Payday lenders: What you need to know

Video: With interest rates on pay day loans to be capped at 0.8% a day, Simon Read provides you with all the information you need to know

A Pay day loans shop in Walthamstow high street on on November 1, 2012 in London, England. (Bethany Clarke | Getty Images)

The City Watchdog confirmed that a cap on payday lender charges will come into effect from January 2015.

Instead of hitting people with huge penalty fees on top of high interest, lenders will only be able to charge a maximum of twice as much as you borrow.

If that still sounds costly - it is.

Payday lending is practically the most expensive way to borrow, but unscrupulous lenders have persuaded lots of people to take short-term loans by focusing on the convenience - and not mentioning the high cost.

Those that have fallen prey to such tactics can quickly find themselves in a spiral of debt if they don’t repay the loan within days.

That’s not a happy situation to find yourself in - so the new rules are good news.

However, while the new restrictions will force some lenders out of business, the big ones will remain - and they will still be pushing their expensive deals.