As you all know the payday loan is a small, short-term unsecured loan with both principal and interest scheduled to be repaid on a single date. Payday loans are the fastest way to obtain credit: first-time, store-based loans take about an hour to process, first-time online loans can take as little as 15 minutes, and repeat loans are even faster to obtain. Online lenders are open 24 hours a day seven days a week.
The financial implications of non-payment
You should always make repayments on your payday loan on time and in full. The interest rates and information we list in our comparison tables assume that you will do this. Payday loan lenders each have their own policies regarding non-payment, this affects the additional interest and charges they apply and the debt collection practices they use.
If you do not make your agreed repayments on time then you are likely to be charged extra interest and additional fees. Some lenders will also take legal action if you repeatedly fail to repay. How much extra you are charged and the collection practices used for non-payment will depend on the payday loan lender you have borrowed from; you should check this before applying. Your payday loan payments will be taken out of your account automatically. However, if you do not have enough money in your account to cover the payment you are likely to incur extra charges. You are also likely to be charged interest on your balance at that point; this may be more than the original amount you borrowed.
If you think you may have difficulty making a repayment you should contact your lender immediately. Failure to do so could impact your credit score and result in additional charges.
The impact of non-payment on your credit score
Non-payment will also be recorded on your credit file. Repeated non-payment may have a negative impact on your credit rating and affect your eligibility for future borrowing. You should always make repayments on time and in full to avoid any repercussions on your credit rating.
Renewal policy information
It is not advisable to renew or extend a payday loan. However, if you do need to you should contact your lender to arrange an extension before they try to take payment. Most payday loan lenders will charge you an extension fee and additional interest on your total outstanding balance. Some lenders will automatically renew or extend your payday loan if you do not make an agreed repayment. This is likely to cost you extra in additional fees, interest and charges. You should check your chosen lender’s approach to payday loan extensions before you apply.
Payday loan collection practices
If you fail to make an agreed repayment on a payday loan most lenders will contact you by phone, post or email to rearrange your repayment. If you repeatedly fail to make repayments then they may use collection practices or take legal action. You should familiarise yourself with the collection practices of your chosen payday lender before you apply.
What are Payday loans?
A payday loan is a one-off, short term loan designed to keep your finances afloat until you receive your monthly wages. You generally have the option borrow between £80 and £1,000 and the idea is that you pay off the loan in full as soon as your monthly wages arrive in your bank.
However this instant-access borrowing doesn’t come cheap, and most payday loans UK companies charge rates of interest into the thousands.
Although payday loan lenders design their packages to be short-term, instant loans there is an option to roll on your debt from month to month – a very bad idea considering the amount of interest you will be paying.