One of the biggest things anyone will tell you when getting a payday loan is “make sure you understand the loan”. So what we thought we would do is help you better understand the basics about payday loans, the sorts of costs involved, the charges and what to do if you cannot repay the payday loan. So without any further ado let’s get you started….

What are Payday Loans?

Payday loans are a short term loan usually backed by your pay cheque.The most important thing to understand at this stage is that they are designed to be purely short term loans. The interest rates are high to make sure the lenders can make some money in such a short period of time, but this also means if you do not pay it back quickly the cost of the loan will quickly increase and this is the common cause of people running into problems with payday loans. Used sensibly and repaid on time payday loans are actually not an expensive form of borrowing. You can expect to pay anything from £10-£35 for every £100 you borrow. This varies widely across the payday loan lenders and is one of the most important questions to ask them: “how much do I have to pay for this loan?”.

How much can I Borrow?

Most payday lenders will allow you to borrow between £50 and £750. The top figure might be lower for the first time you borrow but make sure you do your research.

What are Broker Fees?

Because payday loans are so popular now (well over 1 million people take out payday loans every year) there are many people trying to help you get your loan. Sometimes these are the lenders themselves but often these are actually brokers. I think we can all agree that getting help to find a loan is a good thing, however brokers quite often charge a fee when you take out a loan, and some of the brokers even charge an upfront fee before they even start looking for you. We can tell you now that there is absolutely no reason to pay for a broker. You can apply with the payday loan lenders online in minutes and save yourself a whole heap of money. Some upfront fees can be as much as £69 and some broker fees may even be over 10% of the loan value itself. So, say no to upfront fees and no to brokers fees.

Are you a broker or a lender?

Always ask the person or company selling you the payday loan if they are a lender or a broker and ask for the full details of their fees. If they refuse, you can refuse to deal with them and find another lender, if you like what you hear then do as you see fit. But remember, no fees!

Sadly some payday loan lenders online look very much like lenders when in fact they are brokers. If the site looks of poor quality and does not give you a lot of useful information about the loan move that company to the bottom of your list and move on to the next one. The chances are you will end up paying a nasty and unnecessary fee.

What about charges?

Payday loans often do not come with an early settlement fee but you should of course double check this with the lender. Either find the information on their website or ask them directly. If there is a fee usually it is only relevant if the loan is repaid in the first 10 days of the agreement. But as we say, find the information direct from the lender.

For late payment you will find different rules for different companies but you should understand that you will incur charges similar those of  the payday loan lender FLM Quick:

• £20 if 3 days late
• £7 if 4 days late
• £7 if 11 days late

Some lenders also offer payment holidays. On the face of it this is good news, however you must remember that payday loans are short term loans and the longer they go on for the higher the cost to repay them.

What about if I cannot repay the loan?

You should always let the payday loan lender know about your situation if you cannot afford to repay your loan. Some companies may try and help you, others will reduce fees, but by not letting them know you will be increasing the risk to your credit rating and worse.

You can get advice from several organisations so it’s definitely worth contacting them after your payday lender. Here are some useful links to help you out.

• Citizens Advice Bureau
• Ministry of Justice
• Managing your Debt
• Debt Advice Foundation

We hope this is something you found helpful. If you have any comments or feedback please leave it below.