 and 17 per cent of over-55s.

The payday loan industry is being investigated by the Office of Fair Trading over irresponsible lending allegations, including rolling over loans so charges escalate, targeting groups who are clearly unsuitable, and not treating customers who get into financial difficulty fairly.

In response, the industry has agreed to introduce a beefed up code of practice to deliver better consumer protection, including basics like explaining how the loan works and the costs involved, increased transparency and more help for customers who get into financial difficulty.

"The new codes will really need to work. We need evidence, not empty promises," Ms Farrell added.