What are Pay Day Loans?

It is a loan designed to be taken out over a short period of time. Typically they are advertised as a means to fund unexpected purchases that arise a few days before the end of the month, when you are strapped for cash and waiting for payday. Unlike traditional personal loans they are arranged over days rather than years, so can be used as a stop gap until your wages arrive.

How much can you borrow?

Typically up to £1,000, although some lenders restrict the size of the first loan they will offer. Loan periods start at less than a week and in some cases run to months. Peachy.co.uk, for example, offers borrowing over five days to five months, while Wonga’s loan period starts at just a day and the maximum varies throughout the month. There are not usually early repayment charges, but there are fees for setting up the loan, as well as interest, which is usually calculated daily.

How quickly do they add up?

Say you took out a £200 loan from Wonga arranged over 14 days: after that time you would owe £234.27. If Wonga is unable to retrieve that money from your account on the repayment date it will hit you with a £20 late payment charge. If, instead, you get in touch and ask to roll over the loan (effectively using another one to pay what you owe) for another 14 days, you will then owe £274.17. If, at that point, you decide you still can’t pay and roll over for a month your debt will grow to £368.77. So after two months, you will have accrued interest of almost £170 on a £200 loan.

If you are unable to repay Wonga on the final agreed day, interest is added for up to 60 days at 1% a day, then frozen. In this example, that would add more than £200 to the cost before fees were frozen. After four months the debt will have grown to almost £600.

Information source:

Were you mis-sold a payday loan?

According to a study by Citizens Advice, millions may be entitled to refunds or compensation from payday lenders.

In 76% cases examined by Citizens Advice, borrowers would have grounds to take their complaint to the Financial Ombudsman Service.

Complaints include lenders not checking that borrowers can afford to pay back a loan in time, phoning borrowers during the night or at work or using a recurring payment to take cash without giving advance warning.

Information source:

Copyright © Reclaim Finance 2023.