Recurring payments for payday loans
Before giving a loan, many payday lenders will ask you to agree to a recurring payment (also known as ‘a continuous payment authority’). It’s important to make sure you understand how these work before agreeing to one.
How recurring payments work
Recurring payments are regular payments that companies take from your credit or debit card to pay ongoing subscriptions, bills or payday loans.
You need to make sure you have sufficient money in your account when the payment is collected.
A recurring payment lets a payday lender take what you owe directly from your account.
So if you haven’t enough money in it on the repayment date to repay the loan in full you might end up missing essential bill payments or going over your overdraft limit and paying bank charges.
Other repayment options
Before you set up a recurring payment for a payday loan, make sure you understand what your options are and how they work.
Direct Debit: you give your authority to another party to collect money from your bank account by signing a Direct Debit Mandate. You also benefit from the Direct Debit Guarantee Scheme which protects you if there is an error in the payment of your Direct Debit.
A direct debit takes longer to set up and might delay the loan, so most payday lenders do not offer them. If a direct debit fails your bank is likely to impose a charge.
Standing order: you give authority to your bank or building society to make regular payments to another party by signing a form setting out the amounts and dates for the payments.
How to cancel a regular payment
Direct Debit – cancel by notifying your bank or building society. If you no longer want the goods or services, also tell the organisation supplying them to you. If you still want to receive them, contact the supplier as soon as possible to arrange an alternative payment method.
Standing order – you can cancel or change the amount, date or frequency by contacting your bank.
Recurring payment – cancel by contacting your bank and tell them that you have stopped permission for the recurring payment. Your bank must then stop the recurring payment. If your bank allows payments to be taken after you’ve stopped your permission, it must refund the money to you along with any related charges.
Make sure that you tell the lender 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.