Find out everything you need to know about payday loans, such as what a payday loan is, how they work and how to get payday loan help.
What is a payday loan?
A payday loan is also known as a short-term loan, and is typically designed to help someone get emergency money before payday. People can get payday loans from websites and on the high street. Payday loans tend to have a very high interest rate, so the longer you take to repay, the more money it will cost.
No, Klarna isn’t a payday loan, but a ‘buy now, pay later’ service, where people spread the cost of items or pay for them at a later date.
How do payday loans work?
With payday loans, you’ll decide how much to borrow and will usually have between one and six months to pay it back. There’s an interest cap on payday loans of 0.8% per day, and you shouldn’t have to pay back more than double what you’ve borrowed.
Use the payday loan calculator
Stepchange’s calculator shows you what a payday loan costs and how quickly the debt can increase.
Are payday loans bad?
Payday loans can be easy to get but they tend to have higher interest rates than other forms of credit, so you’ll need to think about whether it’s the right option for you. Consider all the options that may be available to you, and ask yourself whether you need a payday loan and whether you can pay it back in time.
Do payday loans affect your credit score?
Payday loans are recorded on your credit file and will stay there for six years; applying for a payday loan can reduce your credit score for a short while due to lenders performing a ‘hard search’ on your credit history.
Whether there’s a bigger impact on your credit score from a payday loan will depend on a variety of factors, including whether you fully pay it back and on time.
What to do if you can’t repay a payday loan
If you can’t repay a payday loan:
Be aware of automatic payments. Some payday lenders use something called a Continuous Payment Authority (CPA), which lets them take money from your bank account automatically.
They might keep trying. If a payment fails, they might try and take the payment again.
How to take back control:
Cancel the CPA. You can contact your bank to stop the lender from taking more money directly from you.
Seek expert debt help. No matter how big or small your debt problem is, take back control and explore your debt help options.
Can you go to jail for not paying payday loans?
As payday loans are consumer credit, you can’t be taken to prison for failing to pay. Going to prison for any kind of debt is very rare, and there are only a few debt types that could lead to this, such as criminal fines.
However, it doesn’t mean that you should ignore a payday loan debt, and you can still be taken to court and a decree or County Court Judgement can be raised if you don’t pay.
The best thing to do is get free debt help.
How can I get free debt help?
Don’t wait to get help if you’re struggling with any kind of debt. Simply type your postcode in the box below to find a local CAP debt centre near you. Our FCA-authorised debt advisors can help you, and we don’t charge you to use our services.
