See the campaign to ban PayDay loans at foot of this page.

What is a Pay Day Loan?

A 'Pay Day' Loan is a short term loan taken out for anything up to a month with the amount borrowed being paid off in full by debit card on pay day. However some firms will allow a smaller payment to be made and convert the outstanding balance into a loan to be repaid over a longer period. Loans usually range from £80 to £750.What is the interest rate on 'Pay Day' loans?

Generally, you will be charged £25 for every £100 borrowed which equates to an interest rate in this case of 25%. This is fine if the amount borrowed is paid off ‘on Pay Day’ i.e. 31 days later but if it is not, the interest continues to build on the outstanding balance and this is where the problems start.

Lenders are required to clearly state what the APR is to two thirds of their customers on their loans and in the circumstances above this could range from 1,355% to as much as 1,845% depending on the lender used, the amount borrowed and the term.

What is Representative APR?

From the 1st February 2011 any business that offers loans or products on credit has to change the way they show their APR. It is no longer described as a 'Typical APR' but as a 'Representative APR'.

This means that 2 things have changed;

• Previously the lender had to detail the typical APR of a loan that applied customers that would have replied to that advert, this has now been reduced to 51% of customers

• Lenders now have to include a the rate of interest in their Representative APR example

What does APR stand for?

APR stands for Annual Percentage Rate; it includes such things as

• the interest rate you must pay;
• how you repay the loan; i.e. the length of the loan agreement (or term); frequency and timing of instalment payments and amount of each payment;
• certain fees associated with the loan;

Lenders must tell you what their Representative APR is before you sign an agreement and it will vary from lender to lender.

Are Pay Day Loans expensive?

When we last checked with one Pay Day lender, 18 July 2011, we found that  if you had borrowed £50 over 60 days with a rate tier of 'average' then you will pay back £79.50, this is an APR of 2,222.46%.

In another example with a different lender if you borrowed £300 for 30 days then you would pay back £395.89.

So yes they are expensive. If you fail to clear the amount borrowed as previously agreed then you will receive penalties and additional costs, then it becomes really expensive!

Can anyone get a Pay Day Loan?

To be able to apply for a Pay day Loan you need to be;

• over 18 years old
• have a bank account
• in full time employment

How do you get the money from a Pay Day Loan company?

You can get the money in two ways,

Remember it is your responsibility to make sure you have enough money in your bank account to pay for this.

Why do people go to Pay Day Loan firms?

Due to circumstances many individuals are left with no form of credit. Many of those applying would be usually be turned down by main High Street lenders. When they need money to pay for car servicing, replace a broken washing machine or oven, for example or are under pressure to pay a bill to avoid court action they may be panicked into taking what seems to them to be an easy way out.

Consequently, and especially in the current economic climate, these firms are seeing an upturn in business.

What is the Government doing about these types of loans?

The Government is currently looking into the way these firms operate. In some states in the USA such loans are illegal, as it is unlawful to 'rollover' the interest on the debts as this makes the debt accumulate beyond the original credit agreement.

What do these firms claim in their defence?

They claim that it is misleading to talk about APRs in relation to Pay Day loans as the money is usually lent over a very short period of time. They claim that the majority of people pay off their loans during or around the end of the repayment period and that the loans do not spiral into huge unmanageable debts.

Be warned though, it all depends on your circumstances but things can easily get out of hand!

Is there any other way I can borrow money?

If you are unsuccessful in obtaining help from a bank then try joining a 'Credit Union'.

The Government recently relaxed the rules on 'Credit Unions' to make it easier for them to operate. They will help you save a little each month and in return will be prepared to offer you an advance at a fair interest rate, sometimes at an even lower rate than other recognised UK lenders.

For example for a £200 loan the interest rate could be as little as 1%, making the £2 per month interest payment far more manageable.

How to deal with debt

If you are struggling to meet your payments then try our free budget form

This form will help you work out how much you need each month to meet your essential bills before you pay your unsecured debts, such as your store cards, credit cards and personal loans.

It's free and has a built in debt predictor. If you want help after filling in the form then just send it to us and we will get back to you.

Say Not To PayDay Loans Campaign

Interested in signing a petition to ban PayDay loans then visit the official website of Steve Perry, himself a victim of 60 such PayDay loans.

What are PayDay loans? What are the benefits? Why are they considered so dangerous by many? Most importantly what happens when it all goes wrong, and how do you as a consumer get yourself back out of trouble.

The following website with a video link will talk you through the loan process & the pro's and con's. It will dismantle phrases like responsible lending and rollover loans and give you an insight into just what regulatory changes they are campaigning for.

Say No To Payday Loans Official Website