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Payday loan debt help: what to do if you can’t afford the payment
UPDATE: 1 July 2014 – new rules from the Financial Conduct Authority (FCA) means that payday loan companies:
- cannot rollover an outstanding payday loan balance more than twice
- must send the debtor an information sheet with contact details for various debt advice organisations. A copy of this information sheet can be seen here
- cannot make more than two attempts to deduct money from a debtor’s bank account by means of Continuous Payment Authority (CPA) unless a rollover has been agreed.
- Must now include a prominent risk warning on all financial promotions.
Taking out a payday loan can feel like a way to sort out a short term money problem. However, often it only postpones the problem to another month. If you’ve got a payday loan and can’t afford to pay it then we can help you sort it out.
I can’t afford my payday loan payment – how do I stop it?
If you know that the payday loan payment is going to be impossible to pay then it’s better to stop it before the company tries to take a payment. Payday loans will usually make you sign up to something called a continuous payment authority (CPA) when you take out the loan. This gives them permission to take payments from your account linked to your debit card.
While CPAs are trickier to cancel than a direct debit, it is possible. This post will take you through how to cancel a continuous payment authority and provide you with links to template letters you might need.
Bear in mind that you may incur charges for not making the payment on the loan, though if they request a payment and the bank rejects it, you get these charges anyway (plus the bank charges on top).
I’ve cancelled the payment – now what?
Once you’ve stopped the payday loan company from taking a payment you need to start thinking about alternative ways of paying the debt. We can help you with this.
We can help you plan out an income and expenditure budget, which will show what you can afford to pay towards your debts, and we’ll be able to give you advice on how to deal with them.
Will I be able to pay by instalments?
The important thing is trying to come to an agreement with the payday loan company. If you’ve not got the money to pay back the loan in a lump sum then the only remaining option is to pay back in instalments.
Ultimately it’s down to the company what they’ll accept but if they know you’ve had debt advice from us and you’re offering them a reasonable payment based on your income and expenditure budget then this gives you a good chance of getting something agreed. If they agree to accept lower payments they’ll usually – but not always – lower or freeze interest and charges on the loan.
If it’s not possible to come to an agreement then it’s best to continue making affordable monthly payments anyway, as this will show that you are trying to deal with the debt. If the payday loan company are unhappy with the payments they will often pass the debt to a debt collector. While this might sound scary, we find debt collectors are usually more willing to negotiate on payments.
Should I roll over my payday loan?
‘Rolling over’ is where you recycle your loan with your current lender or take out a new payday loan to pay off an old one. If you’ve ever heard the nursery rhyme about the old lady that swallowed a fly you’ll know why we don’t recommend this.
The new loan will have to be big enough to cover the amount you originally borrowed, plus the interest of the first loan and will have new interest added on top. This can start a vicious cycle – more and more loans with the amount of debt snowballing.
If you’re struggling with payday loans then we’d strongly recommend that you get in touch with us for debt advice.
24 Jan 2013
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