Payday lenders have been slammed for targeting students by offering them hasty money-lending options.

Photo: Images of Money (Flickr)

In some circumstances, students who cannot make the repayments find themselves in grave financial trouble with no viable means of escape.

In response, the Office of Fair Trading launched a review on payday lenders in February this year, recently deciding that the Financial Conduct Authority should have the power to cap the annual percentage rate (APR) and remedy what has been regarded as usury. Currently the law in the United Kingdom only requires lenders to state the APR which is not restricted to any percentage.

Payday loans are small advances of money that financially assist a borrower until their next pay day. A payday loan can be secured in less than 20 minutes online provided you have a bank account and proof of address, which is appealing to students or low income earners.

Loans are typically about £100 with a repayment term of anything up to one month. Frequent applications for loans or regular defaults on existing loans can result in debts of thousands of pounds.

The APR is an accumulation of the initial interest rate and any additional fees the lender incurs in the course of the loan. APR is typically higher than the interest rate as it operates to balance the interest rate and fees.

The APR may fluctuate to coincide with prevailing rates or where the borrower violates a term of the loan agreement. Over the course of a loan some rates have totalled as much as 4,000%. Some fees may not be included in the advertised APR so it is important for a borrower to make further inquiries in order to determine exactly what they are expected to repay so as to avoid debts.

For free and independent advice, visit moneyadviceservice.org.uk