Payday loans, and other short-term lending

What are payday loans?

Payday loans are a type of borrowing known as "high-cost, short-term credit". You borrow between £50 and £1000 and pay back the loan with interest, in one payment on or shortly after your next payday. This kind of borrowing tends to be more expensive than some other types of credit.

There are other types of short-term lending, including:

• instalment loans – payments are spread weekly or monthly over several repayments, typically between three and twelve months
• ‘running credit’ or ‘flex credit’ – the way this works is similar to a bank overdraft, borrowers and given a 'limit' that they can draw up to as an when they need to, provided they pay at least the interest off each month. While the credit agreement has not fixed end date, this type of credit is expensive and intended for short term use only.

Types of complaints we see

We get complaints from consumers who tell us that lenders:

• lent them money without checking that they could afford it, and now they have a lot of extra interest and charges that they can't pay
• were unreasonable or unfair when their financial situation changed
• weren't clear about when payments were due

What we look at

Like all lenders, short-term lenders need to make sure that they’re giving credit in a responsible way. They need to complete reasonable checks to make sure you can afford to repay a loan before agreeing to it. There's a range of information that lenders could use as part of their checks, including your income, regular outgoings, borrowing and repayment history with that lender and their broader use of credit (for example reviewing a credit report).

We’d expect to see that a lender gathered more information - and more evidence of the figures used - where:

• the loan repayments took a large proportion of your income
• you were repeatedly coming back for more money
• the length of the loan or total amount repayable was higher

On the other hand, we might agree that it's proportionate for a lender to have gathered less information if you hadn't already needed to borrow from them before, your loan was for a shorter period, or where the repayment was a small proportion of your income.

How to complain

If you’ve borrowed money and you feel you’ve been treated unfairly by a lender, the first step is to contact them and explain why you’re unhappy.

If you don’t get a response to your complaint or if you’re unhappy with the response, contact us. And if you’re not sure where to start, get in touch with us and we’ll do what we can to help.

Find out more about how to complain.

Putting things right

If we think something has gone wrong, and you’ve lost out as a result, there are a range of things we might ask a lender to do to put things right, depending on the circumstances. This usually involves putting you back in the position you’d be in if things hadn’t gone wrong. It might include, for example:

• refund the interest and charges you’ve paid
• adjust any outstanding balances, if they still exist
• update your credit file
• make an appropriate payment where we think you’ve suffered particular distress or inconvenience as a result of the lender’s actions

Resources

Stepchange helps people sort out debt problems for free.

The Money Advice Service gives free unbiased advice on financial choices.

Detailed advice for businesses

Businesses can find out more in our detailed information about handling complaints about payday loans and short-term lending.