Making money last until the next pay day is an old problem, but now there are plenty of new lenders offering the solution of a payday loan.

The number of people taking one out has quadrupled since 1996 according to the watchdog Consumer Focus.

That is despite some companies charging interest rates of more than 2,500% a year.

The organisation is now calling on the industry to bring in more safeguards to protect vulnerable borrowers.

''Payday loans are a valid form of credit and it's much better for people to take one out rather than go to a loan shark," said Sarah Brooks, head of financial services at Consumer Focus.

"But we do think there needs to be a limit on the number of loans people take out and how many loans they are able to roll over."

'Mounting up'

Research by Consumer Focus suggests that 1.2 million people are now taking out a payday loan every year, borrowing a total of £1.2bn.

Each month it cost another £56 to renew the loan Stephanie Derby

For many people such a loan is a quick and efficient way of getting hold of short-term credit.

If the money is paid back promptly on the next pay day, this type of lending can be cheaper than paying an unauthorised overdraft or a credit card charge.

However, if the loans are rolled over, debts can quickly escalate.

Dressmaker Stephanie Derby from Finsbury Park in London took out a pay day loan after she fell behind on rent and bill payments.

She was already overdrawn and at her limit on her credit cards.

''I didn't feel I had any other option, I had just graduated and all my debts were mounting up, it really was a last resort," she said.

"I borrowed £400 hoping to pay it back a few weeks later but I was unable to.

"Each month it cost another £56 to renew the loan and after six months the initial loan of £400 ended up costing me nearly £800," she explained.

Problems

However, the pay day loan industry says when managed properly, many people find this type of lending easy to understand and less risky.

Image caption Payday loans are legal but can be very expensive

''There is a reluctance among many consumers to take on long term loans from traditional lenders, because they feel their financial situation could change," said John Lamidy from the Consumer Finance Association.

"But they find that the short term credit offered by the pay day loans industry does meet their needs.

''We are working with Consumer Focus to find out how serious the problems they identify are and whether they affect lots of people or just a few," he added.

The association is also working with the Consumer Credit Counselling Service (CCCS) to find out how to help borrowers who fall into problems.

The money education charity Credit Action says traditional banks could do more to provide the short term credit people need.

''Banks could offer that kind of money to people by extending their overdrafts for a little bit longer for example,'' said Chris Tapp, director of Credit Action.

"Banks can afford to do that and they are still making millions of pounds of profits so they could do more for their most vulnerable customers."

No alternative?

The British Bankers' Association (BBA) claims its members are already being as flexible as they can.

''They have to make a risk assessment on every lending proposal they receive and quite frankly it does not do any good to lend money out to people if they can't afford to repay it,'' said Brian Capon from the BBA.

Stephanie Derby's dressmaking business is now taking off and she has repaid the loan.

She says she will never take one out again.

But for many other people a payday loan is still the only legal option for short term lending, when money is tight and there is nowhere else to turn.