Payday loan providers operate by extending small loans (usually up to £500) to borrowers. Payday loans, also called ‘cash advance loans’, need to be paid back within a few weeks or on the borrower’s ‘payday’.
Most payday loan providers are small credit merchants that offer:
- Short Term Loans: The average repayment period for payday loans in United Kingdom (UK) is up to 2 weeks. This means that borrowers have to repay their debt principle, along with charges and interest, by the end of the month.
A few payday lenders allow their clients to borrow for longer durations (up to 3 months) and repay them in periodic instalments. Some payday lenders offer borrowers the option of picking a repayment period of their choice.
- High-Interest Rates: Payday loans are an expensive option because most lenders charge high-interest rates. The annual percentage rate (APR) for payday loans can be 1000% or more.
In the UK, the Financial Conduct Authority (FCA) has capped the amount of interest and fees borrowers can be charged for taking out payday loans. The cap, enacted to safeguard the interests of borrowers, limits the interest rates and fees to 0.8% per day of the original borrowed amount. This means that nobody has to pay back more than twice of what they initially owed.
Quick Fact: Typically, payday loan borrowers in UK have to pay a steep sum of £24, in the way of interest and fees, for every £100 they borrowed per month.
Who are some of the biggest Payday Loan Providers
Wonga.com used to be UK’s largest payday loan provider with over 245000 customers until it went into administration in August 2018 because of an overwhelming number of compensation claims. When operational, Wonga used to offer small loans that needed to be repaid in less than 30 days along with interests and fees. The representative APR for Wonga was approximately 1509% but it could reach a maximum of 5000%
With a client base of 1.4 million customers, QuickQuid is one of the leading payday loan providers in UK. The online payday lending service provides short-term loans of up to £1000 to new customers. The loan limit for existing customers is set at £1,500. QuickQuid is one of the few payday loan providers that allow customers to repay over the next three months. It charges a fixed interest rate of 292% per annum. The representative APR for QuickQuid is 1249.1%.
Launched in 2012, Piggybank is an online short credit service that allows clients to borrow between £100 and £1000 for relatively flexible loan terms. The customers can pick a repayment period (anywhere between 7 days to 5 months). The online service has a representative APR of 1270% with a minimum of 1255% and a maximum of 1698.1%.
Why you should stop using a Payday Loan Provider
Payday loans seem like an easy way to obtain some quick cash but they should be generally avoided. That is because payday loan providers offer loans on high-interest rates which are often higher than the interest rates on credit cards and personal loans.
Payday loan providers also charge expensive service fees which can pile up on your initial debt and cause repayment issues. Moreover, defaulting on a payday loan can cause serious financial issues for you because it can lead to extra surcharges such as hefty default fees and late repayment penalties. Rolling over the debt to avoid defaults can lead to repeat debt cycle which you should avoid at all costs.
We strongly recommend that you stop using a payday loan provider if:
- You are borrowing from them to pay off other loans
- You already have one or more payday loans
- You are not completely certain that you can repay it within the specified timeframe
- You want a payday loan to pay for things you can’t afford but don’t need either (e-g new clothes, entertainment etc)
You can also look into payday loan alternatives which are more sustainable and less expensive.
How to reduce your debt to a Payday Loan Provider
Money Advisor can help you take charge of your monetary situation. Visit https://www.moneyadvisor.co.uk/debt-plan/ for more information on debt solutions.
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Do I qualify for compensation on a Payday Loan
You can recover your payday loan if it was mis-sold to you. In order to get a refund on your payday loan, you need to file a compensation claim. You qualify for a refund claim if:
- The payday lender did not explain all the charges and fees associated with your payday loan prior to the application process.
- You had to borrow money from another payday lender in order to repay your payday loan.
- You had to repeatedly obtain payday loans from the same lender in order to repay your previous loans with them.
The repayment claimed a large portion of your monthly income and you could not afford to pay for basic provisions like food and bills after repaying your loan