Repayments for payday loans are typically taken out from your account on your scheduled pay date, this is a date that you can choose and confirm with the lender before taking out the loan. The idea is that you will have sufficient funds in your account that can be collected, so your loan repayments are always on time.
For this reason, most people select their pay date as the day that they get paid from work, so that they are more likely to have money in their account. For most people, this is the last working day or last Friday of the month. Some people prefer to choose a day or two after, just so their income from work has had some time to clear and so that they can get other finances in order.
Repaid in monthly instalments
Unless you have opted for a simple one-month payday loan, this will be paid in full on your next pay date. However, as per FCA regulation, most payday loan lenders in the UK are commonly offering products that are repaid in monthly instalments over 3,6,9 or 12 months – or however many months you decide.
The majority of lenders working with Payday Loans Hub offer loans repaid in equal monthly instalments so you know exactly how much you will be repaying each month and you can just get into the swing of this same amount coming out of your account for the duration of the loan.
There are a few niche lenders that we work with who offer a slightly different payment arrangement. Some will take higher repayments to begin with and then lower payments at the end. It still works out to be a similar amount that you have repaid for a £200 or £300 loan, it is just the repayment structure is different.
How interest and capital works
Like any loan or mortgage, your repayments are made up of interest and principal. The principal is the amount you have requested to borrow e.g £50 to £2,500 and the interest is what the lenders charges for providing the loan, which is typically around 0.8% per day.
When you are repaying your loan each month, you start by paying off most of the interest first and some of the principal. By the end of the loan term, this changes to paying off more principal and less interest.
This is useful to know, because some lenders say you can only pay off the interest if you are having difficulties. Also, if you default on your loan and the interest increases, this is another way of understanding the costs of your loan.
Borrow £300 for 6 months and repay with 6 payments
Payment 1 £89.72 (Principal £58.52/Interest £31.20)
Payment 2 £89.72 (Principal £29.89/Interest £59.83)
Payment 3 £89.72 (Principal £39.02/Interest £50.70)
Payment 4 £89.72 (Principal £48.32/Interest £41.40)
Payment 5 £89.72 (Principal £58.04/Interest £31.68)
Payment 6 £82.11 (Principal £66.21/Interest £15.90)
Payments are taken automatically
The lenders working with Payday Loans Hub will typically take the repayments directly from your debit card each month. Your card gets ‘tokenised’ during the application stage by taking 1p from your account and sending 1p back. The lender always makes sure that this works prior to funding.
Payments are then collected via a process known as continuous payment authority, which basically means a form a recurring payment. It allows the lender to collect automatically from your account each month – so that you do not have to call up, make a manual payment or do anything else.
The process should be as streamlined and straightforward as possible. It is different to a direct debit because this is something you would set up, meanwhile the continuous payment authority is something that the lender sets up and you have to contact them personally to cancel it, if need be.
Early repayment is acceptable
Every company working with Payday Loans Hub allows you to repay your loan early if you have the means to do so. This is very straightforward given that you may not need a loan for the entire 6,9 or 12 months that you have requested and if you have the means through your income at work, a bonus or an inheritance, you can simply call up your individual lender and pay it off early and go through the my account section of their website.
Best of all, your loan should typically cost less if you repay early because the loan is open for less time and you are not accruing extra daily interest. For this reason, it is a sensible thing to repay your loan off early if you can do so.
Can I pay by cash or cheque?
Typically no, payday lenders prefer to manually collect repayment through your debit account and continuous payment authority. In certain circumstances, they may accept cash or cheque such as the case of arrears or if the lender has a storefront where you can go and manually repay – however, this is not common.
You cannot repay your loan using a credit card because this is like using one form of credit to repay another and can lead to a spiral of debt and more long-term financial products.
What if I am having problems repaying my loan?
Lenders are fully aware that an individual’s circumstances can change and they may be unable to make repayments from time-to-time. The most practical thing to do is alert your lender as soon as possible and they should be able to offer you what is known as ‘forbearance’ or a ‘helping hand.’
The lender may be able to accommodate you by freezing interest, delaying repayment or setting up a pay plan with lower monthly payments for you to make.
If you do not get in touch with the lender, you may expect some emails, text messages and phone calls to follow up repayment. In fact, you may also incur a default fee of £15, some additional daily interest and damage to your credit score – so getting in touch with your lender sooner rather than later is advised.