Payday loans
This content applies to England only.
Housing laws vary between England and Scotland. Get advice relating to Scotland
Payday loans are an expensive form of borrowing and can lead to longer-term financial difficulties. There are safer ways to borrow money and if you’re in trouble with payday loans you can get help.
Cost of payday loans
Payday loan providers offer short term loans, the length of the loan is usually between 25 to 31 days. Many payday loan companies offer up to £1000 or more, but first time borrowers are more likely to be offered amounts below £500.
At the end of the loan period, you have to repay the amount you borrowed plus interest charged by the lender. The interest on payday loans is very high, with an APR often above 1731%. APR is the annual percentage rate a lender charges for a loan.
The higher the APR the more you will have to repay on the money you borrow. A payday loan of £400 for 25 days, with a 1731% APR, will require a repayment of approximately £100 - on top of the £400 loan.
Payday loans can lead to large debts
Payday loan lenders say they offer fast access to cash, that it is quick and easy to apply and money can be transferred directly into your bank.
The application process online involves completing a form, you will then be asked to provide more details by phone or post. Some lenders may also require you to fax personal documents.
There are payday loan providers that claim not carry out credit checks on those applying for payday loans. This is not true, all lenders carry out credit checks. You can use a credit reference service to check your own credit rating
Although payday lenders may accept your application if you have a bad credit rating, they may not offer you a payday loan. If you are accepted for a payday loan you will need to set up repayment immediately, either by direct debit or post dated cheques.
If you struggle to repay your loan, lenders will pursue you for repayment, the cost of the loan will rise and you may be charged penalty fees and administration charges for delayed or missed payments.
Your bank may also charge you if funds are not available when your loan payment is due.
Unable to repay payday loans
If you have taken out a payday loan and find that you are struggling to keep up with payments, contact your lender and let them know.
Even if the lender is aggressively chasing the money you owe, through letters and phone calls, you can still try to negotiate. You may be able to arrange a more manageable payment plan with your lender that allows you to pay off your debt at a rate you can afford. Be aware of the interest rate and ask or work out how much you will end up paying.
If you’re unable to come to an agreement with the payday loan lender yourself contact a free debt advice service. A debt advisor can negotiate on your behalf, to reduce, or even freeze, the interest building up on your debts.
You can start with Shelter’s free advice on debt and money problems. You can also get specialist advice on housing debt from Shelter's face to face services.
Rent and mortgage payments come first
Payday loans are a type of unsecured loan. With an unsecured loan your home or property is not used as security and cannot be taken from you if you are unable to repay what you owe.
If your home is not at risk when you miss loan repayments, they are not priority debts.
You should always pay your rent and mortgage before unsecured loans, such as payday loans.
Alternatives to a payday loans
There are safer alternatives to payday loans for people with bad or poor credit ratings.
Credit unions offer affordable borrowing to people who may not be able to access loans from banks or other finance providers.
Credit unions may charge less than 2% interest a month (26.8% APR). At this rate, a loan of £100 over 12 months costs a maximum of £2 each month in interest. Many credit unions charge less, depending on the amount borrowed.
Use the ABCUL website to find a Credit Union in your area.
