A guest article from StepChange.
It’s no secret that payday loans have surged in popularity over recent years. They’re often packaged as a quick and easy way to get the money you need, but in reality they can cause a lot more stress than they’re worth.
If you’re struggling with debt at the moment, it’s a sign that you need help. Payday loans aren’t the answer. We at StepChange Debt Charity usually recommend that you don’t take out a payday loan if you can avoid it. However we know that sometimes things can happen that can leave you with very few options.
Let’s take a look at what you can do if you’re struggling with payday loan debt, and what alternatives are available if you ever find yourself in a bit of a pickle.
Can’t afford to repay a payday loan company? Cancel the CPA
When you hand over your credit or debit card details to a company, you’re authorising them to take regular payments from your account. This is known as a ‘recurring transaction’ or ‘continuous payment authority’ (CPA). They’re sometimes used for gym memberships and magazine subscriptions but we see them most commonly for payday loan repayments.
They’re similar to direct debits, but in the past they’ve sometimes proved difficult to cancel, and some payday lenders had a habit of dipping into your account to take payments at unexpected times. Luckily, rules covering the use of CPA by payday lenders have tightened up in the last couple of years, so you now have similar protection to direct debits – payday lenders can only take the amount you’ve agreed at the time you’ve agreed. If you ask them to cancel the CPA payments, they have to do this, and if they try unsuccessfully to take money by CPA twice, they have to stop using it.
If you can’t afford a CPA you have set up with a creditor, you have the right to cancel it with your bank either by email or phone. When you call your bank, ask the advisor to record the instruction to cancel and don’t forget to ask for their name and make a note of the date and time of the call.
It’s also worth getting in touch with the payday lender by phone and emailing them a copy of our cancelling continuous payment authority template letter. This will let them know that you’ve withdrawn your permission from the bank. Again keep a note of the time and date you speak to them as well as the advisor’s name.
Talk with the loan company
The most important thing to do is to talk to everyone concerned and tell them about your current financial situation. The bank and the payday lender can only help you once they are aware of the difficulties you’re dealing with. So pick up the phone and ring them. The payday loan company may try and force you to pay back at a higher rate than you can afford, but stand firm (it can help if you talk to us first, because then you’ve got a detailed budget to use as evidence).
If you’ve done all you can to deal with the creditor or bank directly, and don’t feel that your concerns have been dealt with, you should complain to the creditor and escalate the complaint to the Financial Ombudsman who will look into the issue for you.
Alternatives to payday loans
Most people end up taking out a payday loan because they’ve struggled to get credit elsewhere. We wouldn’t usually recommend borrowing more money when you find yourself in financial difficulty, and would always point to getting free and confidential debt advice as a much more beneficial option.
If you absolutely need to borrow more money, we recommend you check out these ‘safer’ alternatives first:
Credit unions are non-profit community-based organisations that offer loans, savings and current accounts for their members’ benefit. You can search for your local credit union on the Association of British Credit Union’s website, or call 0800 015 3060.
If you’ve been claiming working age benefits for at least 26 weeks you may qualify for a budgeting loan. This is a loan provided by the Department of Work and Pensions (DWP) to pay for essentials like rent, furniture or clothes.
It may be worth requesting a small overdraft from your bank. You’ll be charged interest on the amount you’ve borrowed, but the overdraft should still work out cheaper than a payday loan. Please be aware that the bank can withdraw your overdraft at any time, and it’s crucial for you to know how you’re going to repay it, how much it’ll cost and not exceed the limit. Beware of going into an overdraft without permission from your bank – unauthorised overdrafts can be very expensive.
Advance from your employer
Some employers will help by giving you a wage advance to cover emergency expenses. This is likely to be interest-free, but the amount available may be small and if your employer offers this help, it’ll usually be a one-off.
Other regional options:
England – Local Welfare Assistance schemes
Most local authorities offer a welfare assistance scheme but the help varies. Some may give loans or grants to help with emergencies. Call your local authority or check their website to see what their scheme offers.
Northern Ireland – Crisis loan
This is an interest-free loan for emergency costs for people living in Northern Ireland. Call 0800 028 8822 or apply online.
Scotland – Scottish Welfare Fund
The fund provides crisis grants and community care grants to cover emergency costs for people living in Scotland. Contact your local council to apply.
Wales – Discretionary Assistance Fund
This is a grant for emergencies for people living in Wales. Call 0330 101 5000 or apply online.
I need payday loan debt advice! What can I do?
If you’re regularly short of money, borrowing more will only make your situation worse. You don’t need to deal with payday loan debt alone. We can provide free and confidential debt advice via our online debt advice tool, Debt Remedy.