Martin Lewis advises families turning to payday loans amid the cost of living crisis

Rising costs and worries about paying bills have prompted a surge in interest in payday loans, a new survey has found.

Research from savings platform Raisin UK has revealed a massive 350% increase in internet searches for payday loans in the last 12 months as the country faces a cost of living crisis and families struggle to make ends meet. Household budgets are being squeezed on everything from petrol hitting a UK record high of £1.55 a liter last week to skyrocketing supermarket food prices – and that’s before the new energy price cap comes into effect next month, when the average family doing this find almost £700 more every year just to pay their energy bills.

Kevin Mountford, co-founder of Raisin UKwarned against it Payday loans can be a dangerous route, despite the short-term relief they seem to offer.

Read more: Energy price cap explained

“It’s easy to get into a debt cycle with these systems when you constantly need them to cover deficits. With interest rates rising, you will most likely struggle financially with payday loans, especially as you will owe these companies an ever-growing amount of money,” he said.

Payday loans are short-term loans for relatively small amounts of money. They can be easily accessible, but interest rates are very high. You work by agreeing that the company can collect its payment from your debit card on the day your next paycheck is due, although some lenders allow you to pay over a longer period of time – often up to six months.

For some, they offer loans as a last resort, which, if used properly, can plug unexpected holes in people’s finances, though according to Moneysavingexpert Marin Lewismany of these loans were irresponsibly given and mis-sold to those who could not afford to repay them.

Dozens of bad credit lenders have gone bust, including big-name payday lenders like Wonga and QuickQuid, leaving customers with legitimate claims with significantly reduced payouts.

Citizens Advice agrees with Martin Lewis that payday loans are almost always a bad idea and has warned against seeing them as a quick fix to solve today’s problem.

Martin Lewis has advised people to try the following ways to get short-term cash before applying for a payday loan:

  • A Credit card offers interest-free expenses if you pay them in full. With a 0% card, you can pay interest-free for longer.
  • Check if you are eligible for 0% government household loan from up to £812
  • Ask the family for help
  • Check to see if your local credit union will offer you a loan
  • Consider extending your overdraft — it’s usually cheaper than a payday loan

And if you’re still determined to get a payday loan, he advises the following:

  • Borrow as little money as possible and pay it back as quickly as possible
  • Don’t take out a payday loan to pay off another one. When you get regular payday loans, there is a problem
  • Always check that a lender is registered with the Financial Conduct Authority (FCA). Payday lenders can be bad – loan sharks are MUCH worse.