What happens when a payday lender goes into administration?
What happens when a payday lender goes into administration?
Payday lenders including Wonga, WageDay Advance and Juo Loans have gone into administration. But what does this mean for you if you are an existing customer, claiming compensation, or were thinking about taking out a payday loan?
- Will these lenders still be offering payday loans?
- I already have a payday loan, do I still need to repay it?
- I’m claiming compensation from a payday lender. What will happen now?
- I was thinking of making a compensation claim because I was mis-sold a loan. Can I still do so?
- I’m struggling to pay back my payday loan. What help can I get?
- Alternative ways to pay for purchases
- Using other forms of credit
- If you’re claiming benefits
- Local welfare assistance
- How to avoid high-cost credit
- Avoid loan sharks
Will these lenders still be offering payday loans?
No. Once a payday lender goes into administration it will not offer any new loans.
You should still be able to use their services to manage existing loans.
I already have a payday loan, do I still need to repay it?
Yes. If you have already taken out a payday loan you will need to repay it, even if the company goes into administration.
Keep to your regular payment schedule. If you miss any repayments you could be hit by fees and additional charges.
Missing repayments could also harm your credit rating because lenders look at how you’ve managed your existing credit when working out whether or not to lend you money.
I’m claiming compensation from a payday lender. What will happen now?
If you made a successful claim before the payday lender went into administration, but you’ve not been paid, you will join the list of creditors.
Once the business has been wound up, the administrators will then distribute any assets that are left. There is a strict order for who gets paid first. This could mean you might not receive any settlement you were granted.
I was thinking of making a compensation claim because I was mis-sold a loan. Can I still do so?
Once the administrators have been appointed, the Financial Ombudsman Service (FOS) will urgently clarify the impact on compensation cases brought since the announcement was made.
You are not entitled to claim against the Financial Services Compensation Scheme (FSCS) because loans aren’t covered under the FSCS scheme.
I’m struggling to pay back my payday loan. What help can I get?
You are still liable for repaying the loan, so if you are struggling it is important you get free debt advice to help you get back on track with your money. Our debt advice partners offer impartial and confidential advice face-to-face, online or by phone. They will be happy to talk to you, however big or small your problem.
Alternative ways to pay for purchases
Payday loans can be a very expensive way to pay for things and it’s worth looking at the alternatives if you need to find extra cash.
Cut back or save up
If you don’t need money urgently, then see if you can save up first. It might take a while, but it will cost you less than borrowing from a payday lender.
See if there is any way you can cut back on other household expenses to find the money you need.
If you need to replace something urgently, you might be able to use an authorised overdraft, but make sure it’s authorised or included in your interest-free overdraft limit. You will have to pay significant fees if you go into an unauthorised overdraft.
Using other forms of credit
If saving up for a purchase is not an option, there are several ways to borrow money at a lower interest rate than payday loans.
But before you make a decision make sure you know:
- exactly how much it will cost
- whether you can afford the repayments.
Personal loans can offer good rates of interest, depending on your credit score. However, you might end up borrowing more than you need as most lenders will not offer loans of less than £1,000, which might be more than the amount you need for a household purchase.
Credit cards are another option, but you need to be sure you can make more than the minimum repayment each month. If you can’t afford to make significant repayments, borrowing on a credit card can be very expensive.
Loans from credit unions are much cheaper than from other lenders and you can pay the money back at a rate you can afford.
If you’ve been turned down for credit by high street lenders, then you can look at fair finance providers. Their interest rates are lower than high-cost credit providers but higher than a credit union. Repayments are based on an affordability assessment which ensures the borrower can keep up with the repayments.
Pawnbrokers are another option where you leave something valuable, such as jewellery, as security for a loan. The rate of interest you will be charged is normally lower than a high street bank and it’s unlikely you will get the full value of the item, but you will get a quick decision.
Borrowing from friends and family
Borrowing from friends or family might be an option which helps you avoid the risks of high-cost borrowing. Make sure you and the person you’re borrowing from:
- work out an affordable repayment plan
- discuss what will happen if you’re late or cannot afford to repayments
- put your agreement in writing.
If you’re claiming benefits
If you’re on certain income-related benefits, including:
- Income Support
- income-related Employment and Support Allowance
- income-based Jobseeker’s Allowance
- Pension Credit
- Universal Credit
you might be able to apply for a Budgeting Loan (or Budgeting Advance if you’re on Universal Credit) to cover the cost of:
- baby items (such as cot or pram)
- household appliances (such as cooker or fridge)
- clothing or footwear
- work clothes or tools
- travelling expenses
- childcare costs to cover training courses.
Local welfare assistance
If you’re struggling to pay for an essential household item like a cooker, fridge or washing machine and you are getting certain benefits you might be able to find one through your local council’s welfare assistance scheme.
Some local authorities might also give loans to help you buy what you need:
- If you live in England, find your local welfare assistance team using this interactive map on the Children’s Society website.
- If you live in Scotland, find out more about the Scottish Welfare Fund on the Scottish Government website.
- If you live in Wales, find out about the Discretionary Assistance Fund for Wales.
- If you live in Northern Ireland you might be eligible for Finance Support. Find out more on the indirect website.
How to avoid high-cost credit
Payday loans and other forms of credit can work out to be very expensive and you need to think very carefully before you decide to borrow in this way. Before you make a decision read our guides.
Avoid loan sharks
Loan sharks are illegal lenders who often target people who are desperate and who can’t get mainstream credit. They might seem friendly at first but borrowing from them is never a good idea – even if you feel you have no other options.