Advice Column – Payday Loans
Should I take out a Payday loan?
Payday loans are an expensive way to help people over temporary problems. They are not suitable for longer-term difficulties.
A loan from a credit union is more affordable – check if there’s a credit union in your area
If you have a bank account, you may be able to agree an overdraft. But be careful of going overdrawn without permission as this can be very expensive.
Before you take a payday loan
Make sure you shop around for the best deal. Online payday lenders must publish their deals on at least 1 price comparison website so you can compare their deal with others. The price comparison site must be regulated by the Financial Conduct Authority.
You can check in the Financial Services Register if a price comparison website is regulated. Make sure you use the company’s name rather than the website name when checking – it’ll usually be on their homepage.
When you apply for a loan, before lending you any money, a lender should check whether you’ll be able to pay it back. This means that, for example, the lender should check you’ve got enough money coming in each month to be able pay the loan back.
The lender should also explain the main features of the loan, including how much you will have to pay back, what happens if you do not pay the loan back, that you may be charged extra if you do not pay the loan back on time and that the loan is not suitable for long-term borrowing. The lender should also explain how continuous payment authorities (CPAs) work and how they can be cancelled.
All adverts for payday loans, including adverts sent by email or text message, must include the following warning ‘Late repayment can cause you serious money problems. For help, go to www.moneyadviceservice.org.uk.’
From 2 January 2015, there is an interest cap on payday loans of 0.8% per day and no borrower should have to pay back more than twice what they have borrowed.
Paying back a payday loan
Usually you’ll be given up to a month to pay back the money you borrowed, plus interest.
The most common way to pay back a payday loan is through your bank debit card. When you get the loan you agree to let the lender take the money from your bank account. This is called a continuous payment authority (CPA).
If there isn’t enough money in your account to repay the loan on the agreed date, the lender may keep asking your bank for all or part of the money. Charges will be added for late payment.
However, your lender shouldn’t use the CPA more than twice if they’ve not been able to get the money from your account, and they shouldn’t try to take a part payment.
From 2 January 2015, if you take out a 30 day loan and repay on time you should not be charged more than £24 in fees and charges for every £100 borrowed. If you default on the loan the lender can only charge a default fee of £15.
Stopping the payment
If you can’t afford to re pay the loan, you can instruct your bank or card provider to stop the payment being taken. You must do this at least one day before the payment is due.
Extending a payday loan
If you are having problems paying back the loan, the lender may offer you longer to pay. The lender may do this by giving you more time to pay the loan or by rolling the loan over. A rollover works by making a new agreement for the repayment of the original loan. Beware of extending your loan or agreeing to it being rolled over because you will have to repay more money to the lender as you will be charged extra interest, extra fees or other extra charges.
Your lender shouldn’t roll over your loan more than twice. Also, when a lender rolls over a loan, they’ll also need to give you an information sheet which tells where you can get free debt advice.
If you are struggling to pay back what you owe or to manage on your money, get advice.
Making a complaint
Most payday loan lenders are supposed to follow a Good Practice Customer Charter.
They also have to follow the Financial Conduct Authority (FCA) rules. If they don’t follow the Charter or the FCA rules, you can complain.
You should first contact the lender and try to sort things out.
If you are still not satisfied, you can make a complaint to the Financial Ombudsman Service (FOS). If the lender is a member of a trade association, you can also make a complaint to the association.
Struggling with your money
If you have debts or are struggling to manage on your money, you may like to get help with budgeting or dealing with debts.
Other useful information
The Money Advice Service
The Money Advice Service is a free, independent service. Their website has information about borrowing and managing your money.
Financial Ombudsman Service (FOS)
The Financial Ombudsman’s website has information on how to make a complaint about payday lenders.
Payday lenders’ trade associations
- the British Cheque & Credit Association (BCCA) at: bcca.co.uk
- the Consumer Credit Trade Association (CCTA) at: ccta.co.uk
- the Consumer Finance Association (CFA) at: cfa-uk.co.uk
- the Finance & Leasing Association (FLA) at: lendingcode.org.uk