Around half of payday loan customers borrow again within 30 days or roll-over their loan, research by the Competition Commission revealed.
Many seem to get into the habit of using payday loans repeatedly, as 60% of first-time borrowers took out another loan within a year, with the average taking between three and four.
Over a third also fail to pay their loans on time, thereby facing extra fees.
According to the commission the standard profile of a payday borrower is male, young and living in rented accommodation.
The report said: “Taking into account borrowing from multiple lenders, repeat use of payday loans is likely to be even more widespread.
“Preliminary results from our analysis of CRA [credit reference agency] data suggest that a large proportion of payday loan customers take out more than five loans in the space of a year.”
The commission analysed 15 million loans worth £3.9bn taken out between 1 January 2012 and 31 August 2013.
The average loan was £260 over 22 days, while four in 10 said they were left with no alternative but to borrow.
The short-term loan sector, worth more than £2bn a year, was referred to the commission by the Office of Fair Trading in 2013.