Unable to repay your payday loan?

Payday loans sound simple and straightforward, however if you can't repay the loan on time, they can quickly become a nightmare.

How payday loans are supposed to be repaid.

With a payday loan, you agree to borrow a certain amount, over a fixed period of time - for example, £150 for 10 days. You don't normally repay using a cheque or by ringing up with your bank details. Instead, the lender will automatically take the loan amount, plus interest, direct from your bank account on the agreed day of repayment. This is a process known as Continuous Payment Authority (CPA).

It's your job to ensure there is enough money in your account to cover your repayment on the agreed date.

If there's no money to pay the loan

It's common for lenders to take the money from 5am on the day of collection. If there's no money in the account, or not enough to cover the whole debt, they will keep trying to collect payments for as long as it takes to recover the entire amount.

As soon as you have problems repaying your loan, talk to your payday lender and try to arrange a repayment plan with them.

If anyone has repaid loans for you in the past, such as friends or family, lenders will also try to take money from their account to settle your debt - again, this will happen as many times as necessary to get the money.

Interest and charges while the money is overdue

Most payday loan providers will immediately slap you with a late payment fee of around £15 if they cannot collect payment on its due date. The loan will also continue to attract interest, often at about 1% a day. This means a £100 debt would balloon to about £187 if you made no payments for two months.

Payday loans are one of the most expensive ways to borrow money, with annual percentage rates up to a staggering 6,000%, compared with a typical credit card APR of 20%. So the longer your payday loans drag on, the more your debts can spiral out of control.

Beware also that failing to repay a payday loan will also damage your credit file, making it harder to get credit in the future.

Cancelling payments

If you do have some money in your bank but need it for your priority bills such as your mortgage or rent, you can stop the payday lender taking money from your account. You need to contact your bank and asked for the Continuous Payment Authority (CPA) to be cancelled (or the standing order or direct debit, if this is how you have chosen to pay). Under the Payment Services Regulations you have the right to withdraw your permission for a payment directly with your bank, you do not need to approach the company first.

If you have written a post-dated cheque to the payday lender to cash on the due date, contact your bank and ask them to cancel the cheque.

You must always give your bank as much notice as possible, at least several days, or they might not be able to cancel the payment for you.

Ask for help

As soon as you realise you cannot pay back a payday loan, you should contact a free and independent debt charity for advice. The Citizens Advice Bureau, Stepchange or National Detline, amongst others, can all offer advice on your rights when dealing with payday lenders and help to get your finances back on track, so you don't have to rely on expensive credit anymore.

Don't be put off by calling these services as they are used daily by hundreds of people who need help for Payday loan issues.

Talk to your lender

The first thing you should do is to let your creditor know that you are in financial difficulty. The minute you realise you are in too deep and you have taken on too much is the minute you should contact them.

If you have taken out an instant loan online and you do not let your creditor know that you are in financial difficulty, they cannot help you. But it may surprise you that, because the companies offering personal loans for "bad credit customers" are licensed by the Financial Conduct Authority, there are certain rules and guidelines that they must follow.

Those rules and guidelines are specifically put in place to help customers who are struggling with payments and who can't repay their debt.

There are lots of different ways you can get in touch to let your creditor know that you are in financial difficulty. Most lenders suggest the best way to contact them is by phone.

Debt collection

If you haven't paid up or devised a repayment plan within a certain time, normally two months, the payday lender will pass your case onto a debt collection agency. This can be very stressful time as you are likely to start receiving letters, phone calls and even home visits demanding the money.

If you reach this stage, you should sit down and work out how much you can afford to pay back and how often. Discuss this with your debt collector. You pay the collector and the collector will pass the money onto the payday lender.

Complaining

If a payday lender doesn't follow the rules laid down by the Financial Conduct Authority (FCA), you can make a complaint. If you're not satisfied with the response or they don't get back to you within eight weeks, you can make a complaint to the Financial Ombudsman Service. This service is free and the CAB website has a template letter to aid you in you complaint and subsequent follow up's.