When it comes to repaying your payday loan whether its over 1 month, 3 months or 12 months, we appreciate that ones financial circumstances can change and therefore it is important to know the consequences and what options are available if you are not able to repay your loan. As part of your agreement with the lender, you will be required to repay the loan on a specific date of the month, usually your pay date, the last working day of the month. Please find out guide below of what happens if you cannot repay your loan.
Default fees, extra charges and negative impact to your credit score
- Lenders will charge a one-off default fee for missing repayment. This ranges from £15 to £30 depending on the lender but the new price cap being introduced by the Financial Conduct Authority in January 2015 will limit this default charge to £15 maximum. Borrowers will receive reminders via email and SMS for up to 5 working days before their repayment is due, so you have a bit of notice to get the money available in your debit account ready for collection. If the money didn’t enter your account on the day you were paid, you can raise this with the lender who may be lenient on your default fee.
- Customers that pay late will also be charged a daily interest for each day that their loan has not been repaid. For instance, if your payday loan lasts 20 days and you haven’t paid on the 20th day, you will still be charged the same daily interest for the 21st, 22nd, 23rd day etc. This is because you are still paying to have your loan open with the lender until it is closed. The daily interest for a typical lender is around 1% a day but this will be capped to 0.8% when the new price cap comes into place. Whilst 1% a day seems small, this can add up when accumulated over time and borrowers must be vary of this. According to the regulation that lenders follow, all interest must be frozen after 60 days.
- Not paying on time will not only be more expensive but it will be reported on your credit file. Therefore, if you have missed a payday loan repayment, this will impact negatively on your credit score and may affect how accessible you can obtain credit in the future. On the flip side, if you repay your payday loan early, it may impact positively on your credit rating.
Can I get a rollover or renewal?
Yes, some lenders will offer ‘rollovers’ where you pay a fee to extend the length of your loan but numerous rollovers can cause the amount to be repaid to increase dramatically. Please find the example below to understand how rolling over a loan can be very costly. For this reason, the responsible lending criteria outlined by the FCA limits rollovers to two maximum for an existing loan, in order to prevent the customer from falling into a spiral of debt which they cannot repay.
However, there are some lenders that strictly do not offer rollovers and will not renew or top up any existing loans.
Enter into a Pay Plan or Arrangement
If you are unable to make your repayment, you can speak to the lender who might be able to offer a more flexible arrangement or pay plan. For example. if you owe £300 to clear your loan, a pay plan could consist of paying back in two repayments of £150 or three repayments repayments of £100 – just something more flexible to help clear the balance. According to the regulation, if you explain to the lender in advance that you cannot repay, a responsible lender should be able to offer forbearance and be willing to accept an arrangement whilst freezing interest and not adding any further default or late charges.
If you are unable to repay your payday loan in addition to other outstanding debts, an option is to enter a debt management plan or work with a debt relief agency. There are several firms that can help you organise all your debts and manage all your expenses so you can eventually clear your debts over a very long period of time. MoneySavingExpert offers a useful guide about approaching Debt Management.
Do I really need the loan?
Before you apply for your loan with one of our lenders, it is important to consider how much your really need the loan. Payday loans are expensive forms of credit and are intended for emergency bills and expenses and borrowers should consider how they plan to repay the loan and interest before they apply. High cost short-term loans such as these should not be used to fund a material lifestyle nor to pay off other payday loans. For help, go to moneyadviceservice.org.uk