Payday loans are short-term high-cost loans that are designed to tide you over until you get paid. They’re usually repaid on your next payday, but most lenders also offer options to repay over a couple of months. Some payday lenders have high-street shops, where you can apply in person. Most applications take place online, though.
No, we don’t. We think we offer a better alternative. We do this because we think that if you desperately need hundreds of pounds right now, you may well struggle to pay it back just weeks later. This is partly why we’re not a payday loans direct lender.
Instead, we offer loans that you repay over six months. So if you need money now, you could get access to it within minutes, and with lower, more spread-out payments. And if you’d rather pay it back in one go, that’s fine too! As interest is calculated daily, you’ll only pay interest on the amount of time you borrow, so you’ll pay less overall.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.
If a payday lender has a licence, then they’re registered with the Financial Conduct Authority (FCA), so it’s a regulated industry. However, it’s probably fair to say that payday loans have had a poor reputation. This is partly down to the high representative APR on payday loans (more on that below), and advertising phrases like ‘payday loans no credit check’ or ‘instant payday loans’, but also down to past behaviours by some payday lenders.
Until recent changes by the UK Government, lenders could ‘roll-over’ loans if they weren’t paid. This meant that, if you took out a loan and didn’t repay on time, you could end up paying far more interest on the entire amount owed each month. As this went on, the way the interest compounded could mean that you ended up owing a lot more than you borrowed in the first place.
Also, some lenders took part in unscrupulous practices. In recent years, there were high profile cases of lenders having to repay millions of pounds and being fined large amounts for irresponsible lending and unfair business practices.
However, the changes made by government included a cap on the amount customers can be charged. This means that you cannot repay more than twice what you borrowed under any circumstances.
APR means ‘annual percentage rate’ and illustrates the amount you’d repay if you took out a loan under those conditions for a year. Because payday loans are for such a short amount of time, the APR is shown as if the rate you borrow at was for a full year (with the interest compounded). This almost always results in APRs in the hundreds or thousands.
Lenders are required to show a ‘representative APR’, which is the APR on loans that at least 51% of successful applicants will be offered.
Most payday loans have high APRs. While the actual amount you pay back can vary from lender to lender, the short-term nature of the loans means it’s unlikely you’ll ever see a payday lender with a low APR.
Is a payday loan right for you? That’ll depend on how realistic the repayments are for your own circumstances, and whether or not you’re likely to be able to afford them.
If you want to be in debt for as short an amount of time as possible, then a payday loan may be a good option for you. Some applicants would rather pay back in as short an amount of time as possible because they don’t trust themselves with any longer-term debt like an overdraft or credit card.
With any credit you take out, it’s important to repay the amount you owe by the due date. If you don’t, you could end up getting in further debt, as well as taking on further interest and fines. Late payments can also be recorded on your credit file, which could make it more difficult for you to get credit in future.
Using payday loans responsibly means having a clear understanding of your own financial ability. It can be very easy to assume everything will be okay in a few weeks – but will it? It’s worth taking the time to budget out your expenses over the next few months, if not the year. You can find some good budgeting advice here.
If you can’t pay back your payday loan, don’t panic. Being in debt isn’t good, but it doesn’t have to be a disaster. Remember that there’s a cap on what you can be charged and that you have rights. Lenders can’t take money out of your account without your permission, and you can withdraw that permission if you need to.
One of the first things you should do is to contact the lender. For various personal reasons, some people find this difficult (or even scary), but there are usually benefits to it. You may be able to help sidestep or minimise late fees by contacting them. You may also be able to set up a repayment or debt management plan, which should help you to repay in a time-scale that may work better for you.
Lending Stream offers an alternative with all the benefits of payday loans, but with smaller monthly payments spread over a longer time. You can apply for up to £800 as a new customer, you’ll receive a fast decision and the cash will usually be transferred into your account within minutes of being approved.
You can find out more about alternative approaches to short-term financial issues by visiting the Money Advice Service.