Help if you’re struggling to pay back a payday loan

If you’re worried about cashflow, take a look at what you’re spending and what income you have coming in.

You can also look at ways to reduce your household bills, such as switching providers for your gas, electricity or mobile phone contracts.

If you’re going to struggle to make payments, it’s important you talk to your lender or provider as soon as possible. If you took out a payment holiday that has now ended, it’s important you understand what happens next.

Find out how to save money and increase your income to help you catch up with your paymentsOpens in a new window at StepChange.

If you don’t contact your lender, they’ll normally follow this process:

1. They might ask you to get in touch by writing to you or calling.
2. They’ll then send you a written ‘default notice’. This gives you an opportunity to arrange how to catch up with your missed payments.
3. If you don’t deal with the debt, the loan will ‘default’. This will usually be after two to three missed payments.
4. When the loan has ‘defaulted’, more interest and charges could be added. Defaults get logged on credit files and can affect your ability to obtain credit. Defaults get logged on credit files and can affect your ability to obtain credit.
5. If you still haven’t responded, your lender might seek a County Court Judgment (CCJ). In Scotland this is called a decree. A CCJ gives your lender more options to enforce repayment of the debt. Bear in mind that these measures can affect your ability to get credit with other lenders in future.
6. The debt may be sold on to a debt collection agency who will make contact and ask for payment, however they are not allowed to visit the property and remove goods. If the debt is still not paid following the issuing of a County Court Judgment (CCJ), the lender can seek to obtain a warrant of control and instruct enforcement agents (also known as bailiffs). It is only at this stage that some goods can be levied and removed to pay towards the debt.

If you tackle the problem early, there’s far less chance that any of this happening.

If you’re struggling to pay back a payday loan, the worst thing you can do is ignore the problem.

Here are the steps you can take:

There is a risk with cancelling a recurring payment that the company is going to charge you a cancelled direct debit fee.

Before you do anything, it's a good idea to talk to your bank or lender about options for keeping up with payments. You can also ask them what will happen if you do cancel and if there'll be any fees or charges.

If you still decide to cancel, do it at least one day before repayment is due. Make sure you tell your lender you’ve done so.

Write down the date and time that you instructed your bank to cancel the recurring payment.

If after this date money goes from your account to the lender, complain to your bank. The bank must give you a refund by law.

It’s a good idea to follow up your phone call with a letter to your bank.

Make sure you tell the payday lender as soon as possible that you’ve cancelled the recurring payment because of difficulties paying back the money.

You’ll still owe the debt and the lender can go on charging interest and fees so it’s important you get free debt advice to help you deal with the problem.

Your payday lender might suggest that you ‘roll over’ your loan for another month or so. This is a bad idea.

It means you have to pay even more charges and interest – so you end up owing much more money.

Instead, get debt advice and consider available options for dealing with your debt.

Before rolling over your loan, the payday lender must signpost you to free debt advice.

If you’re struggling with bills or finding it difficult to deal with a payday lender, contact one of these free, confidential debt advice services:

• StepChange Debt Charity
• National Debtline
• Citizens Advice – England and Wales
• Citizens Advice – Scotland
• Citizens Advice – Northern Ireland
• Advice NI

The adviser will be independent and act in your best interests – they’ll help you get your debts under control and might be able to negotiate and discuss all options with the lender on your behalf.

Tell your lender as soon as you start working with the debt adviser. Follow up your phone call with a letter.

When you’ve done this, your lender must give you a reasonable amount of time to suggest a repayment plan before using debt collectors.

If they keep contacting you while you’re working with the debt adviser, send an email asking them to stop.

Your payday lender shouldn’t try to put you under undue pressure, including:

• calling you at work without your permission
• discussing your debt with your employer or family members
• refusing to deal with the debt advice service acting for you.

If you’ve missed a payment, contact your lender to explain your situation. Try to avoid taking out more credit unless you know you can afford to pay it back.

Have you already missed a payment or are worried you’re going to miss a payment and are not able to come to an agreement with your lender? Then it’s best to get advice as soon you can, especially if you’ve got other debts as well.

Make sure you pay off priority debts first. These are debts such as mortgage or rent arrears, and fuel bills.

Find out how debts are collected when you’re in arrearsOpens in a new window at StepChange and, find out more about how to make a plan to pay your debtsOpens in a new window at Citizens Advice.

The lender then has eight weeks to resolve the situation.

If they don’t meet this deadline or you feel that they haven’t answered your complaint properly, you can complain to the Financial Ombudsman Service.

For help making your complaint, Resolver is a free online service and app that offers consumer advice and simplifies the process of complaining.

If you feel your payday lender has treated you unfairly or you’re unhappy with the repayment plan they’ve proposed, complain to them first using our template letter if you need to complain to your loan providerOpens in a new window (DOCX, 17KB).

The Financial Ombudsman Service is an independent service that deals with unresolved complaints about providers of financial services.

If they judge that the payday lender hasn’t resolved your complaint properly or has treated you unfairly, they can order the lender to pay you compensation.

Having mental health issues might mean you struggle to make the best money-based decisions for you, as well as act on them.

Remember, if you’re struggling financially and with your mental wellbeing, it’s worth contacting your bank, building society, lender or whoever you owe money to, to discuss your options.

However, picking up the phone and talking about your problems is often easier said than done when you’re struggling with your mental health. 

Most places that you owe money to have policies about supporting you if you’re vulnerable. But they can’t help you unless you ask.

For some general tips on how you can manage your mental health visit Rethink It covers everything from setting a budget to getting help if you, or someone you care about, is having a mental health crisis.

MoneySavingExpert have a free, downloadable booklet on money and mental healthOpens in a new window It covers how to handle debts when you’re unwell, working with banks, free debt counselling, tips for bipolar disorder and depression sufferers, whether to declare a condition, and more.