Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

Payday Loans

Payday loans are a type of loan that is designed to cover a shortfall. Often, payday loans have significantly shorter repayment terms than traditional bank loan options and are generally only taken out for relatively small amounts of money. Payday loans are typically advertised as an option for covering certain emergency situations that must be addressed before a person’s next salary payment, resulting in a need for acquiring additional funds quickly. Some common emergency situations include unexpected vehicle repairs, or the inability to make a payment on a critical bill, such as rent or utilities.

While a traditional loan may have a significant processing time, a payday loan can be acquired in as little as one day. Often, this requires the borrower to complete the payday loan application online, providing details regarding their current employment situation, certain household details, as well as the amount being requested. If a borrower is approved, funds can be deposited directly into a designated bank account within a few minutes. Most true payday loans are set to be repaid with your next salary payment, but many lenders also include instalment loan options that allow the repayment of the funds to be spread across 3 months to 12 months depending on the size of the loan and the agreed upon terms.

How Much Can You Borrow When Applying For A Payday Loan

The amount a borrower can borrow when applying for a payday loan varies between different lenders.  In some cases, the maximum may be as high as £2500, but many payday loan lenders limit loan amounts to £1000. First-time borrowers may be further limited in the amount they are eligible to request.

All payday loan borrowers will be subjected to various checks by the lender, including credit checks and certain affordability checks. If based on the information from these checks, the lender believes the loan to be affordable to the borrower, and believes the borrower will likely not default on the loan, then the amount will be lent based on the conditions set forth by the lender. In cases where the lender does not believe the loan is affordable for the borrower, or the risk of default is deemed to be too high, the application will be denied.

All legitimate payday lenders are regulated by the Financial Conduct Authority (FCA) and should all have an FCA number demonstrating they are legally permitted to perform the function of a lender within the UK. The FCA number assigned should be displayed on the lender’s website in a conspicuous location.

Are Payday Loans Expensive

Payday loans have always been controversial because they are considered a more expensive form of credit due to the high-interest rates that are traditionally assigned. The payday loan industry is constantly targeted by the media, often related to the personal stories from existing or previous payday loan customers. Additionally, the high cost of borrowing associated with payday loans have at times, required the FCA to intervene.

Since April 2014, the FCA have regulated the finance industry, which includes the payday loan industry. The regulations are designed to protect consumers by looking after their best interests. The FCA has levied fines against lenders who were not treating customers fairly, as well as reprimanded others based on their conduct as a lender encouraging these lenders to improve their behaviour based on the fact that loan operations are seen as a public service operation.

At the start of 2015, FCA implemented a cap on charges applied by payday lenders. These caps prevent lenders from charging more than £24 for every £100 borrowed. This required all lenders in the payday loan category to adjust their interest rates accordingly or to leave the payday loan industry entirely.

How Payday Loan Fees Add Up

The fees traditionally associated with payday loans can accumulate quickly. If you are having difficulties meeting any of your debt repayment obligations, be sure and contact the lenders directly. At times, the lender may be able to work with you to find a mutually acceptable arrangement. In cases where a payment will be late, a late fee is generally assessed against the borrower, often in the amounts close to £15, with a new fee being applied for every late payment.

Since the FCA began regulating the financial industry, they have added various measures to curb the exorbitantly high fees associated with certain loans. As of January 2015, the FCA has enforced measures designed to limit excessive interest charges, such as guaranteeing that no borrower could be subjected to interest rates that would result in a repayment amount that more than doubles the amount that was initially borrower.

Don’t Take Out Multiple Payday Loans

It is highly inadvisable to take out more than one payday loan at any given point in time. This can often start a cycle of debt from which it can be hard to escape. Do not take out a loan that you cannot reasonably afford to repay based on the standard repayment terms. Additionally, do not take out a new payday loan to repay the amount due on one that was previously funded. If you are having difficulties repaying any of your loans, please contact the Money Advice Service for guidance.