Payday loans

 April 2014

Fact sheet no. 41

​What is a payday loan?

Information:

non-priority debt

A payday loan is a non-priority debt because you cannot lose your home, lose an essential service or go to prison for non-payment.

A payday loan is a type of cash loan, normally paid into your bank account. They are called 'payday loans' as they are intended to be short-term loans, meant to be paid back when you next receive your wages or benefits. 

Even though these loans are non-priority, they often cause other problems. The interest rates are usually very high and it can be easy for the debt to get out of control. Later in this fact sheet we cover alternatives to payday loan borrowing. We also cover the other common issues with these loans.

My loan payment is due and I cannot pay

If you are in this situation, there are two things to watch out for.

1. Loan rollover

Some payday loan companies may offer you a loan ‘rollover’. This means that your loan is rolled over for another month so you get extra time to pay. This may seem like a helpful solution if you are struggling to pay. 
 

However, a rollover usually means you make a new agreement with the payday loan company.  More interest and charges will be added so you will owe more than you did before. 

Extra advice: 

are you struggling to pay?

If you are struggling to pay one month, think very carefully about whether you will be able to afford to pay more the next month.

You should only consider a rollover if:

  • your repayment difficulties are only temporary; and
  • you are sure you will be able to clear the loan in full the following month.

2. Stopping your payments

If your loan repayment due date is coming up, and you cannot afford to pay, you can take action to stop your payment being taken. The action you need to take will depend on the repayment method you agreed with the payday loan company.

Direct debit or standing order

A direct debit is an arrangement where you give a company or individual permission to take money regularly from your account.  You can cancel a direct debit by writing to your bank or using your internet or telephone banking service. It is also a good idea to notify the payday loan company.

A standing order is an instruction you give your bank to regularly pay a set amount to another account. You can instruct your bank to cancel a standing order by writing to it or using your internet or telephone banking service. The latest you can cancel a standing order is usually before the close of business on the working day before the payment is due to be made.

Payment by cheque

If you have written a cheque to the payday loan company for them to cash on the loan payment due date, you will need to cancel the cheque. You can do this by writing to your bank or using your telephone or internet banking service. 

Continuous payment authority (CPA)

Extra advice:

notice to your bank

Give your bank as much notice as possible if you need to cancel a payment. They may not be able to stop the payment to the payday loan company if they are only given very short notice.

This is a payment method often used by payday loan companies. They are sometimes called ‘recurring payments’. A CPA means you give the payday loan company your debit or credit card details, and permission for them to use the card to take payment or payments, to repay your loan.

There has been a lot of confusion about CPAs, and the right to cancel them. If you have agreed to repay your loan in this way, you can take action to stop the payment being taken. See the next section of this fact sheet for more information.