Payday loans

They’re designed to tide you over til payday when you need emergency money. The money will be paid directly into your bank account. 

You’ll usually be given the option to pay it back over one to six months. The longer you take, the more interest you’ll pay. 

If you don’t pay on time, additional charges will be added. 

Payday loans were particularly popular between 2008 and 2012, with some lenders charging interest rates over 5,800%.  

That meant if you borrowed £100 for 21 days, you’d have to pay back over £400.  

As a result, lots of people fell into problem debt. 

The sector also faced numerous complaints about unfair practices, including: 

• hidden fees and charges
• unrealistic repayment terms
• aggressive debt-collection tactics  

FCA regulations 

In 2015, the Financial Conduct Authority stepped in with new, stricter rules: 

• They capped interest rates at 0.8% each day.
• They limited default fees to a maximum of £15.
• They brought in a total cost cap of 100% - so if you borrow £100, the maximum you’ll repay is £200, including fees. 

If you still think a payday loan is your best option, make sure you: 

• compare different lenders to find the best deal - online payday lenders must display their deals on at least one price comparison website regulated by the FCA
• check the lender is legit by making sure they appear on the Financial Services Register 

Most lenders will set up a continuous payment authority (CPA) to automatically withdraw the money from your bank account. Remember: 

• if there isn’t enough money in your account, the lender can try to take the payment multiple times and you’ll be charged additional fees
• if you repay on time, you shouldn’t have to pay more than £24 in fees for every £100 you borrow
• you can stop the payment by instructing your bank at least one day before it’s due   

If you can’t repay 

You might be offered an extension (rollover). 

But be aware this means you’ll end up owing more money in additional interest and fees. 

Your lender can only roll your loan over twice and they must tell you where you can get free debt advice. 

You can complain about a lender if they didn’t: 

• clearly explain how much the loan would cost, using examples
• tell you how and when to pay the loan back
• check the loan was affordable for you, taking into consideration factors such as your income and age  
• tell you that payday loans aren’t for long-term borrowing
• explain how a CPA works and your rights to cancel it
• tell you when they’d be taking money from your account using a CPA
• include a risk warning about late payments in their adverts  
• give you details about where to get free debt advice 

You can also complain if: 

• you felt pressured to extend the loan
• they didn’t explain the risks of extending your loan
• they didn’t tell you how much it would cost to extend your loan 
• they didn’t check you could afford an extended loan 

How to complain 

If you think your lender has acted unfairly, complain to them directly and then reach out to the Financial Ombudsman Service if you’re unhappy with their reply.  

Explain your complaint clearly, including what the lender did (or didn’t do) and how this affected you e.g. you can’t afford your priority bills or your debt is getting worse.