Considering a payday loan? Watch out for these first!

By Natasha Culzac

Checked your bank and realised you’re up the creek without a paddle? Be sure to read this before getting a payday loan.

1. Perhaps the biggest and most unknown consideration of a payday loan. Be aware that a payday loan could affect your chances of getting a mortgage and other big products later down the line. To know how how payday loans could scupper your chances of getting a mortgage, read this!  Even if you’ve paid it off on time and in full, the pure fact you got one out might sadly indicate to a lender that your finances weren’t all in order and a-okay. Multiple loans over the space of a few months will have the big, red warning sirens going off. All in all, high street lenders don’t like them, and some have explicitly stated they won’t lend you money in future if you’ve taken out a payday loan. A BBC Newsnight report found that two-thirds of mortgage brokers had declined an application for a mortgage after they had a payday loan on their credit history.


 2. If you take out a loan for a few weeks, the entire balance (and then some!) will be deducted from your bank account on payday. If on payday, after shelling out for rent and bills, you’re going to be left short once again, you might enter into a cycle of borrowing to pay off the borrowing. Not good.


3. You can’t simply ring up the lender and say “actually, could you just take half of what I owe this month and the rest at the end of the next month?”...


4. … because some payday lenders have now started doing longer loans for this very purpose, but you need to choose it from the outset - and you’ll pay for the privilege. Wonga now offers a three-month loan and has a representative example on its website: A £300 loan paid back over three months will cost you £152.65 in interest on top of the original £300 borrowed.


5. You will have a hard credit check run on you even if you just want to borrow £50. You can’t really blame them for wanting to know you can pay your debt back, but ‘hard’ credit checks (which are different from ‘soft’ ones) are recorded and you don’t want to be notching up too many on your file if you can help it.


6 When assessing you, payday lenders could look at other aspects of your life, too, such as how much you earn. As part of this, they may even contact your employer to verify that you work where you say you do, though Cash Converters says this is a discreet process and that none of your application information will be passed on. Something to consider if you want to keep your financial situation out of work.


7. You might be able to postpone your payment deadline, such as with, but not only will you just have to pay off the whole chunk a month later (simply deferring your predicament), but on top of that you may have to cough up any outstanding interest and fees anyway, with the whole exercise increasing the cost of your loan.


8. If you fail to repay your loan on time you could get slapped with a late payment fee and be charged any extra interest each day that you continue to go over your deadline. Some firms, like Wonga, provide a grace period of three days for you to rectify your mistake. Others won’t.


9. Last year, new regulations came into force which mean that you won’t be charged - in interest and fees - more than 100% of the original sum. While it’s reassuring to know there’s a limit on your final bill, that’s still potentially double what you borrowed! For example, that means paying back £1,400 even if you only borrowed £700. This is usually for loans spread out over ten, 11 or 12 months.


10. Remember you’ve got options. If you are certain that you need to borrow money, make sure you are getting the right product for you. Make a cup of tea and think long and hard about your options before settling on one. If you want to know the effects of a payday loan, click here.



Top Takeaway

Though it’s a quick solution, a payday loan could leave a bunch of problems in its wake. Make sure you know how much it is going to end up costing you in total, and weigh up the decision carefully. In the long-term you could get caught into a cycle of debt, while your chances of being accepted and given a good rate for credit in the future may be hampered, especially if you want to get on the property ladder in the next six years. See our ‘Alternatives to payday loans’ article to see where else you can get emergency cash.


By Natasha Culzac

Thanks to a journalistic career history and a childhood at Sylvia Young Theatre School, Natasha has her fingers in a few professional pies, doing her best impression of a model and actor as well as personal finance writer. Outside of work she compulsively watches BBC period dramas and constantly lies to herself that this year will be the year she learns French, once and for all.

giffgaff gameplan

Copyright ©2019 giffgaff

giffgaff Limited is authorised and regulated by the Financial Conduct Authority, Firm Reference Number - 680957. Registered address – giffgaff Ltd, 260 Bath Road, Slough SL1 4DX. Company Number - 04196996.

Posts on this site reflect the opinion of the members posting only, and not necessarily giffgaff’s opinions or views. There’s a lot of information here that can help you, however, you must remember that we operate an open forum and sometimes messages that are posted are misleading, deceptive, or inaccurate. If you follow these tips, you do so at your own risk. Always do your research and check the terms.