What is a payday loan?
The clue is in the name – a payday loan is essentially a loan that you can take out for a short period of time to help you get through unexpected financial difficulties. It used to be that these loans were repaid on your next payday, but it is far more common in recent years that they are taken over a term of 3 months or more.
For years, most payday lenders operated using this model. However, during 2012 a small number of unscrupulous lenders began to get involved in the industry. The poor practice of a handful of companies led to a serious transformation within the payday loan industry. As a result, the sector is now heavily regulated by the FCA (Financial Conduct Authority). This means that consumers can be confident they are dealing with ethical, transparent, reputable and reliable providers whenever they take out payday loans in the UK.
Nowadays, the term “payday loan” can be used as an umbrella term to describe almost any form of short-term credit in small amounts. However, because payday loans are generally paid back quickly (over a period of weeks or months), loan amounts are typically lower than other forms of finance, such as credit cards or overdrafts. On average, payday loans are between £200-£500.
All payday loan direct lenders in the UK must be approved and authorised by the Financial Conduct Authority. It is against the law for a company to offer loans without holding authorisation from the FCA, and these companies should be avoided at all costs. However, it’s easy to find great deals on payday loans from reputable lenders when you use our free matching service, and you can rest assured that we only work with high-quality, authorised UK-based direct lenders.
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Dealing with financial difficulty: what if I can’t repay?
If you’re struggling to pay back what you owe on a loan, it’s important to take steps to rectify the situation as best you can. While you might feel anxious or even embarrassed about not making repayments, the worst possible thing you can do is ignore the situation. However, don’t simply sit there in silence – consider taking these steps to help get your finances back on track.
1) Contact your payday lender as soon as you know you’ll be unable to pay
Most payday loan direct lenders understand that from time to time, financial difficulties can arise, which result in consumers being unable to make a repayment or two. Therefore, by law, companies that provide payday loans are obliged to do the following:
• Point you in the direction of independent, free debt advice.
• Suspend any attempts to recover the debt for a reasonable amount of time if you are already developing a repayment plan with an independent debt adviser.
• Allow you a reasonable time to repay the loan and to treat you fairly. This can include suspending late fees or freezing any interest owed.
• Avoid bombarding you with emails, phone calls and text message reminders.
• Consider taking token payments for nominal amounts (such as £1 per month) if standard repayments would otherwise mean that you wouldn’t have any money left for essentials like rent, utility bills or food.
2) Consider stopping your recurring payment with your bank
Payday lenders generally take repayments via direct debit or by using continuous card authority on an agreed repayment date (you will agree to this when you digitally sign the loan agreement). If you are worried that an automatic repayment could put you at risk of not being able to pay for essentials like food or rent, you should consider contacting your bank to cancel the recurring payment, which allows your payday lender to take repayments from your account.
If you decide to do this, you must contact your payday loan provider and let them know. This is because failed payments could potentially damage your credit rating, thereby restricting your ability to access finance in the future.
3) Roll your loan over
Payday loans can sometimes be “rolled over” to the following month. This means that you’ll continue to accrue interest on the loan, which means you’ll pay more in total. However, if you’re confident that you’ll be able to afford the additional interest and want to keep on good terms with your payday lender, it might not be such a bad idea to roll your loan over until the following month.
I’m in financial difficulty: where can I turn for help?
If you have concerns about your current financial situation, you may find it beneficial to seek advice from a qualified professional. Debt worries can cause people to feel stressed and overwhelmed, but it’s important to understand that free help is available if you need it. The following charitable organisations offer free advice on how to deal with money and debt-related issues:
• Debt Advice Foundation
• Citizens Advice
• National Debtline