Payday loans can help you get cash paid straight into your bank account at short notice. They’re a popular solution to cover immediate or unexpected expenses that need to be paid while you’re waiting to receive your next wage packet.
Payday loans are intended to be short-term loans that are paid back in full as soon as payday arrives. As a non-priority debt, it’s unlikely that you’ll lose your home or face criminal action if you’re unable to pay off the loan, but that doesn’t mean payday loans are risk free. In fact, they typically charge high interest rates and, if you don’t clear the debt immediately, it can be surprisingly easy for the amount you owe to spiral out of control.
When you apply for a payday loan, you’ll typically only be borrowing funds for a short amount of time, although some lenders offer a three-month loan term that can be repaid in instalments. Even so, this type of loan is often seen as an emergency or last resort option and often charges high rates of interest.
Historically, payday loan interest rates have been so high that the Financial Conduct Authority (FCA) introduced new rules in 2015 to control the charges applied to borrowers. Under these regulations, the interest and fees charged daily must not exceed 0.8% of the initial amount borrowed and default penalties must not exceed £15. Borrowers should never have to pay back more in fees and interest than the original loan amount.
If payday arrives but you’re unable to pay back the loan, there are steps you can take to stop payday loan debt getting out of control. Firstly, try not to take out any additional loans if you can avoid them. Having to cover new monthly payments could lead to more stress and make it more difficult for you to tackle your payday loan debt.
You could also consider seeking professional debt advice, especially if you’ve come to rely on short-term loans to cover your everyday expenses. An impartial debt advisor can take the time to fully assess your financial situation and help you identify the best debt management solutions for you and your individual circumstances.
Breathing space could be another good option if you need time to take stock and consider your next steps. This is a government-backed scheme that lasts for 60 days. During this time, you’ll need to continue paying your existing debt, but you won’t have to worry about being charged any additional interest or fees or facing court action. Payday loan debt is eligible for breathing space, but you can only apply once in any 12-month period, and you must not be in a DRO, IVA or be an undischarged bankrupt to qualify.
If you’re struggling to repay your payday loan debt, you may want to prevent the lender from taking any further payments from you. Contact your bank or building society directly to cancel a direct debit, standing order, or cheque. However, several payday loan companies ask borrowers to agree to give them Continuous Payment Authority (CPA). This system – also known as recurring payments – allows the lender to take the money owed straight from your bank account. Not only can this be an unwelcome surprise, but it could also cause problems if you’re left without the funds to cover your essential bills and living costs. Some payday lenders using CPA have also been known to change the withdrawal date, take varying amounts, and make repeated attempts to take payment. You can cancel your CPA at any time by contacting your card issuer over the phone, on email, or in your local bank branch.
Depending on the payday loan company you choose and its practices, you might be offered a loan rollover. This gives you extra time to repay the original loan but, in return, you’ll enter into a new finance agreement that could include additional charges and interest. While rollovers can be tempting, proceed with caution; repeated rollovers could make your debt worse. Lenders should only offer you two rollovers and provide a full information sheet each time. In general, payday loan rollovers should only be used if your repayment issues are temporary and you’re certain that you’ll be able to clear the loan in full the next month.
Payday loans are an expensive way to get over temporary debt problems and can quickly spiral out of control, further adding to your debt issues.
That’s where speaking to an experience debt solution provider such as My Debt Plan has its benefits. We have a team of friendly advisors who offer debt help every day to UK residents.
We can talk through your options and support you to find the right debt management solution for you.
For free advice about your finances and the debt solutions available that can help you pay off your payday loan debts, call us on 0161 826 0585.
Tell us about your current debts and one of one of our experienced advisors will talk you through all the options available.
Dependant on your circumstances and financial situation, we’ll look at the solutions so you can choose an option that suits you.
Once you have chosen a solution, we will take the necessary steps to arrange this for you.
Lucy Novo Deakin is a licensed insolvency practitioner in the UK by the Insolvency Practitioners Association (IPA).
My Debt Plan Ltd provides insolvency solutions to individuals, specialising in IVA’s. All advice given is provided in reasonable contemplation of an insolvency appointment. Where you are not suitable for an IVA, we may refer you to one of our trusted partners who specialise on alternative solutions, and as such we will receive payment for the introduction if you enter into a debt solution with one of our partner companies.
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To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.
*Our advice on your options is always free. We will always notify you if a solution you choose has any cost.
**Of 2,381 IVA cases approved between January-December 2023, the average expected write off assuming successful completion is 74%.
A debt write off amount between 25% and 75% is realistic, however, the debt write off amount will differ for each customer upon their individual financial circumstances and is subject to approval of their creditors. Any remaining qualifying unsecured debt in your IVA will be written off, however some unsecured debts will be excluded, such as court fines, child maintenance and student loans, therefore you will need to continue paying these both during and after the IVA.
