The danger of payday loans is well documented, despite their popularity.

Millions of people use them every year to tide themselves over between being paid or to deal with expensive emergencies. But too many get into trouble and find themselves even further in debt.

The crazy interest rates payday lenders charge those unfortunate enough not to have access to traditional lines of credit makes payday loans extremely expensive. Some charge annual percentage rates running into the thousands of percent.

The government has said it wants to remedy this and is to launch a programme of zero-interest loans in partnership with debt charities and the banking industry.

Three million

These will offer the UK’s three million payday loan users an affordable alternative to help them cope with ‘unexpected costs’.

But apart from the debt problems these lenders can help create, there’s another reason not to use them.

The credit files that lenders use to gauge people’s creditworthiness have in recent years begun to list payday loans separately from other types of debt and, even if they are paid off as agreed, they can damage a person’s credit score.

Lenders view recent payday loans as evidence of poor money management. So even using them out of curiosity or because their application processes are easier and quicker than traditional lenders, can be very risky.

Most lenders that see a recent history of payday loans within a credit file are likely to immediately turn down the application even if the applicant has paid back the loans in time; for them it’s an indication that the applicant is a potential risk.

Key payday loan facts

• The value of loans being made by payday lenders has reduced tenfold since an interest rate cap was introduced in 2015.

• 760,000 people take out payday loans every year.

• The average loan is £300, totalling £228 million in loans last year.

• Wonga, which at one point was the largest payday lender with 33% of the market, went into administration in the UK in August 2018.

We would therefore urge everyone not to use this kind of loan; it can undo all the good that using our service brings to someone's credit rating and make it more difficult to access credit later on.

CreditLadder can help you improve your credit score

If you want to improve your credit position by reporting your rent payments, CreditLadder is the only way to improve your credit score and position across all four of the main Credit Reference Agencies in the UK, namely Experian, Equifax, TransUnion and Crediva. Building up a high credit score has a lot of benefits, including helping you access finance at better rates - this can also help save you money.

CreditLadder also runs a free mortgage application service in partnership with Tembo which will tell you how much you could borrow.

Remember the information provided in this article is for information purposes only and should not be considered as advice.