Who are we?
The Money Advice Service is independent and set up by government. We give free impartial advice to help you make the right choices about how you manage your money.
How do payday loans work?
Payday loans are high cost short-term loans designed to tide people over until payday. Typically you have until your next payday to pay back your loan plus interest, although some payday lenders let you choose the repayment period and date. Read more How payday loans work. More text is displayed below
On the repayment date, the lender takes the amount you have borrowed plus the interest charged directly from your bank account. You will need to make sure you have sufficient money in your account to pay essential bills like mortgage or rent, heating and food, otherwise you could end up going overdrawn and having to pay bank charges.
Only take out a payday loan if you are absolutely sure you can repay it on time and don’t be tempted to roll over the loan. If you are already in financial difficulty they are unlikely to help you in the long run. If you need more than a month to repay find a cheaper alternative and if you have a poor credit rating don’t assume you can’t borrow elsewhere.
When used in the right way, short-term loans can give you choices about your spending that might not otherwise exist.
To make sure that you make a good choice, ask yourself these questions before you apply:
- Is it at least six months since I last took out a short-term loan?
- If I pay the loan back in full on my next payday, will I have enough left to pay all my bills, food and travel until the payday after?
- Do I really understand what getting cash now is going to cost me in the future? Exactly how much will I have to repay and when? How much extra will it cost me if I can't pay on time?
If you answered no to any of these questions you might want to think about alternatives.
- If you do decide a payday loan is right for you, here are some things to think about.
- Only borrow what you absolutely need, not the maximum the lender can offer you.
- Shop around – compare different costs and product features to find the loan that is right for you.
- Pick your lender carefully. Check that the lender is regulated by the FCA (they should tell you this on their web site, in branch or by checking the FCA Consumer Credit Register). This makes sure you’re protected if things go wrong.