The Pitfalls of Short-Term Borrowing and Pay Day Loans


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Continuous Payment Authority means that the lender can take as much money from your account as they want. Image by lusi

Continuous Payment Authority

When vulnerable customers use pay day loans to fund utilities and living expenses, but are unable to pay the full cost of the loan within the agreed time period, unspecified late fees can be added with little or no notice, due to the way in which many companies collect their payments.

A Continuous Payment Authority (CPA) is a popular method – it works in a similar way to a direct debit, with one major difference – the payee can alter the amount they collect at any time.

It’s this instant access to late-payers’ funds that has seen many short-term loan customers descend into a cycle of using loans to pay off loans. For many, this can be an impossible cycle to break.

Speaking to Decoded Science this week, Steve Perry, a long-term campaigner at Say No to Pay Day Loans, tells how his own experiences of payday lending led to his determination to help make changes in the system. He says, “Eighteen months since my own catastrophic case was highlighted…other vulnerable people are still experienceing the same type of problems because neccessary changes in the system have not been made, namely…the abolition of rollover loans and the limit on how often a person can borrow. My campaign is fully focussed on the removal of such loan extension facilities.”

PayDay Loan Alternatives

There are many alternatives to using a pay day loan. Clearly, relying on credit to pay bills every month is going to be a costly business, but if credit is the only solution for an upcoming expenditure, long-term personal loans, or competitively-rated credit cards, via established and reputable banks, offer a far more affordable way of obtaining credit. The crux of the issue with these short-term lenders, however, is that their approach of providing credit to those with a low rating means that they will be the last and only option for those who have already investigated and been denied access to more controlled methods of borrowing.

Avoid Ever-Increasing Fees

Consumers wishing to avoid spiralling and unregulated fees should steer clear of so-called “payday loans” altogether. For those who see a short-term loan as genuinely being their only option, careful and immediate management of the funds and a commitment to using the services sparingly, combined with a continued effort from the authorities and campaigners to gain proper control over the fees short-term lenders are able to charge, are essential.


Shelter. Almost one million people resorting to payday loans to help pay rent or mortgage. (2012). Accessed July 19, 2012.

YouGov. YouGov/Shelter Survey Results. (2012). Accessed July 19, 2012.

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