Draft advice for consumers
Short-term lending is a modern innovative flexible form of finance. Many people use short-term loans to help them cover unexpected expenses or meet their financial obligations. But borrowing money is an important decision.
Make sure you choose a reputable lender that is authorised by the industry’s regulator, the Financial Conduct Authority (FCA). Lenders who are authorised have to meet strict rules that are enforced by the regulator.
If you’re thinking about using an online lender, check that:
- You are clear that you are dealing with a direct lender and not a broker or lead generator. This should be made clear on the company website;
- The lender is clear about the loans it is offering and how much a loan could cost you;
- There are contact details for the lender (not just an online form) in case anything goes wrong; and
- The lender is authorised by the FCA. Reputable lenders will display an FCA number on the website, usually at the bottom of the homepage. You can use this number to check the lender on the FCA register.
You can also check if the lender is a member of the Consumer Finance Association.
The different types of short-term loans available
Not all short-term loans are the same. There are many different types of short-term loans available including single repayment loans and more usually instalment loans repayable over a number of weeks or months. You should think about how much you can afford to repay every week or month and what type of loan best meets your needs.
What to expect from your lender
Lenders won’t offer you a loan if you can’t afford to pay them back. So lenders will check you can afford to repay the loan you are applying for. To do this a lender will ask you about your income and expenditure and will also run background checks to confirm your creditworthiness.
Lenders will usually check your credit record with at least one credit reference agency. This credit search will be recorded on your credit record so other lenders will be able to see a record of the search if you apply for other credit. Please bear in mind that a number of searches in a short period of time may be seen as a red flag for some lenders, which could affect the loan decision.
If you take out a short-term loan, your lender will also tell one or more credit reference agencies about your loan so that it is added to your credit record and other potential lenders can take it into account. If you pay back your loan on time, other lenders are likely to see this as a positive sign that you can manage your money responsibly. There is no evidence, as some suggest, that taking out a short-term loan will prevent you getting a mortgage in future.
The cost of a loan
There is a cap on the amount lenders can charge and your debt can never be more than double the amount you originally borrowed.
Lenders will make clear how much a loan will cost you to repay. Some lenders will charge a fee (maximum of £15) if any repayments are late but many lenders do not charge any fees for late payments, particularly if you talk to your lender and explain your situation.
Repaying your loan
You’ll be told how and when payments will be deducted from your bank account using details on your bank card. This is called a continuous payment authority.
If is there isn’t enough money in your bank account to make the payment, a lender will not try to take a payment from your bank account more than twice. Instead your lender will contact you to find out if you have a problem making your repayments.
Your lender will explain your rights to cancel the continuous payment authority but, if you do cancel, you will need to set up an alternative method of repayment as you will still owe any outstanding debt
It is very unlikely that a lender will allow you to ‘roll over’ your loan to the next month. However, if a lender does agree to extend your loan this will not be rolled over more than twice.
What should you do if you can’t afford to repay your loan on time?
If you are struggling to repay a loan, be honest about it and tell your lender as soon as possible. There are options available to you.
If you explain you are in financial difficulties and struggling to make repayments, most lenders will freeze interest and charges to stop your debt increasing. If you need it, your lender will aim to give you some flexibility to repay your loan including working with you to agree a repayment plan based on what you can afford to pay.
It is important that you give your lender all the information they ask for. Be honest about your situation and let your lender help you.
Your lender will also tell you about where you can get free independent advice to help you manage your money. This free help is available from organisations like National DebtLine, StepChange and Citizens Advice [include links]
Short-term lenders do not collect debt on the doorstep. They do not use bailiffs and your home is not at risk if you cannot pay your debt.
What do I do if I want to complain?
If something goes wrong with your loan or you’re unhappy about anything that has happened you should contact your lender first.
You don’t have to write to a lender. Most lenders will accept complaints via emails, web chats or on the phone. It is important to tell your lender everything though. A lender needs all the relevant information to be able to investigate a complaint properly and decide what to do.
What happens when I complain?
A lender should acknowledge your complaint and has eight weeks to respond fully.
A lender will investigate your complaint and consider it based on your circumstances, what happened both when you took out your loan and while you were repaying the loan.
Occasionally a lender might ask for more than eight weeks to look at your complaint, particularly if you had a number of loans or the loans were taken out some time ago. But a lender must contact you within eight weeks, even it is to ask for more time to investigate your complaint.
Do I need help to complain?
You are the best person to complain as you have all the information to give to the lender.
You don’t need to pay a claims management company or any other third party to help you complain. If you’re not happy about something lenders make it easy for you to complain.
Template letters provided by some consumer advice sites are based on standard complaints that might be quite different to your complaint. Using a template letter could mean vital information is missed out and may make it difficult for a lender to be able to investigate your specific complaint.
Some claims management companies will tell you how much you may be able to claim in compensation. This is probably incorrect because there is no way of knowing what decision will be made about your individual case.
If you are unsure about what to do or how to complain, talk to your lender.
What can I do if I’m not happy with a lender’s response to my complaint?
If you’re not happy with your lender’s response to your complaint, you can pass your complaint to the Financial Ombudsman Service (FOS). The FOS is a free service and will help you through the process if you are unsure about what to do.
The FOS may ask you for more detailed information about your complaint and will also ask your lender for information.
The FOS considers all cases based on the individual circumstances of both the individual and the complaint. Decisions made by the FOS on other cases might look similar but should not be seen as a guide to the potential outcome on your specific complaint.