Payday loan debt: how to get out
Payday and short-term loans are capped by the FCA, but rolling from one to the next can still trap you. Here is how to stop the cycle and clear what you owe.
Applies to: UK-wide
What to do now
- Do not take a new loan to repay an old one.
- If repayments leave you short for rent, food or bills, cancel the continuous payment authority with your bank and tell the lender.
- Ask each lender for an affordable plan, and get free advice if you have several.
The price cap
- Interest and fees: no more than 0.8% a day of the amount borrowed.
- Default fees: no more than £15.
- Total cost: interest and fees combined can never be more than the amount you borrowed, so you will never repay more than twice what you borrowed in total.
Stopping payments being taken
Most payday lenders take repayments with a continuous payment authority on your debit card. You have the right to cancel it by telling your bank or the lender; your bank must stop it. Cancelling does not cancel the debt, so tell the lender and offer an affordable plan.
Every route, side by side
| Route | How fast | Cost | Credit file | Good to know |
|---|---|---|---|---|
| Ask for reduced payments and frozen interest | Slower, but the balance actually falls | Free | May show an arrangement to pay | Lenders must consider it; they do not have to agree. |
| Debt management plan | Often several years | Free from debt charities | Usually shows arrears, an arrangement or a default | Informal: creditors are not bound by it, but most cooperate. |
| Full and final settlement | Immediate, once accepted | Needs a lump sum | Shows as partially settled | Get the acceptance in writing before you pay. |
| Debt Relief Order | 12 months, then written off | Free to apply | Recorded for six years | Debts under £50,000, spare income £75 a month or less, assets of £2,000 or less (plus one vehicle up to £4,000), not a homeowner. |
| Individual Voluntary Arrangement | Usually five or six years | Fees come out of your payments | Recorded for six years | Legally binding once approved; usually for larger debts. |
| Bankruptcy | Usually discharged after 12 months | £680 to apply | Recorded for six years | You may lose assets, including equity in your home. |
The table puts the routes side by side; it is not a ranking of what is best for you. Which fits depends on your income, what you own, where you live and what you owe, so check with a free adviser before choosing a formal solution. In Scotland the formal options are different — see debt solutions in Scotland.
If the loans were unaffordable
Lenders must check that you can afford to repay without borrowing again. If you were given loan after loan, you can complain to the lender and then to the Financial Ombudsman Service, which may order interest to be refunded.
You never have to pay for debt advice. MoneyHelper (government-backed), StepChange, National Debtline and Citizens Advice all give free, confidential advice with no obligation.
Common questions
Can I stop a payday lender taking money from my account?
Yes. You can cancel a continuous payment authority by telling your bank, which must stop it. The debt still exists, so tell the lender and offer an affordable plan.
How much can a payday loan cost?
Interest and fees are capped at 0.8% a day, default fees at £15, and the total of interest and fees can never exceed the amount you borrowed.
Can I complain about a payday loan?
Yes. If the lender did not properly check you could afford it, complain to the lender, then to the Financial Ombudsman Service if you are not happy with the answer.