Pay day loans
Payday loans might seem like a good way of getting cash quickly, but they can be expensive and affect your credit score.
There are more affordable ways of borrowing money if you are short of cash.
About payday loans
A payday loan is a way of quickly borrowing a small amount of cash. This can range from £50-£1,000 and can be paid into your bank account in minutes.
What's the catch?
Well, there are two big ones.
Firstly, payday loans must be paid back quickly, usually within a month. Also, the interest rates are way higher than you would find in a high street bank.
You’ll sometimes see these advertised as the loan's APR (annual percentage rate), which can be over 1,000%! In some cases, for every £100 you borrow, you could pay back another £30 more.
Should I go to a payday loan company?
Try to avoid it. It may seem like an easy way to get money for a short-term fix, but you could build up debts that are much higher than the amount you originally planned to borrow.
This helpful video from Citizens Advice explains your rights when it comes to payday loans.
If you pay back your loan on time
Your credit score can still be affected even if you pay your loan back on time.
Your credit score records your history with money and can decide whether banks or building societies will let you have a bank account, credit card, loan or even a mortgage in the future.
If you can't pay back your loan on time
If you need more time to pay off your loan, you might end up paying back much more than you originally borrowed, and the fees or interest rate may increase. You may also be encouraged to take out a loan from somewhere else to pay off your loan.
By doing this, you’ll be putting yourself in a situation which could spiral out of control.
Other ways to borrow cash
The government offer budgeting loans to help you pay for household items. The loans are interest-free so you only pay back what you borrow. You can get this loan if you’re on certain benefits. Find out more here.
Alternatively, you might be able to borrow cash with a lower interest rate from your bank, building society or local credit union.
Your next step...
Taking out a payday loan can be harmful to your finances. There are ways you can avoid taking out a payday loan. We also have a range of advice and tips on managing and saving money. Find out more on the links below.