Before giving a loan, payday lenders might ask you to agree to a recurring payment (also known as a continuous payment authority or CPA). It’s important to make sure you understand how these work before agreeing to one.
How recurring payments work
Recurring payments are payments that companies can take directly from your debit card or credit card to pay ongoing subscriptions or bills.
They are also used by some payday lenders to take loan repayments.
You need to make sure you have enough money in your account when the payment is collected, otherwise this could take you over your overdraft or credit card limit, leading to additional charges.
And even if the payment goes through, it might leave you short when direct debits or other deductions come out, causing them to fail (and again incurring bank charges).
So you need to be in control of how much money is going into or coming out of your account at any time.
Other repayment options
Before you set up a recurring payment for a payday loan, make sure you understand what your other options are and how they work.
Direct Debit: you give your authority to another party to collect money from your bank account by signing a Direct Debit Mandate. You benefit from the Direct Debit Guarantee Scheme which protects you if there is an error in the payment.
Standing order: you give authority to your bank or building society to make regular payments to another party by signing a form setting out the amounts and dates for the payments.
How to cancel a regular payment
Direct Debit: cancel by notifying your bank or building society. If you no longer want the goods or services, it’s best to also tell the organisation supplying them to you. If you still want to receive them, contact the supplier as soon as possible to arrange an alternative payment method.
Use this letter on the Which? website to ask your bank to cancel a Direct Debit
Standing order: you can cancel a standing order, or change the amount, date or frequency, by contacting your bank or building society.
Recurring payment: cancel by contacting your bank or card issuer and tell them that you have stopped permission for the recurring payment. They must refund the money to you along with any related charges. But you need to let them know by the end of the working day before the payment is due.
Of course, cancelling the recurring payment doesn’t alter the fact that you still owe the debt to the lender.
If you are cancelling because of difficulties paying back the money, tell the lender as soon as possible, and ask if they can give you time to pay.
Also consider getting free debt advice to help you deal with your debts.
This article is provided by the Money Advice Service.
