Payday Loans

Perhaps the most famous payday lender of all, Wonga, surprised everyone by announcing a loss of £37m in 2014. Quite a fall from grace for a company which made a pre-tax profit of £84.5m in 2012. Clearly, the payday lending industry is changing.

In January 2015, the Financial Conduct Authority (FCA) capped the cost of payday loans at 0.8% of the amount borrowed each day. This move has forced companies such as Wonga to change tack and focus on lending to only those who can repay their debts. Many High Street loan shops have since closed and only have an on-line presence.

Payday loans are almost without question a very expensive and unadvisable way of borrowing money. However, if you’re considering a payday loan, we’ve got some essential advice. Some charge in excess of 1,000% APR.

Before applying for a payday loan

The lender you choose should run some checks to ascertain whether or not you will be able to pay them back. A credit check will likely take place, but the lender should also check that your income is high enough to enable you to pay back the loan. Ask the lender as many questions as possible. What are the main features of the loan? How much will you have to pay back? Are there any early or late repayment penalty fees?

Lastly, ask yourself some questions. Do you really need to borrow the money that badly? Is it a critical situation for which you can see no other solution? Speak to those close to you – they may be able to help and thus avoid you having to take out a high-interest loan.

How to pay back your payday loan

The most common way to pay back a payday loan is via debit card. On acceptance of the loan, you agree to let the lender take money from your bank account – a process known as a continuous payment authority (CPA).

Although there will be charges levied for late payment, the lender shouldn’t use the CPA method more than twice if they have been unable to recover the money from your account.

Making a complaint about your payday loan

The payday loan industry can be a murky one with many underhand operators seeking to take advantage of those desperate for money. The reputable firms should follow a Good Practice Customer Charter and the Financial Conduct Authority rules. If they don’t do the latter, you can complain to the Financial Ombudsman Service (FOS).

Final thought on payday loans

Before applying for a high-interest payday loan, consider every other option available to you. Perform a financial budget; take a careful look at your outgoings and cut without hesitation when you spot non-essential expense. Payday loans are not advisable and can often be avoided.