Payday Loans
Payday loans let you borrow relatively small amounts of money for a short period – from a few days up to a month, until you get paid the following month. Available from internet sites and high street shops, payday loans can be easy to get but interest rates are higher than with other types of loan – sometimes in excess of 2,000% APR (annual percentage rate). This means that you should think very carefully before committing to a payday loan and whether you can afford to repay it on or before the due date.
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If you are thinking about taking out a payday loan, be 100% clear about the agreement you are getting into, and your repayment obligations.
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Always safeguard your identity and observe the basic online security rules to avoid becoming a victim of a payday loan scam.
The most common repayment method is via your bank debit card, where you agree to let the lender take the money from your bank account, known as a continuous payment authority (CPA). If there are not sufficient funds in your account to repay the loan on the agreed date, the lender may keep asking your bank for all or part of the money, and will also add charges for late payment.
Payday loan fraud is also becoming increasingly commonplace, aided in some cases by seemingly inadequate security checks by certain lenders. Unless you can prove that it is not you who has taken out the loan, you may be vigorously pursued for the debt plus interest and possibly other charges.
The Risks
Taking out a payday loan to ‘tide you over’, only to find that you are unable to repay the sum in full on the due date.
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Taking out a payday loan to 'tide you over', only to find that you are unable to repay the sum in full on the due date.
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Being attracted by the speed and ease of taking out a loan without considering the costs and risks, because you need the money so urgently.
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Having to pay higher interest rates and arrangement fees to extend a payday loan.
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Being chased aggressively for repayment by certain lenders.
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Not being clear about the APR or actual monetary amount of interest that the loan carries.
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Suffering from mounting financial difficulty and distress.
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Not having any complaints you may have being dealt with in the correct manner by certain lenders.
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A payday loan being fraudulently taken out in your name, and paid into the fraudster’s bank account.
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A CPA being fraudulently set up against your debit card.
Advice on Payday Loans
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Think carefully before taking out a payday loan and consider other ways to resolve your short or longer-term money problems such as a credit union loan, overdraft or the Social Fund.
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Make sure you are fully aware of the terms of the loan including interest rate, repayment period and penalties for late or non-payment.
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Shop around and compare the costs and conditions.
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Be aware of your rights and where to go for help if you have a problem.
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Be wary of extending a payday loan as it will inevitably cost you even more money.
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Consider instructing your bank or card provider to stop the payment being taken before the due date, if you cannot afford to repay the loan.
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Contact the Money Advice Service for impartial advice on credit and debt.
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Contact Citizens Advice or another not-for-profit debt advice agency if you are struggling to make repayments and need help.
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Always safeguard your identity online and offline to avoid it being stolen by fraudsters to take out payday loans and other transactions in your name.
If you are the Victim of a Payday Loan Scam