Payday Loans – What You Need To Know

When it comes to borrowing money there are so many varied options to choose from that sometimes it’s hard to know which way to turn. We are bombarded with payday loan advertising from your morning paper to the quick fix adverts that are carefully placed in-between our most favourite TV shows, even children’s programmes. Are they what they seem, the fast solution to your financial problems?

You need a loan, and you need it to be quick and simple and it seems that the payday loan will be just that, even if the interest you pay on the loan is capped you may find yourself not only paying back more than double what you borrowed but damaging your credit rating in the process.

A payday loan seems so convenient, really easy to go from A to B and get your much needed funds into your bank account, but the ease of this process should be raising alarm bells if you don’t know what you are getting into it could turn into a real disaster. 

Payday Loans - What you need to know

Payday Loans - What you need to know

Payday Loans – The Facts

  1. Payday loans were developed and aimed at people who needed that little extra to keep them going until the next payday. Most are easy to get and are short term, high cost loans that can get you into financial trouble if you can’t make the repayment on time.
  2. If you are using a Payday loan to bridge the gap in-between your monthly wage, think twice before you go ahead. Can you alter your monthly budget to allow for extra money to be freed up?  Try to have a good look at your income balanced with your household outgoings and balance the two out, don’t rely on the fast Payday loan as you may find your finances  spiralling out of control as you roll over your debt (while often increasing it) each month.
  3. It may be a shock but Payday lenders often charge more to give you the loan than a credit card lender would in one year. If you compare a typical credit card APR of 20% for £100 borrowed would result in a £20 charge for one year if you repaid on time each month. Compared to the Payday loan of £100 for one month would average a £25 ( Payday loans do typically charge a fee rather than the monthly interest rate) so it’s easy to see which is the better option especially if you continue to borrow from Payday lenders over the year.
  4. It’s a scary prospect that looking at a long term Payday loan over the course of the year, that your APR will work out to be over 1000%, borrowing over a short term (even a small amount) will result in a huge APR.
  5. Think about the amount you are borrowing and if you can pay that amount back on time at the end of the agreed period. If you can’t then reconsider as if you are struggling to pay the loan back you can get yourself into real financial trouble as your debt spirals out of control.
  6. If you have gone to a Payday loan lender and have a short term loan beware if they offer you a ‘roll-over’ payment to the next month as this may result in doubling the agreed fee.
  7. Even if you have paid any Payday loans you take out in full and on time, you may damage your ability to be able to borrow from other lenders (even getting a mortgage) as credit reference agencies keep any Payday loans on a separate section of your credit report showing prospective lenders when and how much you have borrowed in the past.
  8. Typically Payday loan lenders will prefer you to arrange a CPA or Continuous Payment Authority (recurring payment) when you apply for the loan. This will ensure that each payment will be paid with your nominated credit or debit card that they take the 16 digit number of, and this payment will be automatically taken out by the Payday lender and as you have agreed this at the point of application they are within their rights to do so. If you are already struggling financially this can be devastating having your last funds disappear from your bank account to pay the over inflated borrowed loan. 
What Are The Alternatives?
  1. If you are struggling with debt and don’t know where to turn, contact a Debt Councillor where you can get one-to-one help and advice, you will get impartial, practical advice from a non-profit debt counselling agency which can really help you to get out of your financial woes.
  2. If you have a credit card and can pay off the amount you were planning to borrow from the Payday lender in full in one month, then why not opt for this as you will save on the loan fee and bypass the whole process of applying for a Payday loan.
  3. Don’t assume that banks can’t help you and that Payday loans are your only option, as many banks are happy to discuss your needs and offer a solution. A personal loan from TSB for example has fees of 3.4% APR for a £7,000 loan and can give you much more security than the quick fix, high fees of a Payday loan.
  4. If your bank can extend the amount of your overdraft short term to bridge the financial gap this is an option, just ensure it is an agreed amount with your bank as the fees for going over your agreed overdraft amount can be huge.
These are just a few alternatives to the high cost quick fix of a Payday loan and where possible it is advisable to avoid entering into a contract with the Payday lenders as once you have used their service, especially if you have paid the loan amount back in full, they will be back offering you a higher loan amount with higher charges and this can seem tempting but ultimately can lead to your debts spiralling out of control. 

*In association with TSB *SP *
Thank you for reading, I hope you have enjoyed this post and found it helpful. If you liked what you read today, subscribe to my blog by adding your email address to the box on the right, you will be the first to hear of all my updates.


  1. September 16, 2015 / 6:40 pm

    I have never taken out a loan. I used to have a credit card but after paying it all off, I cut it up. Now I just have one bank account so i only spend money I actually have. I also have a saving account for emergencies. Thanks for the info though – always good to know 🙂

  2. Claire Elizabeth Noke
    September 17, 2015 / 2:04 pm

    I hope I never need a payday loan. If I really struggle, I would go to my family first, Ive heard so many horror stories, It would not be something I would consider unless desperate. x

  3. September 18, 2015 / 3:07 pm

    I hate these so much, they target the vulnerable

    • September 18, 2015 / 6:34 pm

      They really do Samantha and it's best to look at other options instead of going down this road.

  4. September 20, 2015 / 10:16 pm

    Payday loans really need much better regulation, the interest rates are usually astronomical and it just leads to further debt.

  5. September 26, 2015 / 5:35 pm

    Thanks for sharing, more people need to be aware of all the facts and figures before signing up to a payday loan.

    (Real name: Christine Lockley)

  6. Tracy B
    September 29, 2015 / 2:23 pm

    Great post – It makes me sad that the vunerable might feel that pay day loans are their only option.

  7. Pam Francis Gregory
    October 2, 2015 / 9:36 am

    Great post – These type of loans should always be last resort!

  8. October 3, 2015 / 8:48 am

    Fab post. I wish I never took out a pay day loan. It was years ago but then I had a serious car accident and couldn't pay it back

  9. Tracy
    October 5, 2015 / 5:52 am

    I agree – always get onto your bank if you are in difficulties… extending an overdraft for a short time is a very good idea, but watch out for those with huge fees!

  10. LTabstar
    October 7, 2015 / 4:32 pm

    Have shared this on Twitter x

  11. October 12, 2015 / 8:43 am

    some very unscrupulous companies out there who target the market of those less fortunate and are desperate x

  12. October 13, 2015 / 8:05 pm

    Great post – definately a last resort!


  13. October 31, 2015 / 1:04 am

    I got into quite a lot of debt using payday loans – a loan for £200 ended up with me owing them something silly like £900 for fees and things. I had 2 loans at once – thankfully one was wiped out by the company and removed from my credit file. The other I managed to get frozen without any further fees or interest and an agreement to pay back monthly.

    At the time I had them I had no idea what I was getting into. My credit report will be damaged for at least another 2 years but thankfully after 6 years they will no longer affect it.

    I would advise anyone to never ever apply for these – the amount of stress and worry plus the fees and rates are really high – I was really naive when I signed up with them but learned the hard way its much to go without than go to these companies who are basically legal loan sharks

  14. October 31, 2015 / 9:56 pm

    Great post, have heard so many horror stories about these type of loans