Advice: Consider all your options before taking out a payday loan

Pat Hutchinson MBE.
Pat Hutchinson MBE.

By Pat Hutchinson MBE, District Manager, Newtownabbey CAB

Payday loans may seem ideal to get you through to the end of the month, especially as new legislation introducing a price cap on the amount of interest and charges that can be added took effect on January 2.

However, Newtownabbey Citizens Advice is urging clients to look into their options when thinking about borrowing money and to take account of their rights under the new rules, if they choose to take out a payday loan.

The changes are as follows:

• Initial cost cap of 0.8% per day - Lowers the cost for most borrowers. For all high-cost short-term credit loans, interest and fees must not exceed 0.8% per day of the amount borrowed.

• Fixed default fees capped at £15 - Protects borrowers struggling to repay. If borrowers do not repay their loans on time, default charges must not exceed £15. Interest on unpaid balances and default charges must not exceed the initial rate.

• Total cost cap of 100% - Protects borrowers from escalating debts. Borrowers must never have to pay back more in fees and interest than the amount borrowed.

From January 2, no borrower will ever pay back more than twice what they borrowed and someone taking out a loan for 30 days and repaying on time will not pay more than £24 in interest per £100 borrowed.

But despite the new regulations, a payday loan is only manageable if you repay on time every month otherwise your balance will get bigger and bigger each month, due to interest and charges.

January is a challenging month for many household budgets. Despite the new measures, our advice is to think carefully before choosing to take out a payday loan but to consider all other options that are available to you. If however you feel you can’t manage that or it’s all too much, contact your local CAB.

• Get free, confidential and independent advice from your nearest Citizens Advice Bureau or log on to

Call Newtownabbey CAB, Dunanney Centre, Rathcoole on 028 9085 2271 or email