Need some quick and easy cash? A payday loan feels easy, but this short term high cost credit can get you into an expensive nightmare – risking scarring your finances and leaving you repaying many times more than you borrowed.
We don't like payday loans. Most people who get them shouldn't. Yet if you're considering one, we want to ensure you can protect yourself. The first step is to consider cheaper alternatives. If that fails, we'll take you through the least nasty of a bad bunch.
In this guide
Payday loan costs to be capped?
In July 2014, the consumer credit regulator set out proposals to cap the cost of payday loans. We'll include them in the guide if they go ahead with the proposals, but in the meantime, you can read about what the cap will do in the payday loans will slash costs news story.
10 payday loans need-to-knows
1They're high cost, short term loans with more tricks than Paul Daniels
Payday loans are short-term lending often used by people to tide them over (to fill the gap until payday) when they have no other option. They're often very easy to get – some even do it on mobiles while they're drunk... Read more
...which makes them feel convenient. But it's that very ease which is the danger. If you don't think about what you're doing, it can be a nightmare.
The loans are typically only supposed to last for days, or maximum of a month, for amounts of up to £1,000 or so. The stated cost can be fairly low, especially when compared to unauthorised overdraft charges. But many borrowers get stung by tricks used by payday loan firms, as well as their lending decisions.
In June 2013, the entire market was referred to the Competition Commission by the Office of Fair Trading for a fuller investigation of practices used in the market, and how well the market's working for consumers using payday loans.
While we don't like these loans, for a small sliver of the population (not the millions who get them), they are lending of last resort which, used right, can solve a one-off hole in people's finances.
But please read each and every warning in here, explore every alternative, and consider your options very carefully before deciding a payday loan is for you.
2Payday loans charge more for a month than credit cards do for a year
Payday lenders usually charge a fee instead of an interest rate. Typically, a £100 loan for a month has a fee of around £30, so you need to repay £130. To put that in context... Read more
...if you borrowed the same amount on a bog-standard (ie, pretty rubbish) high street credit card charging 20% APR, then provided you didn't miss any repayments it would cost £20 to borrow £100 for a whole YEAR - £10 LESS than payday lenders charge for just one month.
3 5,000%+ APRs are mostly meaningless apart from as a welcome scare
If you express the typical charges payday lenders make as APRs, which are legally required for all loans, they work out as well over 1,000%. This is a useful warning against what can be dangerous products, but these APRs... Read more
...are mostly meaningless.
That's because if you do borrow over a very short term, even a small fee can become an astronomical APR - see Martin's blog on the APR of repaying the price of a pint on £20 over a year.
It's for this reason that while MoneySavingExpert.com backs regulators putting a cap on the total cost of payday loans, we don't support an APR cap as it makes no sense. See the evidence MSE gave on payday loans to a committee of MPs.
If you're thinking of getting a payday loan, the most important thing is...
The real danger comes if you can't pay back in time – then these horrific APRs start to become close to reality as charges and fees add up.
4 If you're regularly getting payday loans, there's a problem
Payday loans should never be used as a way to fill the gap between your incomings and outgoings in a month. If that's happening to you, there's a fundamental problem that a payday loan will only make worse... Read more
...not better. The most important thing to do is to sort out a budget, to try to balance your costs and income.
Remember, getting a payday loan adds to your costs if you do it regularly. It doesn't actually increase your income, as you have to pay it back at speed.
It's very easy to get one payday loan for a small amount, then another the next month, and before you know it, you're in a debt spiral, as happened to forumite leopardxgirl:
"About 8 months ago I borrowed around £90 to pay for a train ticket to see my now ex-boyfriend. What a slippery slope that was. I'm now approx £3,500 into payday loans across four payday lenders. I seem to have got myself into a horrible situation where I can only barely afford the interest repayments on these darn things every month."
5 If you can't repay it on time, you can't afford to get one
If you do go for a payday loan, the most crucial point is that you always know how you are going to pay it back. If not, then you cannot afford the loan. No matter how desperate you are... Read more
...the end result will leave you in worse stead (see payday loan alternatives).
If you feel desperate and that it's your only option, even though you aren't sure you'll repay it, you'd be far better getting one-on-one debt counselling help from a non-profit debt counselling agency.
6 Beware the rollover – it's only a lottery win for lenders
Some payday loan companies actively encourage you to roll over your payments - where they extend the time over which you are borrowing the money, and hit you with another fee for the privilege. Beware any lender... Read more
...who encourages you to roll over your loan for another month. Watch for:
"Don't worry, if you can't afford to pay it back this month, just pay the first month's £25 fee and then repay £125 next month"
This means you've still only borrowed £100, but are paying a big £50 instead of the original £25. If you can't repay next month, the same thing will happen. This is where it can get dangerous and incredibly expensive, leaving you repaying many times more than you need to, as happened to forumite Super Daz:
"I have several payday loans which I am struggling to clear. Some loans I've been rolling over for some time. For example, on one I've paid £750 in rollover charges on a £300 loan, and there's still £300 (and £75 interest) outstanding."
If you're in a situation where you need a payday loan, then you must have a plan for how you'll pay back the money next month so the costs don't spiral out of control. See How to Budget.
7 Borrowed once? They'll try to seduce you again
If you do repay on time, there's still a big danger lurking. The payday loan company knows you're a 'good' customer - it's successfully made money from you. So it knows if it lends you more money... Read more
...you're likely to be able to repay, making it even more money.
This is a major concern. You may have only taken a £100 loan to pay a few bills until your next payday. Then after repaying, the lender tries to tempt you by offering a larger amount with even bigger charges. Always resist this, even if you're offered a 'discounted fee'! It's often just a ploy to get you to borrow more.
8 Payday loans can hit your ability to get a mortgage - even if paid on time
Get a loan, mortgage, overdraft, credit card, contract mobile phone or even monthly car insurance, and lenders 'score' you to predict your likely behaviour. They use data from credit reference agencies... Read more
...as part of this (see the Credit Rating guide.)
All three credit reference agencies differentiate between payday loans and high street ones on your credit report. They’re in a different section, so underwriters (who make lending decisions) can tell how much and how often you have used payday loans.
Payday loans can stop you getting a mortgage
A few mortgage lenders, including GE Home Lending and Kensington Mortgages, have publicly said applicants who have used payday loans won't be accepted for a mortgage with them - even if they were fully repaid on time.
Yet even those who haven’t spoken up are likely to behave in a similar way. One of the UK’s top technical experts on mortgages, Ray Boulger from broker John Charcol, says:
"Most lenders will run a mile if an applicant has had even one payday loan in the last year."
This is because the presence of a payday loan on the credit record of a mortgage applicant implies there's some underlying problem with their budgeting and money management. That throws serious doubt on their ability to consistently meet a monthly mortgage payment.
Some payday loan firms claim it has a positive effect
If you get a payday loan, paying it in full and on time is important. It'll certainly give you a relatively better score than not doing so. Similarly, missing a payment or late payments will harm your credit score.
Yet payday lenders' claims that getting one will help your credit score are likely to be overblown. It can boost indicative scores from the credit rating agencies – but this isn't the same as making lenders more likely to give you conventional credit cards or loans.
Each lender scores you differently, based on its own wishlist of what makes a profitable customer. Some will see a marginal improvement from payday loans – but equally, others may follow the path of mortgage lenders and see it as a big no-no.
If you need to rebuild a bad credit history there are other, better ways to do that, with specific Credit Cards for Bad Credit.
My payday lender advertises 'no credit checks'. Isn't that a good thing?
Some, especially smaller, payday lenders don't share your payment data with credit reference agencies. These are generally the ones that advertise "payday loans with no credit checks".
This can seem like a good thing, as it won't "ruin" your credit rating by putting the payday loan on your file (though a future lender could ask you).
But it also means the payday lender's not lending responsibly as it's not checking you can afford to repay. It also means other lenders won't be able to see the loan, so as a consequence, their lending may not be responsible either.
The 'responsible' payday lenders - the ones which credit check each applicant – say they turn down between 60% and 90% of first-time applicants because their credit records show they're already too indebted to have a good chance of paying their loans back.
Think carefully if you're going to a payday lender because it advertises 'no credit checks'. Can you really afford to repay it?
9 They'll take your (or parents/friends) money whenever they want
A common tactic of payday lenders is to ask you to pay using something called a continuous payment authority (CPA, also known as a recurring payment). This is where you tell it the 16-digit number on the front of the card. Read more
This gives the lender the right to take a payment whenever it wishes.
For those on the brink of being able to pay their bills each month, this can be perilous. A commercial lender swooping in and diminishing your bank balance may mean you are unable to pay something else, possibly a priority debt like council tax.
Yet you have a right to cancel these CPAs, simply by asking the bank which runs your account (read the full Recurring Payments guide). We're not advocating reneging on your payday debts, but the lack of control these types of payments give you is scary - it's far better to pay up as and when you owe the money.
This also affects parents or friends who may make a payment for you
The fact continuous payment authorities are used isn't just a problem for the borrower themselves. Often parents or friends agree to pay back the loan (or just one repayment) on the borrower's behalf. We've had reports of payday lenders keeping details of these, and then using them both for that loan and any future loans - even without an agreement - and taking from the other account.
Use your rights to cancel recurring payments if that happens.
10 Payday lenders can be bad – loan sharks are 1,000x worse!
Payday loan companies, though they may lay traps for you, have a credit licence (check at the FCA Consumer Credit Register). So if things go wrong, you have some limited room for recourse. But loan sharks... Read more
Loan sharks are a completely different beast. They're unlicensed, they break the law, often go knocking door-to-door and at worst use they horrific methods - including violence and threats of violence against the borrower or their family or children - to get their money repaid.
If you know of loan sharks near you, report them on 0300 555 2222 (you can also text LOAN SHARK and lender's details to 60003, or visit the Government's Report a Loan Shark page).
When borrowing, always check whether the lender has a credit licence. But don't rely on that alone. Most consumer credit licences only cost £1,000 to get, so they don't necessarily guarantee a legitimate business with wholesome practices. Google the company as well, and do whatever else it takes to find everything you can about it.
Real life payday loan experiences it could happen to you...
'£1,000 loan cost me £4,000'
"My payday loan spiral started in 2010/11. It started with one payday loan, which I failed to repay on the repayment date due to an unexpected bill.
"I then thought stupidly to borrow from another lender and again, couldn't afford to repay. I borrowed £1,000 from different lenders, but in the end it cost me over £4,000.
"You may think I'm stupid, but it happens and you can't control it; it makes you feel helpless and depressed.
"Happily my family could afford to pay my debts for me (which I am paying back now). Some people aren't as lucky and can't get that help, so before you take out one of these ludicrous loans that could possibly destroy your finances, stop and think... 'Do I really need that money?'"'Smallloanturnsbigdebt'
'I have to keep taking it out each month'
"I originally got a payday loan because my son was in hospital and it costs me about £30 a day in parking, petrol and food when he is in there!
"I started off borrowing £120 and have to keep taking it out each month. But with interest it's £175, so I took that out then next month £220 and I am up to £388 because I can't manage without that money each month!"Kelly
Not everyone gets into difficulty with payday loans. Some people use them, pay them back on time, and don't take another out...
'Would use it again'
"Needed to pay a bill before payday was due, found it fast and friendly, but you HAVE to pay it back when you say. If you can't, tell them and get an extension, would use again."Dave
Have you had a payday loan experience you'd like to share?
The 'can I find the cash elsewhere?' checklist
If you're struggling for extra cash, there's a heap of options to try before plumping for a payday loan. In fact, you may not need to borrow at all.
Do you need it? Try Martin's Money Mantras
If you're getting a payday loan because you need to buy something, you need to consider if that purchase is appropriate. Martin has two Money Mantras: one for if you're skint, one for those not skint. If you're getting a payday loan we will assume you're skint, or you shouldn't even be considering getting one.
In which case, before you buy anything ask yourself these three questions…
Do I need it?
Can I afford it?
Have I checked whether I can buy it cheaper elsewhere?
If the answer to any of these is 'no', then don't buy it.
Flog your stuff for cash
Shops and business do stock control, considering their assets as cash, ensuring they're utilised. We need to adopt a similar system. If you've things in your house you've not used or worn in a year, ask if it's worth keeping. If not, flog it and release the assets.
Even if there are things you use occasionally, if you're considering getting a payday loan – are you sure there aren't things you can sell? Old gadgets and CDs could raise the cash you need without affecting you too much.
Check this isn't just a budgeting problem
Payday loans may seem to offer a quick solution, but they only postpone the problem. If you've borrowed £200 this month, and it's taken out of your salary on your next payday, how are you going to make sure you're not £200 short at the end of next month?
Spending more money than you earn is a classic reason people get payday loans. Doing a proper budget will give you a clear picture of where you are overspending.
Use our full online Budget Planner – get all your bank account and credit card statements, plus bills from the last six months to a year. Ensure you include everything and are totally honest.
Plus look at everything you spend money on, whether car insurance, existing credit card debts, gas and electricity, or water bills and see if you're paying more than you need. Full help on this in our Money Makeover guide.
What could you give up to find the cash?
Whether it's coffee, cigarettes, or walking instead of getting the bus – small savings can quickly add up. Try the Demotivator to see how much you can save.
Earn under £72,000? Check if you're entitled to any benefits
Even if you don't think you're due any benefits, or if you're already claiming, it's worth checking to see if you could be eligible to claim payments.
The main thing to remember is benefits are NOT just for the unemployed. Many families are entitled to Government cash but aren't aware they're eligible. In some cases, even those earning up to £70,000 may get help. See the Benefits Check-Up guide to see if you're eligible.
Reclaim, reclaim, reclaim – you may be owed cash!
Over the last few years, a number of ways that banks, insurers and arms of government have unfairly taken cash off us have emerged. This money can be reclaimed, and can be in the £1,000s, or even £10,000s, but you need to take action to get it back. Check the following:
Check for grants and support
Some utility companies offer help if you have large arrears on your gas, electricity or water bills. You'll need to be a customer, so if yours isn't listed, ask if it has a similar scheme.
- Gas & Electricity: Schemes are offered by British Gas Energy Trust, EDF Energy Trust, E.on CaringEnergy Fund, Npower Energy Fund, Scottish Power Energy People Trust.
- Water: The Water UK website has info on all the water company schemes.
- Related info: Details of other grants available in the Low Income Grants guide.
FREE one-on-one money or debt help
If you're really struggling, know a payday loan would be damaging for you but can't think of any other options, then it's time to get some one-on-one help from a non-profit agency.
If you're existing debt problems, read though our Debt Crisis Help guide for ideas or speak to Citizens Advice, National Debtline, StepChange Debt Charity or if you're struggling to deal with it emotionally too, CAP UK.
They're not there to judge you, just to help – and we get incredible feedback on how they turn many people's finances around.
If you're not in debt but need a bit of general money guidance to help you out of a hole, try calling the Government-funded Money Advice Service on 0300 500 5000.
Cheaper borrowing alternatives to payday loans
Don't automatically assume you're frozen out by ‘normal' banks, so payday loans are your only option. The methods below may be able to give you what you need instead of a payday loan. We've listed them in rough order of which to try first - though scan all of them first to see what's suitable.
The aim is to replicate as closely as possible the speedy result you get from a payday lender, while costing less.
It's worth noting we wouldn't normally suggest a few of these techniques. But in comparison to payday loans, they're not so bad.
Use any existing credit card, provided you can clear it in full
If you spend on a credit card and CLEAR THE WHOLE CARD IN FULL next month, it's interest-free (except for the Lloyds Advance card) so there's nowt cheaper. So if you have this option, it's both the cheapest and easiest – as you needn't apply for anything.
Two important warnings though…
If you can't clear the card in full, you'll pay interest even if you clear the amount you were planning to borrow.
This only applies to spending, not ATM cash withdrawals - you pay a fee and interest on those, so spending on a card is always cheaper than getting a cash advance.
Even in these circumstances, provided you repay the debt in the same time as a payday loan – it's likely to be far cheaper – but there are other options below to try first.
What if you can't clear it in full?
If you don't have a card you can clear, and can't get any other form of credit that's cheaper, the next question is: do you have any credit card at all you can use? Almost every credit card, used right, is far cheaper than a payday loan.
Of course, you'll need room on your credit limit. If you don't, speak to the card provider and see if it can increase it. If you try to spend over your credit limit you'll either be declined or will be charged a £12 fee, which can be almost as costly as some payday loans.
How to make best use of your card:
- If your loan is to buy something. Simply get the card, then use it to purchase whatever it is the loan was for, then make sure you repay this amount off the card in the same time as you were due to get the payday loan (eg, the next month).
- If you need the loan for cash. Don't withdraw cash on your credit card, as you'll pay interest even if you pay it off in full. Switch to using the credit card for your normal spending for the rest of the month (don't overspend and carefully budget). The equivalent amount of unspent income will be in your bank account, which can then be used as cash to make the purchase/pay the bill.
Again make sure you then repay your card the same time as you were due to repay the payday loan - this is usually less than a month.
Get cash: instantly
Interest-free loans & grants from the local council / job centre
Sadly these funds available from Government are not as commonly available as they used to be. A disgrace, as it has allowed payday lenders to take control of the market place at high rates. Yet some people may still be able to get them, though they don't tend to be that speedy.
- Budgeting loans and advances. If you're on income-based benefits (such as income support, pension credit, employment & support allowance or jobseeker's allowance), you may be able to get an interest-free loan of up to £1,500 for essential items for your home or other necessary things that you need a lump sum for such as rent, furniture, clothing or debt repayments. Repayments depend on what you can afford, though loans last for two years at most.
How to apply: Apply at the Jobcentre or download the form on Gov.uk.
How easy are they to get: Demand is extremely high and there isn't a bottomless pit of money, so if the Jobcentre decides your circumstances aren't urgent or you're not struggling, you may not get anything. But if you think you qualify and really need the cash, it's definitely worth a shot.
- Emergency? Try local council support schemes: Each local authority is now responsible for providing help to residents struggling with an emergency.
Although each council's criteria are different, you'll need to be on income-based benefits to qualify, and priority's usually given to those on the lowest incomes.
This could include you or your family's health being at risk (if your boiler's packed up mid-winter), not being able to afford to buy food, needing help to stay in your own home and coming out of care, hospital or prison.
Sadly, this is a postcode lottery. Each council can choose whether to offer financial help or not or who is eligible. For example, some may give furniture, clothing, white goods or food grants while others may give cash. Contact your local council to find out its procedure.
For more things to try, look at our Low Income Grants guide.
Get cash: 1 day - 2 weeks
Get a 0% credit card – even with a poor credit score
Even if you don't have a card you can clear, If you need to borrow money, doing it interest-free is the best way. There are plenty of 0% credit cards available, and the right one for you depends on what you need the money for. Applications take between one and three weeks. Here's what you need to know.
- If you've a good credit score, go for the longest 0%. Many cards offer over a year's 0%. This is worth considering if your credit score is decent as it means you have longer to repay, and can have the card ready in case you need to use the 0% again. For full help, see Top 0% Credit Cards - our Eligibility Checker shows which ones you're likely to get.
- Poor credit score? There are still options. A few deals are usually available for those with a poorer credit history. Yet these offer far shorter 0% deals, then again they still last far longer than a payday loan.
The rub is that these cards punish you harshly for overstaying your welcome. Once the 0% periods end for spending or debt shifted from other cards, the interest you'll be charged typically jumps to over 30%. So it's doubly important you try to repay these before that happens (though that still is likely to be cheaper than payday loans).
Currently the main card offering this is Barclaycard Initial, which gives 0% for 3 months, followed by 34.9% representative APR. For a full list, see Credit Cards For Bad Credit.
- If you need the loan to buy something. Simply get the card, then use it to purchase whatever it is the loan was for.
- If you need the loan for cash. Don't withdraw cash, that won't be at the 0% and there'll be a fee. Instead, get one of these cards then use it for your normal spending (don't overspend and carefully budget). The equivalent amount of unspent income will build up in your bank account which can then be used as cash.
- Warning – follow the golden rules for 0% spending cards.
a) Always pay at least the monthly minimum else you'll lose the 0% deal.
b) Clear the card before the 0% ends, or you'll pay hefty interest.
c) Don't balance transfer - that's not usually at the cheap rate. If you are trying to clear expensive debts, you need different cards. See Best Balance Transfers.
Get cash: 2-4 weeks
Check out your local credit union
Credit unions are independently-run local co-operative organisations which aim to assist people who may not have access to financial products and services elsewhere. There are 500 in the UK providing savings and loans, each deciding its own services and rules on who can join.
For many, they're a welcome and cheaper alternative to payday loans, often doing loans that are similar:
A good example of this is from the London Mutual Credit Union, serving four central London boroughs. Its CUOK! loans are paid back over up to three months, allowing payments to be spread out.
If you pay back the loan in one month, interest costs on a £400 loan are £12 with the credit union, compared with an average of £120 for a traditional payday loan. See the best buys for this and other credit unions now offering payday loans.
Better still, the maximum a credit union can legally charge is 42.6% APR. For more info, see our Credit Union guide or find if you've a local credit union. More credit unions are planning to offer payday loans, and we'll add them into this guide as they do.
Some don't approach credit unions as they think you need to save with them before borrowing – that used to be the case, but isn't usually anymore. Ask your local credit union for its terms.
Get cash: 1-3 days
Freeze an emergency credit card for when needed
If you've often found yourself on the brink of payday loans, and need to find a cheaper way, there's one way to arm yourself with a permanently cheaper measure.
Credit cards, while not great, are far cheaper than payday loans, provided you repay both within the same amount of time. For example, a month’s £200 payday loan costs £60, but on a credit card repaid in full, it's free. Even when it's not free, a credit card costs around £3-£10 a month (depending on your APR).
So apply for a credit card for use in emergencies (the roof falling in, not new shoes). If you’ve a decent credit history, go for a 0% spending card. If not, then even poor-credit credit cards at what we’d normally say are horrid 30-50% APR rates are much cheaper than payday loans.
To ensure this is kept for disciplined emergency use only, not willy-nilly spending, once you get the card, put it in a waterproof bag, then put that bag in a bag full of water & put it in the freezer. If you need it, you’ll need to smash the ice – which should give you serious pause for thought as you hack away to get the card.
Get cash: 2 minutes (time taken to hack away at the ice)
Can you borrow from family?
Although borrowing from family (or a close friend) can be tricky, if you're in a bad way it may be worth asking for help, even if it's just going around for dinner to save on costs. Plus, often talking about your money problems can be a huge relief (see the Debt-Free Wannabe board on the MSE forums).
To make you and them feel better, do it formally. Write down the amount and when you'll repay them – along the same terms.
If it is a close family member (such as a parent) and they don't have the cash, but they do have a better credit score than you, then as long as they're willing, it would be better for them to try some of the alternatives above to get the cash to lend to you. But they must be aware the debt is then legally theirs, not yours.
Get cash: 1 day
Can you extend your overdraft? (but avoid charges, they're worse than payday loans)
Usually we suggest people avoid using their overdraft facility if they'll will incur interest charges. However if you stay within your ARRANGED overdraft limit (even if you extend your overdraft to do so) this will be cheaper than using a payday loan.
Our Best Bank Accounts guide tells you the best accounts if you're overdrawn - and some even have 0% overdrafts for limited periods, which'll allow you to sort out your finances.
Whatever account you have, and whatever your agreed overdraft limit, NEVER, EVER go over it as the charges can be up to a massive £6/day or £35 per item, which can actually work out to be more expensive than a payday loan. (See Martin's blog: Overdraft charge APRs dwarf payday loans.)
If you're already at your limit with overdrafts (and can't extend), and have maxed out your credit card, then consider getting help with your debts. Don't think a payday loan is the answer - it may make your situation worse rather than better.
Get cash: same/next day
The 'least-worst' payday loans
If you've jumped straight here - please scroll up and read the alternatives first.
Payday loans are dangerous and only ever a last resort.
However in the very limited circumstance that you've tried everything else, need cash quickly and KNOW you can repay the loan in full when you need it, this short-term lending can fill a hole. If you're not sure you can repay in full, charges will roll up and this could be a financial nightmare costing you many times more than you borrowed – so don't do it.
Still want a payday loan? Choosing a lender checklist
If you still feel a payday loan is right for you, this information will help you compare payday loans.
Find out the real price to you
Charges vary from company to company. On average, it's £25-£30 per month per £100 borrowed. Yet there's no one cheapest here, as it depends on the exact amount and length of borrowing.
So always ensure you know:
A. What you repay if you repay on time – compare based on that.
B. Just in case - what would happen if you couldn't repay? If this is a realistic possibility (obviously we'd prefer you didn't get a loan at all in these circumstances), factor this into your decision very carefully.
Watch out for payday loan brokers
Payday loan brokers will look like payday lenders, but they won't be able to lend to you. Instead, they'll charge you up to £70 for referring your application to a payday lender.
If you are going for a payday loan (and make sure you've checked none of the alternatives above are suitable first), don't fall for this scam.
You can read more in our 'Middlemen' targeting payday loan borrowers with surprise fees news story.
How do I ensure the company is legit?
Adverts for payday loans are everywhere - especially online, so it's tricky to know where to go. Before applying, check the company's registered with the FCA - see if it's licensed under the Consumer Credit Act at the FCA Consumer Credit Register. It's important to do this as some payday lenders have been operating illegally.
What do I need to be able to apply?
This varies from lender to lender, but you'll need to be over 18 years old, have a full bank account with debit card, a regular income and with most payday lenders you will have to pass a credit check (some say they reject as many as two-thirds of first time applicants). You'll also need some proof of your identity and your income.
Watch out for marketing opt-ins
Some lenders have marketing opt-outs/ins on their application forms. If you say you're happy to hear from them and 'selected' third parties, then it means they're able to sell your data to whoever they like. Always make sure you say no to marketing.
'Payday lenders' to try
Elsewhere on MoneySavingExpert.com we list best buys - and there are a few here. But one's geographically limited to people who live or work in four central London boroughs (Southwark, Lambeth, Camden and City of Westminster), one's for people in South Birmingham, Worcestershire & Sandwell, and the other's a pilot scheme for people in Liverpool.
Best buy 'payday lenders'
One credit union in London, one in Liverpool and one in the West Midlands have started offering payday-style loans, but at much, much lower APRs. They're limited by law in the APR they can charge - there's a maximum of 42.6%. You'll usually need to join the union, and contribute £5 or £10 to savings.
Best buy payday lenders
Does a credit check and reports repayments to credit reference agencies
|Rep APR||Total repayment for £100 borrowed
for one month
|Total repayment for £200 borrowed
for two weeks
|Total repayment for £400 borrowed
for one month
|Allows rollovers? Cost?||Allows early
|CUOK Loans (central London only)||42.6%||£103 (1)||£205 (1)||£412 (1)||Yes. (2)||Yes - no penalties.|
|Partners Credit Union (Liverpool City Council area only)||26.8%||£102 (1)||£204 (1)||£408 (1)||Yes. (2)||Yes - no penalties.|
|Six Towns (Worcestershire, Sandwell & South B'ham)||26.8%||£102 (1)||£204 (1)||£408 (1)||Yes. (3)||No.|
|(1) If you want the cash the same day, you need to pay a same day payment facility fee of £11 (CUOK)/£15 (Partners & 6Towns).
(2) You can choose at the outset to pay the loan back over one to three months. The interest cost approximately doubles if you take a loan for three months rather than one.
(3) 6Towns will extend your loan for up to three months. You'll pay a £15 fee each time you extend.
We're expecting more credit unions to adopt this model during 2014 - and we'll add details of those who do into this table.
Least-worst payday lenders
For the rest, in all good conscience, we don't feel it's appropriate to call most payday lenders 'best buys' here - we don't like any of them. These are ‘least worsts'...
We've deliberately not linked to these lenders – to give you time to pause for thought.
(But we've included the website addresses, as searches tend to find similar paid-for links.)
Least worst payday lenders
All do credit checks and report repayments to credit reference agencies
|Rep APR||Total repayment for £100 borrowed
for one month (fixed)
|Total repayment for £200 borrowed
for two weeks (fixed)
|Total repayment for £400 borrowed
for one month (fixed)
|Allows rollovers? Cost?||Allows early
|What's good?||Higher APR is worse, but focus on cost more than this||The sum below is the total repaid including the original borrowing. Lower is better.||Rollovers are dangerous. Avoid.||The aim is they reduce charges if you repay early.|
|moneyshop.tv||2,400.8%||£128||£256||£512||Yes. (1)||Yes - but doesn't reduce cost.|
|paydayexpress.co.uk||2,670.8%||£129||£258||£516||Yes. (1)||Yes - but doesn't reduce cost.|
|quickquid.co.uk||1,734%||£125||£250||£500||Yes. (1)||Yes - but doesn't reduce cost.|
|sunny.co.uk||1,971%||£127||£227||£508||No. (2)||Yes, and as it charges by day, you pay less.|
|wonga.com||5,853%||£135||£234||£519||Yes. (1)||Yes, and as it charges by day, you pay less.|
|(1) These lenders all allow you to roll your loan over up to 3 times. You'll usually have to pay a month's interest. (2) Sunny doesn't allow rollovers, but you can extend the loan term.|
If you want to repay early there may be a trick to get the cost reduced
Unless you're borrowing with Sunny or Wonga, you won't get a discount for repaying early. Because most payday lenders charge a fixed fee for their loan, whether you take it for 10 days or a month, then that's the fee you pay.
There is one sneaky way around this that you can do if it's less than two weeks since you took the loan. It's known as the "right of withdrawal". If you can repay within 14 days of taking the loan, then you can inform the lender that you're exercising your right to withdraw.
Under the Consumer Credit Directive, this means that you need to repay the amount you borrowed, plus any interest you've accrued on the loan up to that point. However, some lenders charge set-up fees, and you won't get any discounts on these under the right of withdrawal.
What if I don’t pay on time (lender-by-lender info)?
First of all, again, please don't take out a payday loan if you think you might not be able to pay on time. Or at the very least, schedule the repayment so it's a bit later, when you KNOW you’ll have the cash.
If something does go wrong, lenders' policies vary, yet all those above have signed the payday lenders' Good Practice Charter.
This has some requirements, though it's open to debate how well policed it is. It means lenders shouldn't pressure you to roll over or increase your loan, and they should…
- Remind you at least three days before your repayment is due, including contact details for you to get in touch if you're in financial difficulty.
- Freeze interest and charges if you agree a reasonable repayment plan, or after 60 days of non-payment.
- Tell you where to get debt help if needed (we strongly suggest you do this, the link takes you to our guide which includes non-profit debt help agencies).
Always, always tell your lender as soon as you know you're not going to be able to repay. It does work. Be firm, make a fair offer and be willing to answer questions about your income and expenditure honestly. It worked for forumite p4nc4ke:
"Recently my total payday loan debt was at £2,655 and I had run out of options as my monthly pay just wasn't enough.p4nc4ke
"I contacted the companies asking for a repayment plan. I worked out how much I could afford to spend on payday loans and then divided it between each company in proportion to how much I owed them.
"All agreed to freeze the interest and accepted the monthly amount I offered.
"So, I just want people to know that there IS a way out, even if things look extremely bad. Do not get depressed, you CAN get it sorted. And don't put it off and off like I had - I could have saved myself a lot of money."
The story above's about financial hardship, while you may only need a few extra days to pay. Each company has a slightly different policy on late payments. Here are the specifics:
The Money Shop – It’ll agree what is appropriate if you can’t pay, if not:
- It’ll often accept part-payment, but this will increase your overall interest costs.
- In dire circumstances (ie, you lose your job) you can apply to its Financial Hardship Scheme to find a manageable repayment plan.
Payday Express – Get in touch if you’re likely to default to discuss repayment options, if not:
- It'll charge a £15 collection fee, and will continue to charge interest until you do repay.
- It'll mark the non-payment on your credit file as a default. It also reserves the right to charge you for any costs incurred in chasing you to pay the debt.
QuickQuid – It can offer a change of date by up to three days, an extension, or a fixed repayment plan if contacted, if not:
- There's a £12 late fee for missed payments.
Sunny – Get in touch if you can't pay, it'll discuss repayment options with you. If not:
- It’ll contact you via SMS/email at different stages of you being overdue. They do not charge late payment fees.
- Sunny will discuss with you whether extending the term of your loan could help you pay it off without you going into deafult or being put on a payment plan.
- For cases where there's no other option, Sunny will put you on a repayment plan. It'll mark the non-payment on your credit file as a default.
Wonga – It'll try to collect the money from you at 5am on the chosen day of payment, if not:
- It adds a £20 missed payment fee.
- Interest continues to be added to your loan up to a 60 day cut-off, unless you agree a reasonable repayment plan.
- If you don't contact it at all, Wonga will use external debt collectors to chase you for the debt, plus will add the default to your credit file.
How we picked these…
Normally we work on price, but with payday lending currently so weakly regulated what we've tried to do is focus on lenders which at least on the surface have better protocols in place. To be in this list lenders must:
- Be registered with the FCA
- Have signed up to the Good Practice Charter. Don't get too excited, it's just a voluntary industry code, but it's better than nothing. More about the Good Practice Charter
- Not pressure you to enter or extend (roll over) any loan agreement.
- Allow no more than three rollovers to any loan
- Tell you how the loan works and the total cost of the loan (including an example for the price of each £100 borrowed).
- Carry out an affordability assessment before each loan and rollover is granted.
- Notify you at least three days before your repayment is due, including contact details of the loan company for you to use if you're in financial difficulty.
- Freeze interest and charges if you agree a reasonable repayment plan or after 60 days of non-payment.
- Tell you where to get debt help if you're in financial difficulty.
- It does a credit check. This means that it is at least checking some basic affordability criteria before it lends.
What's the payday loan Good Practice Charter?
This is a set of guidelines aimed at ensuring responsible lending. Bear in mind it was drawn up by the trade associations representing payday lenders, and membership of those is totally optional.
If the payday lender has signed up to the Good Practice Charter, it means it's a member of a trade association - one of the Consumer Finance Association, the Consumer Credit Trade Association, Finance & Leasing Association and the British Cheque & Credit Association. You can complain to that association if the payday lender breaches its commitments under this code.
The code also commits payday lenders to:
Have you had a payday loan experience you'd like to share?
If things go wrong...
If things go wrong, it's important to contact your lender as soon as possible and let it know you’re having difficulty repaying. Don’t try to front it out. You should also consider contacting a non-profit debt help agency.
All the lenders above have committed to offering reasonable repayment plans if there are problems. If you haven't paid anything after 60 days, then the lenders above will freeze interest and charges. However, they will pursue you for payment, and will report your non-payment to credit reference agencies, which will damage your future borrowing chances.
If you feel you've been mistreated...
Don’t just take it. While the firms are weakly regulated at the moment, you still have a right to take them to the free Financial Ombudsman Service which can adjudicate.
If you're not sure whether you have grounds for complaint take a look at the Citizens Advice Payday loans: know your rights video and information pages.
If you decide to complain, first contact the firm itself. If it doesn’t give you a satisfactory answer, then don’t give up, go to the Ombudsman. It's simple to do - can call it on 0800 0234 567 (or 0300 1239 123 from mobiles). For step-by-step help, see Financial Ombudsman complaints.
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Payday loans - MoneySavingExpert's view
It'll be no surprise by now that we're not big fans of payday loans. This industry has seen the UK as a crock of gold. Huge money has flooded into the UK due to our weak regulations while other countries, notably the US, have cracked down and regulated their industries.
Our Editor-in-Chief Martin Lewis has campaigned on our behalf for much stronger regulation – giving evidence at the Business, Innovation & Skills select committee of MPs, addressing the Government's Payday Loan summit, as well as media appearances and working alongside the likes of payday loan-campaigning MP Stella Creasy.
Here's Martin's quick list of some of the changes we'd like to see…
- Ban advertisements for these loans on children's television. This is an attempt to target hard-pressed families – even though lenders claim they are not their target market.
- Restrict the nature of the adverts. Payday loan advertising is pervasive. They make it look like this is a fun, little transaction rather than a hardcore form of debt. The ads should have much more prescriptive content rules about how they're presented.
- A total cost cap should be introduced. Capping APR rates is meaningless for short-term lending. Yet capping the total cost of borrowing would have a big impact.
For example (ignore the numbers, this is to give you the sense) if you borrow £100 (including all charges and fees), you should never have to repay more than £150, including the original cash lent. This would restrict the incentive of firms to roll over the debt – because their ability to keep compounding charges on top of charges would be kiboshed.
- There should be a delay between applying for a loan and receiving the cash. These loans sell themselves on convenience, but they are too easy. In some cases, the money can appear in bank accounts within 15 minutes.
While there's a 14-day cooling-off period, as for any credit agreement, it's relatively meaningless as you have to repay the capital plus interest/fees for that period (so at these rates it'd still be expensive).
Therefore a one-day delay before receipt of the cash, at least giving people a chance to reconsider before there are any charges (especially those who apply when intoxicated), would be useful.
- Mandatory affordability and credit checks. Many payday loan providers already do credit checks. But some advertise their loans predicated on the fact that they do not credit check you. It should be mandatory for all payday loan lenders.
Further information on MSE's view and campaigning work on payday loans…