When taking a payday loan it is advisable to know what you are required to do and also what the process and consequences are if something does go wrong. No-one takes out a loan intending for things to go wrong, but unfortunately, things do.
Things go well
Typically, if all goes well with a loan, you will complete the payment in the required period of time. This, for example, could be £150 borrowed for 10 days. At the due date of the amount, the lender will take the £150 plus the interest straight from your bank account using a system called Continuous Payment Authority (CPA). This ends the loan.
You will still be on the lender’s database and they will often let you know of any future offers or promotions that may be of interest to you. Your credit rating will be unaffected or perhaps even improved by this smooth process.
Problems occur
A recent survey found that half of the people who take payday loans were unable to pay the debts while around a third had been visited by debt collectors in the previous twelve months having had a loan.
If the lender applies for the money and it isn’t there, they will try a second time to collect the money under CPA but new regulations mean they can only use this option twice. Beware that if a friend or family member has used their card to pay a loan previously, the lender may also try to collect the money from their accounts.
The lender will also apply charges for late payment that can be from £12-20 and add interest daily. One of the biggest complaints about payday lenders is that they are not clear about their charges so always make sure you have this information before taking the loan so you understand consequences.
Solutions
If you know a problem is going to occur, contact the lender to make alternative arrangements and stop the CPA with your bank so money cannot be taken that is for other purposes. The office of Fair Trading’s Lending Guidance states that lenders should ‘treat borrowers fairly and with forbearance if they experience difficulties’. This means the lender should be willing to help you wherever possible to repay the missed payment.
If a period, typically around two months, passes without a payment being made, the lender will bring a debt collector into the picture. This is where an increase of letters, phone calls and even visits to your home looking for payment can occur. You can discuss your finances with the debt collector to make an arrangement or you can seek out advice from a charity like StepChange or other government helplines. They can help you arrange a budget to present to the lender showing what you can pay.
Complaints
If you feel that your lender is being unreasonable or unwilling to assist, you can send a written complaint to them. They have eight weeks to respond and if you are still unsatisfied, you can contact the Financial Ombudsman Service for further help.
Figure 1: The Process of a Payday Loan
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