Problems paying back a payday loan

If you’re struggling to pay back a payday loan or think that the lender has treated you unfairly, here’s how to tackle the problem.

What to do if you can’t pay back your loan

If you’re struggling to pay back a payday loan, the worst thing you can do is ignore the problem. Don’t panic or struggle in silence, here are the steps you need to take:

1. Contact your payday lender as soon as possible

You are not alone

If you need help with a payday loan, remember that you’re not alone. In 2013 the debt advice charity StepChange helped 66,557 people in the same situation.

Source: StepChange Debt Charity

They must by law:

  • treat you fairly and with consideration allowing you reasonable time to repay the loan which may include freezing interest and suspending charges
  • suspend recovery of the debt for a reasonable period if you are developing a repayment plan with a debt adviser or on your own
  • direct you to sources of free and independent debt advice

In addition, they should:

  • consider accepting small token payments temporarily if your repayments mean you haven’t enough money left for essentials like food, rent or mortgage, and utility bills
  • not bombard you with phone calls, emails and text messages

Remember to keep copies of all emails and letters you sent to the lender and write down details of your phone calls to them. This is evidence of how you’ve tried to contact them if they don’t reply and you need to make a complaint. (See How to complain about a payday lender below.)

2. Think about cancelling the recurring payment

If you can’t afford the loan repayments or paying the loan means you are not able to pay for essentials like rent or mortgage, food and utility bills, you can phone your bank and cancel the recurring payment (‘continuous payment authority’) that allows your lender to take money from your account.

Do this at least one day before repayment is due and make sure you tell your lender you’ve done so.

Write down the date and time that you instructed your bank to cancel the recurring payment. If after this date money goes from your account to the lender, complain to your bank. The bank must give you an immediate refund by law.

It’s a good idea to follow up your phone call with a letter to your bank. You can use the the National Debtline’s letter to withdraw a continuous payment authority with your bank.

Make sure that you tell the payday lender as soon as possible that you’ve cancelled the recurring payment because of difficulties paying back the money. You will still owe the debt and the lender can go on charging interest and other fees so it’s essential you get free debt advice to help you deal with the loan.

3. Refuse to roll your loan over

Your payday lender may suggest that you ‘roll over’ your loan for another month or so. This is a really bad idea. It means you have to pay even more charges and interest – so you end up owing much more money. What you should do instead is seek debt advice and agree a repayment plan that you can afford with the lender.

Before rolling over your loan, the payday lender must refer you to free debt advice. And from 1 July 2014 they cannot roll over your loan more than twice.

4. Get help from a free debt adviser

If you’re struggling with bills or finding it difficult to deal with a payday lender, contact one of these free, confidential debt advice services:

The adviser will be on your side – they’ll help you get your debts under control and can negotiate with the lender on your behalf.

Tell your lender as soon as you start working with the debt adviser. Follow up your phone call with a letter – you can use Which’s letter telling a payday lender that you’re working with a debt adviser.

Once you’ve done this, your lender must give you both a reasonable amount of time to come up with a repayment plan before using debt collectors. If they keep contacting you while you’re working with the debt adviser, send an email asking them to stop.

Other points to remember

Your payday lender should not try to put you under undue pressure, including:

  • calling you at work without your permission
  • discussing your debt with your employer or family members
  • refusing to deal with the debt advice service acting for you

How to complain about a payday lender

If you feel your payday lender has treated you unfairly or you are unhappy with the repayment plan they’ve proposed, you should first complain to them. Use our template letter to do this.

The lender then has eight weeks to resolve the situation. If they don’t meet this deadline, or you feel that they haven’t answered your complaint properly, you can complain to the Financial Ombudsman Service.

Alternatively, for help making your complaint you may want to consider using Resolver. This is a free online service and app that offers consumer advice and simplifies the process of complaining.

Using the Financial Ombudsman Service

The Financial Ombudsman Service is an independent service that deals with unresolved complaints about providers of financial services. If it judges that the payday lender hasn’t resolved your complaint properly or has treated you unfairly, the Financial Ombudsman can order them to pay you compensation.

Read case studies of complaints about payday lenders on the Financial Ombudsman Service website.