skip to Main Content

So you took out a payday loan? Here’s how to stay out of debt.

Payday loans, often known as short-term, high-interest loans, are a source of conflict in the banking sector. They’re usually the last alternative for folks who can’t receive credit in better conditions, but they may also be used when you merely need a tiny amount of money or need it in your bank account soon. 

They’ve been the subject of judicial rulings, with Wonga, the most well-known payday lending firm, entering into administration because it was forced to repay clients because the conditions were not made plain enough. Short-term lenders must comply with a slew of new laws, including making it clear how much you’ll have to repay. It’s also becoming increasingly typical to stretch payments out over many months rather than having the whole sum deducted from your bank account when you are paid.

These loans are a tremendously costly way to borrow, with annual percentage rates (APR) exceeding 500 percent. When you compare it to the (still high) example APR of 40% for an overdraft, you can understand how outrageous that amount is. One lender used the example of a £480 loan spread out over nine months, with a total repayment of £959.04 – over double. Furthermore, they may be frowned upon by mortgage lenders, making it more difficult to borrow in the future.

If you’re thinking about obtaining a payday loan, it’s worth checking into your other options first. GAD Bad Credit has a plethora of information on zero or low-interest credit cards, overdrafts, credit unions, and money transfers. If you’re currently in one, follow these steps to avoid getting into further trouble:

Pay your bills on time.

Missing payments on a payday loan may result in growing fines and increased financial hardship, so it’s not something to take lightly. Make sure you understand your payment schedule and have enough money in your account to satisfy your obligations. If you have enough money saved to pay off the loan early, check if you can negotiate a lower interest rate.

If things get challenging, take action.

Don’t put off taking action if you fear you won’t be able to make your payments or if your circumstances change and you find yourself short. If you have a friend or family member who might assist you in the short term, this is one of those times when it’s a good idea to ask for assistance. 

If not, you’ll need to notify your lender and try to renegotiate your payment arrangements. If the prospect of this makes you sweat, organizations like StepChange and CAP can help you through the process and even bargain on your behalf to make things more inexpensive and relieve some of the stress.

Allowing them to get away with inappropriate behavior is not an option.

Any lender is responsible for providing you with excellent customer service and being transparent about payment arrangements. You may file a complaint with the Financial Ombudsman Service if you feel your loan was mis-sold – that is, you could never have afforded it, or the conditions were not made clear – or if you believe your loan was mis-sold. 

This free service determines whether or not a lender behaved pretty, and you may be eligible for reimbursement if your loan was not appropriately handled.

Breathing Space is something you have a right to.

According to new government legislation, if you have issued debt, you may seek a 60-day reprieve from legal action by your lender, including a hold on any interest or fees owed. This may provide you with some much-needed time to calm down, collect your thoughts, and see what resources are accessible to you. 

If your debt has created a mental health crisis, you’ll need help from a qualified debt adviser, a charity, or a mental health expert. In this case, your breathing space-time equals the length of your crisis + 30 days.

Payday loans aren’t always the ideal way to borrow, and they’re one of the most common ways for debt to spiral out of control if not properly handled. If you already have one and are concerned about making payments – or how much it is costing you – don’t despair; choices are accessible to you.

Back To Top