What happens if I can’t pay a payday loan?
Payday loans are notorious for being very expensive and often come with very high-interest rates. This can make them challenging to pay back because the amount you are repaying is always higher than the amount borrowed. A survey has revealed that roughly 50% of borrowers who took out a payday loan last year could not repay it.
How do payday loans work?
The way these short-term loans work is that you borrow a certain amount, usually between £50 and £500, for a fixed period of time. Payday loans typically last less than 30 days as they are designed to be paid back when you receive your next paycheck. When it is time to repay, the lender will collect the funds directly from your bank account. If the money isn’t available, it can be very problematic. Most lenders will attempt to collect the money first thing in the morning on the agreed repayment date and will continue to try for as long as they need to until the amount has been recovered. Payday loans can be a quick and easy way to help you out financially until your next paycheck. They can be applied for in a matter of minutes, and funds can be in your account immediately, making them perfect for unexpected things you need to pay for.
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Do I need a guarantor for a payday loan?
Some payday loan lenders might ask for a guarantor when you apply for the loan, and if you provided one, they might attempt to take payment from them instead. This can be very stressful if you cannot repay and potentially put a friend or family member at risk.
What happens if I don’t repay my payday loan?
Payday loan lenders will immediately add late payment fees and additional interest when a loan isn’t repaid on time. This can make it even more difficult to pay off as the amount to repay will increase dramatically. If you are struggling to pay a payday loan, there are some things you can do to prevent debt from racking up.
What should I do if I can’t pay back my payday loan?
If you have a payday loan and don’t have the money to repay it, don’t panic. It can be stressful, but you can take a few steps to help control the situation and minimise the damage.
Get in touch with your lender
Contact your payday loan lender. All lenders have a legal responsibility to help their borrowers in times of financial crisis, and there are some things they can do to make the repayments more manageable. Your payday loan lender must provide you with information and direct you to places where you can get independent and free debt advice. They should also suspend the recovery of the loan amount if you are creating a repayment plan by yourself or with the help of a debt advisor. Your lender must treat you with respect and in a fair manner at all times, and they have a legal obligation to be reasonable when it comes to repayments. This could mean they will freeze your interest or suspend late payment charges.
Offer to pay what you can
Even if you can’t afford to repay the entire debt in one go, that doesn’t mean you shouldn’t pay anything. Your payday loan lender should accept smaller payments temporarily, so offer to pay whatever you reasonably can straight away. Most lenders will see this as an attempt to settle the debt and that you are serious about paying, and will be more likely to give you time to pay the full balance. If your lender agrees to a small payment upfront and a repayment plan for the balance, make sure you have records of this to protect yourself in the future.
Consider cancelling your recurring payment
Payday loan lenders will keep trying to take the repayment amount from your bank account. They will have a recurring payment set up to take the funds every day until they receive the total amount. This can be problematic if you have money in your account, but you need it for food, rent or bills. If the recurring payment will cause you further issues and leave you unable to pay for essentials, cancel the payment with your bank. You can call your bank and ask them to cancel the Continuous Payment Authority, or CPA, that the lender will have set up. If you decide to do this, make sure you let your payday loan lender know that the CPA is cancelled.
Think about rolling the loan over
Your loan provider might suggest rolling over your loan amount to the following month. Usually, this is not worth doing because it means you pay even more in the long run. You will have to pay further charges and additional interest and could put yourself in an even more difficult position in future. If you are confident you will have the funds to repay the entire loan amount plus all charges and interest next month, then rolling over might be worthwhile. If you aren’t sure you will have the funds next month, avoid this option and seek debt advice.
Speak with a debt advisor
There are many free, confidential debt advice services available to help you deal with your debt and payday loan lender. Your loan provider is legally obliged to provide you with details of free services, or you can look for one yourself. Debt advisors are on your side, and their job is to help you get your debt under control. A debt advisor can also speak with your loan provider on your behalf, so you don’t have to worry about them chasing you for payment.