Payday loan debt: what to do if you cannot repay

Payday loans are designed to be repaid in one go, usually on your next payday. That works if nothing goes wrong. When money is tight, the repayment can take most of your pay, leaving you short for the rest of the month and tempted to borrow again. The rules below, set by the Financial Conduct Authority (FCA), limit what payday lenders can charge and how they can collect. They apply across the UK.

Is a payday loan a priority debt?

No. National Debtline treats payday loans as non-priority because you cannot lose your home, lose an essential service or go to prison for not paying. Your rent or mortgage, council tax, energy and court fines come first. Our guide to priority and non-priority debts explains the difference.

The problem with payday loans is not the lender’s legal powers but the way they collect: usually straight from your bank account on payday, before you have paid anything else.

What is the most a payday lender can charge?

Payday loans are what the FCA calls high-cost short-term credit: unsecured loans with an APR of 100% or more that are due to be repaid, or mostly repaid, within 12 months. Loans taken out on or after 2 January 2015 are subject to a price cap with three parts.

• Daily cap. Interest and fees must not be more than 0.8% of the amount borrowed per day.
• Default fees. If you miss a payment, charges for the default are capped at £15 in total.
• Total cap. You should never have to pay more in interest, fees and charges than the amount you borrowed. So on a £200 loan, the most you could ever repay is £400.

A lender also cannot roll over (refinance) a high-cost short-term loan more than twice. If you think a lender has charged more than the cap, complain to it and ask for the excess back.

How do you stop a payday lender taking money from your account?

Most payday lenders collect using a continuous payment authority (CPA). This lets them take money from your debit card without asking you each time. If you cannot afford the repayment, you can cancel it.

• Tell your bank or card provider. Ask it to cancel the CPA. National Debtline says the bank must then stop the payments straight away, and cannot insist you sort it out with the lender first.
• Tell the lender too, in writing, that you have withdrawn the authority, and offer what you can afford.

FCA rules also limit how lenders use a CPA on a payday loan:

• after two unsuccessful attempts to collect a payment, the lender must not try again unless it has contacted you and you have agreed
• it must not use the CPA to take part of a payment
• it must not use the CPA at all if you have given it reasonable evidence that you are in financial difficulty and cannot afford to pay
• it must not make it hard for you to cancel, and must stop once it knows the CPA has been cancelled

Can you complain about an unaffordable payday loan?

Yes. Before lending, a lender must make a reasonable assessment of whether you can afford the loan: whether you can make the repayments as they fall due without borrowing more, without missing other bills you are obliged to pay, and without it harming your finances significantly. If a lender kept lending to you loan after loan, or lent when you already had several payday loans or were clearly struggling, it is worth asking whether it checked properly.

1. Complain to the lender first, in writing. Say why you think the loans were unaffordable and what you want, for example a refund of interest and charges.
2. Wait up to 8 weeks. If the lender does not reply within 8 weeks, or you disagree with its final response, you can take the complaint to the Financial Ombudsman Service.
3. Watch the time limits. You must go to the ombudsman within 6 months of the lender’s final response. The ombudsman usually cannot look at a complaint made more than 6 years after the loan, or more than 3 years after you knew or should have known you had cause to complain, whichever is later.

National Debtline says a successful complaint can mean a refund of the interest and charges added to the loan. You can complain yourself; you do not need to pay a claims company to do it for you.

If you are in a debt solution, speak to your adviser, insolvency practitioner or trustee before you complain or accept a refund. A refund may belong to your creditors, and National Debtline warns that a refund received during a DRO could mean the DRO is revoked.

Can payday loans go into an IVA, DRO or bankruptcy?

Yes. Payday loans are unsecured, and Citizens Advice lists them among the debts you can include in an IVA. They can also be listed in a debt relief order or included in bankruptcy. Whichever route you take, make sure every CPA is cancelled so no more payments are taken from your account once it starts.

• IVA: a legally binding agreement under the Insolvency Act 1986, run by a licensed insolvency practitioner, usually lasting 5 or 6 years, with fees taken from your payments. Your payday lenders vote on the proposal alongside your other creditors. An IVA is unlikely to be suitable if your total debts are low.
• DRO: free, for people with debts under £50,000, less than £75 a month spare, assets under £2,000 and a vehicle worth less than £4,000. It lasts 12 months, and the debts listed are then written off.
• Bankruptcy: costs £680 and usually ends after 12 months, but can affect your home and assets.

A Breathing Space in England and Wales can freeze interest and charges and pause collection for up to 60 days while you get advice. To compare the formal options, see IVA or debt relief order? or the debt solutions comparison. IVAs and DROs are not available in Scotland: see debt solutions in Scotland.

What to do next

1. If the repayment would leave you unable to pay rent, bills or food, cancel the CPA with your bank before payday.
2. Write to each lender, say you are in financial difficulty and offer what you can afford after your priority bills. Ask it to freeze interest and charges.
3. If you think you were lent money you could never afford, complain to the lender, then to the Financial Ombudsman Service.
4. Get free, impartial debt advice from MoneyHelper, StepChange, Citizens Advice or National Debtline, especially if you have more than one loan: see where to get free debt advice.

For other kinds of borrowing, see types of debt. If you use our checker, we may pass your details to a licensed insolvency practitioner or debt adviser.