Problems with your payday loan
Payday loans are a short term lending option most often used to tide you over until the next pay day, but with the ease they are available combined with extremely high interest rates they can easily spiral into an expensive nightmare if you are not in control of how you will pay back the loan, leaving you paying back many times more than you borrowed and damaging your credit history.
However, payday loans also offer a convenient, quick and simple way to get a bit of extra cash when you need it on a short-term basis. Whilst they have had a lot of bad press the majority of companies practices are fair and reasonable but this article is about what to do if something goes wrong.
The process of applying for a pay-day loan is frighteningly simple. It can even be done via your mobile phone with instant acceptance available in some cases. This makes them feel easy and convenient and can bring a short-term relief when in financial difficulty. However with some APR’s are extremely high, for example an interest rate of 5,000% means that the interest payable over the course of one month will be higher than the cost over 1 whole year when the same amount is borrowed from an average credit card company.
Although payday loans are generally short-term loans of up to one month you need to consider the consequences if you are unable to repay on time as the charges and fees will continue to add up and if there are other better options. The Money Advice Service can offer you advice on the best forms of credit for your circumstances.
If you are unsure whether you will be able to repay the loan on time then it probably shouldn’t be the option for you.
Being advertised correctly
If receive or see an advert for a payday loan since the 1st of July the lender must include a risk warning about late repayment in its online advert, even if the advert was sent to you by email or text message.
Being sold to correctlyWhen you take out a loan your payday lender should make it clear about the loan, repayments and the implications. This should include the following:
- the lender should make it clear how much it would cost you in total to repay the loan - you should have been given an example of the price for each £100 borrowed, including fees and charges;
- the lender should be provided with full and accurate information about how and when to pay back your loan – explain what was missing or inaccurate;
- the lender should check your finances or personal circumstances to see if you were in a position to pay back the loan – the lender should take into account key factors, such as your age, mental health, employment status, income, expenditure, proof of identity or financial history;
- the lender should also explain that a payday loan should not be used for long term borrowing or if you are in financial difficulty not to take out the loan;
- the lender should also tell you what to do if you have a complaint;
- the lender will need to set out clearly how a continuous payment authority (CPA) works and your right to cancel it. A CPA is where you agree to pay the loan by making a series of deductions from your credit or debit card automatically; and
- the lender must also tell you in advance that they were going to take money from your account using the CPA.
- If you feel any of the above was not explained to you correctly then you have the right to raise a complaint with your payday loan lender as you have been sold the policy incorrectly.
- deal with you sympathetically and positively to help offer solutions to resolve the issue
- offer to freeze interest and charges if you are able to make payments under a reasonable repayment plan
- make you aware of free and independent debt counseling organisations
- did not pressure you into extending the loan, if you have done this before they should explain how many times you've done this and how much additional you have paid each time it has been extended;
- tell you about the risks of extending the loan
- did not make clear exactly how much it would cost to extend the loan
- did not check your personal finances and general situation to see if you are able to pay back an extended loan.
How do you complain about a Payday loan lender?
Most payday loan lenders follow a good practice consumer charter and also follow rules set down by the Financial Conduct Authority (FCA). These rules will state that all lenders must:
- make it clear how much it would cost you to repay the loan in total
- check your finances and personal situation to make sure you’re able to pay back the loan
- tell you payday loans should not be used for long-term borrowing or if you're in financial difficulty
- tell you what to do if you have a complaint.
If lenders don’t follow the Charter or the FCA rules, you have the right to complain to the lender. In some instances you can also ask the lender to freeze the interest and help you work out a payment plan. The important part is that if you feel you weren’t given the right information or you aren’t happy with the way a lender is dealing with your complaint then after 8 weeks (or once a deadlock or final response notice has been received) then you can escalate your complaint to the Financial Ombudsman Service for independent assessment.
The Financial Ombudsman Service is proactive in their role and if you have any concerns or issues with your Payday lender then you can call the Financial Ombudsman at anytime for advice and guidance on 0300 123 9 123 or 0800 023 4567.
Or Resolver.co.uk will help you raise a complaint against a payday loan lender and guide you through the journey including sending your case to the Financial Ombudsman for free.