What is an unaffordable payday loan?
What is an unaffordable loan?
An unaffordable loan is any loan that you struggled to pay, even if you managed to pay it back. Here’s a quick checklist for you to decide.
The loan may be unaffordable if:
You already have other payday loans outstanding
You had to borrow further to pay the loan
You had to cut back on rent to pay the loan
You had to cut back on energy bills to pay the loan
You had to cut back on food to pay it to pay the loan
Think your payday loan was unaffordable?
How do I know that my loan was unaffordable?
Proving that a loan was unaffordable is a big part of any complaint against payday lender, such as QuickQuid, Wonga, Sunny or LendingStream. But what does unaffordable really mean? And can a loan you have paid off still be classed as unaffordable?
Simply put, an unaffordable loan is one that you had trouble paying back, or never had a chance of paying back without struggling. Just because you managed to pay off a loan does not mean it was unaffordable.
Your loan was likely unaffordable if you had to do one or several of the following:
Borrow from another lender to pay the loan off
Cut back on essentials (like food shopping)
Missed payments on your bills, rent or mortgage
Roll a loan over
Walk to work when you normally get the train or bus
Miss medical appointments because you could not afford to go
If you fit with one of the above descriptions, you can make a payday loan complaint to get back interest and charges.
Why did my lender not check that my loan was affordable?
Payday loans are supposed to be short-term loans and your lender should have made sure that you were in the position to pay it back within the period agreed upon. This is usually one month or less.
In most cases, payday lenders will carry out what they call an affordability check. If they did not do this at all then they cannot argue that your loan was affordable.
The higher the loan, the more thorough this affordability checking process should have been. If you borrowed £500 with only a brief affordability check then your loan may have been unaffordable.
The Financial Ombudsman Service say that unaffordable means:
lending that the consumer could not reasonably afford at the time it was taken out.
They also say that people who had more than one payday loan – either with the same lender or several different lenders – are likely to have been sold unaffordable loans.
This is because this behaviour suggests the borrower is relying on short-term loans to meet daily costs or to pay off other loans.
What can I do about my unaffordable loan now?
If a loan was unaffordable, then the lender is duty-bound to refund your interest and any fees. They know this and they know that the Financial Ombudsman will insist on it.
If you think you were issued with an unaffordable loan, then it’s likely your lender breached regulations.
This means you can complain to get back interest and charges.