MLR3C2132 - Legislation: Payday Loans

A payday loan is a short term unsecured loan which is repayable on your next payday - up to 30 days away. It is an easy way to borrow money for those who don’t want the formal and lengthy loan agreement procedure with a bank.

Interest rates can be very high

Typical example:

Loan £100

Interest £25

Total repayable £125

Term 1 month

If someone borrowed say £300 they would give the lender three cheques each of £125. At the end of the month the lender would bank the 3 cheques of £125 and the loan would be finished. The customer may be able to extend the loan by paying just the interest. However, in some cases you may find that the value of cheques, are limited to the cheque guarantee card (normally £100). For example, if the cheque is for £100 then the customer will only be paid £87.50.