How long does it take to process a payday loan?

This depends on the payday loan company that you apply to. Some payday loans are paid within days, but now with increased competition, this has been shortened to hours, while some companies claim they can give you a pay-out within minutes of you applying, depending on the time it takes for your Bank to process the money transfer.

What you should know

Payday loans are a short-term loan for salaried people that need money until their next payday arrives, at which point they must repay it in full, along with any interest and charges.

Recently this has now changed, and people are able to borrow for up to three months or longer and expected to repay back the loan in monthly instalments.  One of the drawbacks with these high cost, short-term loans, is that your financial situation could be a lot worse if you are unable to afford the repayments on time.

To protect borrowers from unscrupulous lenders, the Financial Conduct Authority (FCA) imposed a cap on the interest and default fees a lender can charge, so that means that borrowers will never pay back more in fees and interest than 100% of what they initially borrowed. For example, taking out a payday loan for 30 days will require you to pay no more than £24 in fees and charges per £100 borrowed.  While the default fee capped at £15 plus interest on the amount borrowed, can stop the debt from spiralling out of control.

If you are considering taking out this type of loan you need to think very carefully before committing yourself.  Are you expecting your finances to increase in the next month, or are you willing to cut back on expenditure until you have finished paying it off? 

Take a look at this website to find out more:

How can I improve my chances of getting Payday Loan?

Getting knocked back by lenders including Payday loans can have a dire impact on your business or start-up.  To begin your borrowing journey, you need to start with your credit rating:

Your credit rating is used by lenders to evaluate your creditworthiness. They see it as an indicator to check how likely you are to pay back the money that you have borrowed from them. If you have a low credit score lenders will think they are taking a higher risk by approving your loan application.

If you have a low credit score but have not defaulted on any loans or credit, it might mean that you have no credit history, or you have had fraudulent activity against you. Having a good credit rating will help you improve your prospects of getting the funding you require. People with good credit ratings will usually have a historical record of borrowing money and have made their repayments without defaulting.

You can begin improving your Credit Rating by accessing a free report from Experian, which will show your credit history and ensure that the recorded information is accurate.

You will need to be on the electoral roll, so if you have not yet enrolled, now is he time to do so. Once you have registered, you need to allow upto 8 weeks for it to show up on your credit file. The electoral roll allows lenders to confirm your identity and address and is one of the fastest ways to improve your credit score.

All lenders have their own criteria, but it is generally required that you do not have substantial existing debt on your record, and you are meeting existing debt payments.

The better your credit rating, the cheaper it will cost you to borrow.  This means that you can shop around to find the best credit available for your individual needs at an affordable price.

It is also worth bearing in mind that applying for credit after being refused from a different lender, can also have a negative impact on your credit file.

Understanding the Payday Loan process

A payday loan is an unsecured short-term loan that has to be repaid when the borrower is next paid (payday). Usually, this will involve the borrower to provide verification of their employment or income using their payslips or bank statements.

As individual companies and franchises have their own underwriting criteria, a normalised process has not been formed and can even be done online.  Although the initial loan criteria may differ the process to which it is paid back is similar.

Borrowers will usually either visit a payday lending shop or go online and get an unsecured short-term cash loan, with payment due in full on the borrower’s next pay day.

The borrower signs an agreement and will either give the lender their credit or debit card number or write a post-dated cheque to the full amount of the loan plus fees and interest.

When payday arrives, the borrower is then expected to repay the loan in person or have the lender take it off their credit or debit card or redeem the cheque. If the borrower cannot meet the payment, they could either face a bounced cheque fee or be charged by their credit card company if they went over the agreed limit and have added interest charges with a penalty fee on top, in addition to the initial cost of the loan.

You also need to remember that the loan may incur additional fees or an increased interest rate (or both) if you fail to make the payments.

Before the rules and laws set by the Financial Conduct Authority (FCA), some unscrupulous Payday lenders did not verify income or even run a basic credit check, leaving thousands of people placed into an unsustainable financial situation, with their initial loans of hundreds of pounds, suddenly became thousands with a never end in sight, with a cap placed by law on how much a lender is allowed to offer.

So, for example, a borrower taking out a loan for 30 days does not pay in excess of £24 in fees and charges for every £100 borrowed, and if you default the payment, the most you can be charged in default fees is £15 plus interest on the amount you borrowed.

This cap ensures that you will never pay back more than twice what you borrowed at the outset.

What happens if I default on a payday loan?

Imagine this scenario, you take out a payday loan expecting to pay it back as soon as you get paid. However, payday arrives, and the lender tries to take out the outstanding balance from your bank account, but you have already used up your overdraft, and you are charged by your bank for having insufficient funds to cover it. The lender retries the payment again and again and each time is returned as having insufficient funds, and each time your bank charges you, pushing you further and further into debt.

If you have priority bills such as mortgage or rent, you can stop the payday lender taking money from your account and stop any bank charges, by contacting your bank and asked for the Continuous Payment Authority, standing order or direct debit to be cancelled, depending on how you chose to pay. Under the Payment Services Regulations you can withdraw your permission for a payment directly with your bank, but this must be done at least several days before to allow the time it takes to refuse the payment.

The lender now starts to call, email and visit your property to collect payment from you and may even contact friends and relatives to request you pay back the money or take it directly from them, if they have their bank details. 

In the meantime, the outstanding payday loan balance may increase as fees, interest, usually around 1% per day, and a late charge penalty. So, if you fail to pay back £100 that you initially borrowed for two months, this would mean an extra £87 on top of what you already owe.

In this instance you need to approach the lender as soon as possible, as they have a duty to deal with cases of financial difficulty sympathetically and positively and may even freeze the interest and charges, as well as agree a reasonable repayment plan with you.

Payday loans are a very expensive way to borrow money, with some companies charging an annual percentage rate of up to an astounding 6,000%.  If you take longer than expected to pay back your payday loan, the more your debts will spiral out of control.

Defaulting on your payday loan will also affect your credit file, making it harder to get cheaper credit in the future.

Will a CCJ affect my chances of getting a payday loan?

Your credit file represents your borrowing history and is used by lenders to evaluate how likely you are to pay back credit in the future. A Count Court Judgment (CCJ) is a court order enforcing you to pay back money you owe to lenders. This will usually arrive after several attempts and formal warnings were ignored by the borrower.

How long will a CCJ appear on my credit file?

It depends, if you can pay the CCJ in the 30 days of receiving it, it may not appear on your credit report, if not, it will remain on your credit file and noted on the Register of Judgements, Orders and Fines, for six years and can seriously damage your ability to access cheaper loans and other credit.   That said, if you pay the money back in full after 30 days or more, the judgement will be noted as ‘satisfied’. Although the CCJ will remain on the Register for six years, lenders will be able to see that the debt was paid in full and the issue is now resolved. 

Can I still get a loan?

You can still borrow money, but it will likely cost you a lot more than it usually would, you may also need help from a guarantor with a good credit history.

How do I rebuild my credit file after being issued with a CCJ?

  • Put your name on the public Register for the electoral roll at your current address
  • Meet the repayments for your CCJ and all other credit agreements. If you think that you cannot make the repayments, contact your lenders as soon as you can to find a solution.
  • Do not make more than one application for credit less than three months apart
  • Regularly check your credit report and ensure your credit details are correct