Frequently asked questions

Payday loans

• What is a payday loan?

  A payday loan offers a short-term borrowing facility, usually for no more than 30 days. They are designed to ‘bridge the gap’ if you’re struggling to make ends meet before payday.

• When is a payday loan suitable?

  A payday loan should not be treated as everyday borrowing, but as emergency funds. Don’t use one to pay for anything unnecessary, like holidays or shopping splurges, but it is worth considering if a hefty bill risks knocking you into an unauthorised overdraft or if you have an emergency you can’t afford, like a broken boiler.

• Why is the APR so high?

  Many people are amazed to see payday loans charge annual percentage rates of more than 1,200% (in some cases the APR is over 2,500%) - pretty steep compared to best buy personal loan rates which are below 10%. However, it’s important to remember that ‘APR’ refers to the cost over a full year. Payday loans are pricey, but they are only intended to be used for around 30 days at the most.

• Do I need a credit check?

  Not all payday loan providers require a credit check. To qualify, you’ll usually need a regular income and an active current account. Bear in mind that, if a lender does conduct a credit check, it means they will also add a note to your credit file to show that you have settled the debt on time (as long as you do). This can have a positive effect on your credit rating.

• How much can I borrow?

  This depends on the provider, but providers generally lend between £80 and £1,000.

• How much will a payday loan cost?

  As a general rule, you will pay £25 for every £100 you borrow. So, if you borrowed £300, you’d need to repay £375. This does vary between lenders so it is important to check before you apply.

• How do I repay the loan?

  Some providers arrange to withdraw the money straight from your current account once your payday arrives, while others require you to repay the money by debit card or cheque.

• What if I am paid weekly?

  Most providers will agree to be repaid after your fourth payday.

• Will the lender contact my employer?

  Don’t worry, your application will be completely confidential and the lender is not allowed to pass on any information without your agreement.

• How soon can I get the money?

  This depends on the provider but many will aim to have the money in your account on the same day or by the next working day.

• Can I roll the debt over to the following payday?

  You can, although this isn’t advisable as these short-term loans become extremely expensive if you use them for longer than 30 days. Many providers will demand you repay the interest at least, while others will charge an additional fee for delaying repayment. You will then also pay an additional months-worth of interest.

• What information will the lender need?

  Different lenders need different things, but you will need your bank account details, plus information on how long you have been with your employer and when your next payday is due. They may also ask for your National Insurance number, so have all this information ready before you make an application.

• Where are the best deals?

  As with any financial product, there are a range of lenders and you should compare the market to find the right payday loan for you.

• How many payday loans can I have?

  In theory you shouldn’t be able to have more than one payday loan at a time. However, because not all providers run a credit check when processing applications, some people have multiple payday loans. This IS NOT ADVISABLE. While payday loans can be useful if you need to plug an emergency funding gap, they can make your financial situation worse if you are already struggling with debt.

  Certainly, you shouldn’t be taking one payday loan out to pay off another. If you need more than three payday loans in a year it suggests you may have wider financial problems. If you think that might be the case, it’s worth seeking help – either through a charity such as the National Debt Service, the Consumer Credit Counselling Service, or through a reputable debt management company.