Payday Loan Debt

A payday loan is a financial agreement intended to be taken out and repaid by, well, payday. It is a short-term loan intended to provide quick financial relief when needed.



Though a payday loan can be a useful solution for unforeseen situations or temporary money troubles, when used poorly they can create continued debt for those unable to make repayments.

If you’re considering a payday loan, there are a couple of things you should consider before you proceed.



It’s important to know that there are strict rules on payday lending and what rates can be offered to customers.

Interest: Interest rates attached to a payday loan cannot exceed 0.8% meaning lenders can only charge 8p for every £10 per day.

Default charges: Default charges for late payments should not exceed £15.

Fees: Borrowers should never have to pay back more in fees and interest than the original loan amount.

Transparency: Payday loan providers must post their rates on at least one price comparison site that is regulated by the Financial Conduct Authority (FCA).

Eligibility: Payday loan companies must determine if you’ll realistically be able to repay the loan amount being requested before allowing a loan application to go ahead.

Though each scenario is different, it’s generally not advised to use further credit to deal with current debts. Though it may offer momentary relief from your debts, ultimately, if you are still unable to repay you will likely end up in the same (or a worse) scenario once it’s time to make payments.

Instead, if you are struggling to repay debts you should look into options such as benefits, grants and debt advice rather than taking out further credit with a payday loan.

You can check your eligibility for benefits you may be entitled to through Turn2Us, a UK charity created to help people receive any benefits they may be entitled to.

You can also check your eligibility through the GOV website using their benefits calculator.

For grants, you can look into any local council financial schemes or any packages being offered by your service provider.

Finally, if you’re struggling with unaffordable debts it’s important to reach out to get debt advice as soon as possible. It’s important to remember that help is available and speaking to a debt advisor can be the first step in helping you get free of your current debts.

Payday loans are intended to be short term credit agreements taken out and repaid within the same payment window as when they were taken out. If you’re unable to repay the full amount of your payday loan, like most debts you’ll incur late payment fees and arrears that could land you in further debt than before you took out the original payday loan.

Remember each type of debt is different and can have different implications and repayment requirements, so it’s important to make you understand your current debts.

The effect that taking out a payday loan will have on your credit score can vary depending on the lender. Though some payday lenders may only run a soft credit check which initially won’t affect your credit score, this isn’t always guaranteed.



Taking out a payday loan can appear on your credit history (dependent on the credit reference agency) which can be viewed when a hard credit check is run on you for future loans and credit. Loan providers may factor this in when deciding if you are creditworthy for future loans or financing agreements.

Furthermore, once a loan application is placed this will cause a temporary reduction to your credit score. Any loan applications made on your account will have an effect when a new credit account is added to your profile

Each payday loan provider is different, getting a payday loan with bad credit will likely be more difficult as some loan providers will be unwilling to take the added risk of issuing a loan to you.

However, that doesn’t mean it isn’t possible and you may still be accepted, so it’s worth keeping in mind that due to your poor credit score you could be offered less agreeable repayment rates or higher interest in order to get your payday loan approved.

There are loan providers who specialise in issuing loans to people with poor credit, however, as is to be expected the above applies and the rates you are offered may be higher as a result of the added risk to the loan provide

When taking out a payday loan, the loan provider will take your payment account details and once the repayment date comes around (usually by the end of the month or the following payday), the payday loan provider will automatically take the payment from your account. This is known as continuous payment authority (CPA).



If you’re unable to make payment for your loan by the following payday, you may be able to extend the loan date. This is known as a loan rollover and allows you to defer the payment to the following month. The current rules ensure that lenders cannot do this more than twice for a loan.

If you’ve been unable to repay your payday loan, your provider will begin to attach late fees. After this, your debt will go into arrears and eventually default. Once a debt has defaulted it will typically be passed over to a debt collections agency for retrieval of the outstanding amount, alongside any additional fees and payments attached by the debt collection agency themselves.

Debt collection agencies will initially start proceedings with letters and calls but can escalate to home visits from debt collectors. Debt collectors and bailiffs are actually very different; it’s important to remember that only bailiffs have the legal right to enter your home.

If debt collection agencies are unable to retrieve the debt, they will seek court action against you. This is known as a County Court Judgement (CCJ) and means you can be ordered by a court to repay your debt. At this point bailiffs can be sent to recover possessions in order to try and repay your debts.

It’s important to take control of your debts before collection efforts reach this point.

While all of this can sound scary, it’s important to remember that there are many steps that need to be taken before debt recovery can reach this point and there are a lot of options to help those struggling to take control of their debts.