Payday loans are short-term loans generally used by people in need of money before their next payday (hence the name), though longer-term loans are also available. Also known as cash advance loans, they have high interest rates and steep penalties, e.g. for late payments.
As austerity continues to bite and the cost of living continues to rise compared to how much people are paid, the number taking out payday loans is on the rise. National debt charity Step Change found 1.2% more people have contacted them in the last year about payday loans than in the previous year (18% against 16.2%), with average debts of £1,700.
This suggests that, while for those on low incomes or with high outgoings, payday loans might seem like a good option to tide them over, for many they can lead them into debt which is hard to escape from. If this is a position, you find yourself in; there are steps you can take to find help in paying off your payday loan debt.
Not all direct payday lenders are reputable and could try to use unethical practices to get you to pay your loans back. If you do take out a loan, look for a lender that is registered with the Consumer Finance Association, Finance and Leasing Association or Consumer Credit Trade Association, which will offer you a level of protection.
Contact Your Payday Lender
If you are having trouble making repayments, the first thing you should do is contact your payday lender. All payday lenders need to work to FCA regulation, which requires them to work with borrowers who find themselves in financial difficulty and treat them fairly. This means they have to work with you to come up with a repayment plan you can afford.
While they are working with you to develop that plan, they should freeze any attempts to reclaim the money you owe along with any charges. The lender will refer you to debt advice services, which can help you get debt free (even if this takes time).
Keep a record of all correspondence, including telephone calls. You can show these to your debt advisor and use them if you need to make a complaint for poor practice.
Get Independent Advice
If you’re in debt and need help, speak to a debt advisor. They can look at what you owe, and who you owe it to and help you work out how you can pay your debts back. This might include speaking to your lender on your behalf to work out a payment plan.
There are lots of companies out there that offer to help get you debt free but charge a fee for their services. You are better off not using these companies, especially if you are already in debt. Instead, speak to a free debt advice service such as Citizens Advice.
Don’t Take On More Debt
A mistake many people make is taking out a further loan to cover existing debt payments. In the long-run, however, this will lead you into more debt and make it harder for you to make your repayments, so it’s vital that you don’t do this; speak to a debt advisor instead or look at ways you can cut your expenses.
When you are coming to the end of your loan, a payday lender might ask if you want to roll the balance over for a month (known as a rollover). While this might give you a breather financially, there are likely to be charges attached and so taking this option should be avoided wherever possible.
Lenders can’t offer more than two rollovers on a loan. If they do, they are breaking the law, and you can raise a complaint.
Cancel Recurring Payments
When you take out a loan, you will likely be asked to sign a direct debit which allows the lender to take money out of your account. This is known as a continuous payment authority and can result in lenders taking out money you need to pay for essentials such as food, utilities or rent/mortgage payments. You can cancel these recurring payments by contacting your bank at least one day before any repayment is due.
Make sure you contact your lender to let them know you have done this. You may be able to make a smaller payment as an act of goodwill, but you need to ask them to look at a repayment plan as otherwise, they can charge you late fees and interest, increasing the size of your loan.