A Payday loan lender offers 0% short-term loans but debt counselling charities warn borrowers not to be lured by free instant loans. The introductory 0% offer could see debts soon spiral out of control, says Citizens Advice and the Money Advice Trust.

The loans of InstantLoansDirect.com charge 0% for the first eight days and then 50p a day for every £100 borrowed until the loan is repaid. A free loan sounds almost too good to be true and it probably is. Where is the catch?

Joanna Elson of Money Advice Trust explained the Guardian that InstantLoansDirect.com “will actually lose money if people take up its 0% offer and then make the repayment as scheduled. However, there is profit to be had in those cases where borrowers are unable to meet that repayment and so incur interest charges.”

Una Farrell, a spokeswoman for the Consumer Credit Counselling Service (CCCS) charity, agreed: “CCCS would warn anyone to approach this with extreme caution. This company’s business model is built on people rolling over the loan and incurring astronomical charges and interest.”

Giles Coutts, founder of InstantLoansDirect.com, denied this. The 50p a day for every £100 borrowed charge was “not that different from you taking me to Starbucks and buying me a coffee to thank me for lending you £100,” he said. “We’re hoping we can help consumers at a time when they might be struggling financially and that our 0% interest free short-term loan will be a quick and easy solution to their problem.”

Users of payday loans should be wary about such charitable approach. Coutts and his colleagues are not running a non-for-profit organization but a business. They are not lending money just for the sake of it and getting a coffee in return. They are looking to make profit. So it’s safe to assume that there might be hidden costs and horrendous late fees.

Potential borrowers should always make sure to understand all charges and fees before they take out a payday loan. It is important to keep in mind that nothing is for free. On QuickCashPayday and other traditional lenders you will always see all charges upfront and know what you will have to repay so you can make an informed decision.