What is a payday loan?
In its most basic form, a payday loan is a small loan typically between £50 and £100 right up to £500. These small payday loans are borrowed over a very short period of time (or until your next 'pay day').
Payday loans are designed for people who have very bad credit and in need of an instant loan to see them through until they get paid.
As the repayment period can vary between a few days to a month, payday lenders apply a high APR that can exceed 1,000%.
What's the criteria of a payday loan?
Applying for a small payday loan is relatively straight-forward. If you are over 18, a resident in the UK, employed and have your salary paid directly into your bank account (with a debit card) then you could be eligible.
The good thing is the direct lenders we compare have the same criteria. So it's definitely worth considering trying our free eligibility checker.
Alternatives to a payday loan
If you've already been looking for a payday loan because you're worried about your bad credit. The first thing to consider before applying for a small payday loan is whether you can borrow from family or friends, or even asking for a pay advance from your employer.
But if these options are not available then it may be worth considering applying for a short term loan through us.
We compare the top direct lenders in the UK so you have a greater chance of being accepted for a better rate than that of a payday loan.
If you're worried about having bad credit then why not try our free eligibility checker? We can give you an instant decision on your chances of being accepted - without affecting your credit footprint (no credit check).
How are we different?
We built Little Loans in a way that allows us to accommodate people of all situations. So, even if you were looking for a small £100 payday loan, try us first!
You can apply for loans between £100, right up to £2,500 over a period of 3 to 18 months.
And even if you are not accepted by one of our direct lenders we may still be able to help you find alternative options such as guarantor loans.
We help over 3,000 people find a loan every single day* and based on Feefo.com reviews - our customers who left a loans review recommended us with an average rating of 4.1 out of 5 from 90 reviews (last updated 29/07/2016).
Payday loans in the UK
Payday loans in the UK have seen significant growth over the years. In 2009 alone - 1.2 million people took out at least one payday loan! Since then, the UK payday loan market has been under scrutiny on several occasions due to the nature of the loan.
Why are payday loans controversial?
Prior to the FCA Price Cap Rules coming into force,< many people found themselves in the 'payday loan trap' where each month's debts increased as they used payday loans as the solution to repay the previous months' debt.
According to a Competition and Markets Authority (CMA) report back in 2014. Payday loan borrowers took out an average of six loans per year!
FCA Price Cap Rules for payday loans
Parliament gave a directive to the Financial Conduct Authority (FCA) to review the payday loans industry to tackle the problems surrounding them and protect consumers e.g. from the risk of repaying more than double of what was originally borrowed.
On the 2nd of January 2015 new legislation was introduced by the FCA which brought price cap rules for payday lenders.
In summary, high-cost short term credit (including payday loans) must meet the following criteria:
Initial cost cap of 0.8% per day
Interest and fees charged cannot exceed 0.8% per day of the amount borrowed
A £15 cap on default fees
If a borrower defaults on a loan, the fees must not exceed £15
A total cost cap of 100%
Borrowers must never pay more in fees and interest than 100% of what was initially borrowed
More detail can be found in the FCA Handbook section, high-cost short-term credit.
Having money problems?
Do you feel like you're stuck in a payday loan trap? It's important that before you apply for any type of credit you are sure that you can make the repayments.
If you are experiencing financial difficulty and your debts are mounting, then we strongly advise that you do not take out additional loans from any credit providers and instead speak to somebody about your situation straight away.
You can get free advice and support from organisations such as
Loans for bad credit
If you're worried about having a bad credit history, why not read our guide on bad credit loans which includes five quick tips to improving your credit score.
Guide to bad credit loans
Debt consolidation loans
If you're looking for a loan to consolidate your debts, read our guide that explains the advantages of a debt consolidation loan.
Guide to consolidating debts