Table of Contents
What Are Payday Loans?
A payday loan is a type of short-term, high-cost credit designed to help borrowers cover urgent or unexpected expenses until their next wage or salary payment. Unlike a traditional personal loan, which might be spread over several years, payday loans are typically much smaller in amount and are repaid quickly — often within 30 days or across a few instalments over a few months.
Typical Loan Amounts and Terms
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Loan size: Usually between £100 and £1,000 in the UK.
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Repayment period: From your next payday (hence the name) up to 3–6 months in some cases.
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Cost: Interest is capped by the Financial Conduct Authority (FCA) at 0.8% per day, and you will never repay more than double the original loan amount.
How They Differ from Traditional Loans
Traditional lenders like banks and building societies rely heavily on your credit history when making decisions. Payday lenders, however, place more emphasis on:
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Your current income (salary, wages, or benefits).
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Affordability checks, which look at your monthly expenses such as rent, utilities, and existing debts.
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Your recent financial activity, such as bounced direct debits or overdraft usage.
This means payday loans are often accessible to people with bad credit, though approval is not guaranteed.
Common Uses for Payday Loans
Borrowers usually turn to payday loans for urgent, time-sensitive costs, such as:
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Emergency car or home repairs.
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Covering bills or rent before payday.
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Replacing essential household items like a boiler or fridge.
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Shortfalls in income when unexpected expenses arise.
💡 It’s important to note that payday loans are not intended for long-term financial planning or managing large debts. They should be used only when other, lower-cost options are not available.
Why People Consider Payday Loans
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Speed – Many lenders offer instant decisions and same-day transfers.
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Accessibility – Some lenders consider applicants with poor credit.
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Flexibility – Smaller loan amounts can fill short-term gaps.
Can You Get a Payday Loan with Bad Credit?
Yes — some payday lenders will consider applicants with poor credit. However, approval depends on more than just your score. Lenders are legally required under FCA regulations to assess whether you can realistically repay without undue hardship.
Factors they’ll check include:
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Your current income (salary, benefits, or self-employed earnings).
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Regular expenses such as rent, bills, and childcare.
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Any existing debts.
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Bank statements showing affordability.
💡 Tip: Even if you have defaults or CCJs, lenders may approve you if they see regular income and evidence of stability.
Direct Lender Payday Loans Explained
A direct lender payday loan means you’re applying straight with the company providing the funds, rather than going through a broker.
Advantages of direct lenders:
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Clearer communication (you deal with one company).
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Potentially quicker decision and payout.
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Transparency on fees and repayment terms.
Disadvantages:
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Limited choice if you only apply to one lender.
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Higher chance of rejection if you don’t meet criteria.
Broker vs. Direct Lender: Which Is Better?
Brokers act as middlemen, passing your application to multiple lenders. This can increase your chances of finding an approved offer, especially with bad credit.
Broker Pros:
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Wider panel of lenders.
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May help find the “best fit” for your situation.
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Usually free to use (they earn commission from lenders).
Broker Cons:
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Extra step in the process.
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More marketing follow-ups if not regulated carefully.
👉 If you want more lender options, a broker could help. If you prefer direct communication and simplicity, apply with a direct lender.
The Costs of Payday Loans
Payday loans are among the most expensive forms of credit. UK regulations cap the daily interest rate at 0.8%, and total repayment can never exceed 100% of the amount borrowed.
Example Cost Table
| Loan Amount | Repayment Term | Typical Interest | Total Repayable |
|---|---|---|---|
| £200 | 30 days | £48 | £248 |
| £500 | 3 months | £240 | £740 |
| £1,000 | 6 months | £480 | £1,480 |
Figures are illustrative. Always check your lender’s actual terms.
Risks and Responsibilities
Before taking out a payday loan, consider the risks:
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Debt Cycle: Rolling over or taking multiple loans can trap you in high-cost debt.
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Credit Impact: Missed repayments are reported to credit agencies.
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Stress: Short-term relief can lead to long-term financial strain.
✅ Responsible borrowing tip: Only borrow what you can repay comfortably from your next wage or budgeted income.
Alternatives to Payday Loans
If you’re struggling with bad credit, payday loans aren’t your only option. Consider:
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Credit unions: Community-based lenders often have lower rates. (Find your local credit union)
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Payment plans: Many utility companies and councils offer payment plans for arrears.
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Budgeting loans: Available through the government for certain benefits. (See GOV.UK)
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Debt advice charities: Free, confidential help from StepChange or Citizens Advice.
Tips for Improving Your Chances of Approval
If you decide to apply for a payday loan, here are some ways to strengthen your application:
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Apply only for what you need — lower amounts are more likely to be approved.
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Ensure your income and expenses are documented.
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Avoid multiple applications in one day — too many credit searches can harm your score.
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Maintain a stable bank account and regular income deposits.
Consumer Duty and FCA Regulations
All payday lenders and brokers in the UK must be authorised by the Financial Conduct Authority (FCA).
Key rules include:
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Affordability checks: Lenders cannot approve loans you cannot afford.
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Cost caps: Maximum 0.8% daily interest, default fees capped at £15.
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Total cost limit: You never repay more than double the amount borrowed.
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Fair treatment: Under the FCA’s Consumer Duty, firms must put customers’ interests first and provide clear, fair, and not misleading information.
Summary: Should You Apply for a Payday Loan with Bad Credit?
While it is possible to get a payday loan with bad credit, it’s not guaranteed, and it comes with risks. If you do apply, weigh the costs, compare lenders carefully, and only borrow what you can repay.
If you’re struggling financially, it’s wise to explore alternatives such as credit unions, payment plans, or debt advice before committing to a high-cost short-term loan.
👉 For more information, visit our Payday Loans Guide or explore Alternatives to Payday Loans.
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