Keep payday loan sharks at bay with Capital One

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Payday loan borrowers are being targeted by a high-interest credit card, promising to ease their debt woes.

Capital One’s Balance Plus card allows you to pay money from it directly into your bank account. You can then use this money to pay off  high-interest debts.

There is a 3 per cent fee for this — so if you transferred £200, you’d be charged £6.

Candid Money: 'This new card may be a lifeline for many, but if they struggle to meet payments, their debts will still mount'

If you take out the card before the end of March, there is no interest to pay until July. In theory, this will allow you to slash the amount you owe. After this, interest will kick in at 34.9 per cent.

However, calculations by the website Candid Money show that the card would still work out cheaper than overdrafts and payday loans.

For example, someone who borrowed £200 on the card and paid back £5 a month would pay £30 in interest over six months — excluding any interest-free period.

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But if you borrowed £200 with an authorised overdraft charging £1 a day, capped at 20 payments a month, you would end up owing £320.

With an unauthorised overdraft, with charges of £5 a day, your debt could hit £800.

With a payday loan rolled over three times over six months and interest of 360 per cent, the cost is higher still. You’d end up paying an eye-watering £883.

‘This new card may be a lifeline for many, but if they struggle to meet payments, their debts will still mount,’ says Justin Modray, Candid Money founder.