Are payday loans a scam? What to watch out for

You can find reputable payday loan lenders. But watch out for scams that prey on those who need quick cash.

How to avoid payday loan scams Common loan scams
Where to get a legit short-term loan Compare loans now

If you’re desperately short on cash, you may be thinking about a payday loan. You may also have a lingering question on your mind: Are payday loans a scam?

Let’s take a look at why payday loans have a less-than-stellar reputation, as well as which scams you should watch out for. Finally, we’ll discuss how you can get a legitimate short term loan.

Are all payday loans scams?

Not all payday loans are scams — there are legitimate lenders that will extend credit to those in need.

However, payday loans can be extremely expensive, and this may be why they’ve acquired reputations for being scams. You can potentially pay up to £24 in interest when borrowing £100 for 30 days, which calculates to a four-figure APR.

Payday loans are also notorious for trapping consumers in endless debt. Because these loans are so expensive, borrowers often have trouble paying them off, often causing them to take out more payday loans to pay off their debts.

All this said, there are payday loan schemes that really are scams. To protect yourself, you’ll want to know what to watch out for.

Warning: Late repayment can cause you serious money problems. For help, go to

Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.

How do payday loan scams work?

Like many financial industries, the payday loan industry has scammers that prey on desperate people. Most scams revolve around consumers unwittingly giving out sensitive information or sending money to unscrupulous individuals.

Here are three payday loan scams and how to avoid them:

  • Upfront fee

    A company posing a lender will guarantee you a loan if you pay an upfront fee first. The company may ask for the money to be sent as a wire transfer, money order, gift card or some other form that’ll be hard for you to get back once sent. After the company receives the upfront fee, they’ll disappear without giving you the loan they promised.

    To avoid this scam, don’t give any money to a lender in order to get a loan. Legitimate lenders do not charge fees before you’re approved for a loan. Any one-time fees for establishing the loan should only be charged after you’re approved and have received your funds. Also, be wary of guaranteed offers. A legitimate lender cannot guarantee a loan without seeing your full application.

  • Payday loan collection

    In one common payday loan scam, someone will call you claiming to be a debt collector. They may threaten you with legal action or arrest if you don’t pay. The caller may also have your personal details, including your bank account number. Having this information doesn’t mean the call is legitimate. More likely, it means that someone else sold your information to a third party.

    Don’t give out any personal information over unsolicited calls, and don’t send money to anybody claiming to be a payday loan collector. If you do currently have a loan, call your lender directly to verify the terms of repayment.

  • Fake online form

    In some scams, you’re asked to fill out an online form to receive a payday loan. After you’ve entered your bank account information, the operators of the website won’t actually extend a loan to you. Instead, they’ll enroll you into some type of membership program that will take money from your bank account.

    To avoid falling prey to this type of scam, thoroughly vet any payday loan website you’re thinking about using. And read all of the fine print to make sure you understand it.

How to protect yourself from a payday loan scam

  1. Compare multiple payday loan operators. It may be difficult to gauge the legitimacy of one payday loan website by itself, but you may be able to spot red flags when you look at multiple websites.
  2. Look for information and reviews online. Negative information (or even the lack of information) online can point to a payday loan scam at work.
  3. Be wary of unsolicited phone calls. Don’t accept a payday loan offer through the phone — there’s probably a better deal elsewhere. Additionally, there’s no way you can verify the legitimacy of the caller.
  4. Check FCA register. It’s always important to verify that the lender you are borrowing from is authorised by the Financial Conduct Authority.

Compare legitimate short-term loans

Table: promoted deals, sorted by total payable

Use the table below to compare legitimate short-term lenders, based on how much you need to borrow and for how long.

How much do you need to borrow?

How long do you need to borrow for?

1 - 5 of 5
Name Product Available Amounts Monthly repayment Total payable Link
Lending Stream Instalment Loan
£50 to £1,500
Go to site
More Info
Representative example: Borrow £200 for 6 months at a rate of 292% p.a. (fixed). Representative 1,333% APR and total payable £386.61 in 6 monthly payments of £64.44.
The Money Platform Short Term Loan
£250 to £1,000
Check eligibility
More Info
Representative example: Borrow £500 for 6 weeks at a rate of 255.5% p.a. Representative APR 839.20% and total payable: £647 in 1 payment.
QuidMarket Short Term Loan
£300 to £1,500
Go to site
More Info
Representative example: Borrow £300 for 3 months at a rate of 292% p.a. (fixed). Representative APR 1297.6% and total payable: £454.37 in 3 instalments of £151.46.
Moneyboat Short Term Loan
£200 to £1,500
Go to site
More Info
Representative example: Borrow £400 for 4 months at a rate of 255.5% p.a. (fixed). Representative APR 939.5% and total payable: £597.48 in 4 payments of £149.37.
Fund Ourselves (Welendus) Short Term Loan
£100 to £1,500
Go to site
More Info
Representative example: Borrow £200 for 122 days at a rate of 208% p.a. (fixed). Representative 504.7% APR and total payable £286.62 in 4 monthly payments of £71.71.
Please note: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.

Payday loan alternatives

Even if you need cash right away, a payday loan isn’t your only option. There are other types of loans that can help you with your cash shortfall. has a helpful guide on alternatives you could seek.

Here are some options to consider as an alternative to payday loans:

  • Ask family or friends for help. Though it’s never easy to approach family or friends for financial help, it’s a much cheaper options as they likely not to charge you interest in your time of need.
  • Credit builder credit cards. Some providers offer credit cards especially for people with a poor credit rating. While these cards charge a much higher interest rates than other cards, but as long as you repay all or most of the balance each month they will still be cheaper than a payday loan. Check out our guide to credit builder cards that you can consider.
  • Authorised overdrafts. It might be worth asking the bank where you have your current account for an authorised overdraft. These, too, can be fairly expensive, although there are some interest-free overdrafts, but it will usually be cheaper than using a payday loan – as long as you stay within the overdraft limit. However, make sure you don’t go into an unauthorised overdraft as this can be very expensive and lead to serous financial headaches.

Short-term loans can be a useful form of borrowing, but should only be used as a last resort. If you’re already struggling for money, taking out an expensive loan could actually end up causing you more financial problems.”

Tom Stelzer, Finder personal finance expert

Look at these factors before taking out a loan

  • The fine print. Before taking out any loan, you’ll need to agree to a lender’s terms. Take your time and read the fine print before agreeing to anything. If there’s anything you don’t understand or find objectionable, don’t be afraid to ask questions or look elsewhere for a loan.
  • The interest rate. A reputable lender will tell you a loan’s interest rate up front. Once you know the rate, you can calculate how much you’ll pay in interest. Consider the future and think about your ability to repay the loan.
  • Fees. Make sure you understand any fees you’ll pay to take out a loan. Some lenders add hidden fees to their loans, so confirm the total amount you’ll pay before you agree to anything. For example, some payday loans may come with fees for loading funds onto prepaid debit cards.

What to do if you've been scammed

Sometimes it can be hard to tell a scam from the real thing. If you think you’ve been scammed, there are steps you can take to protect your personal information and your money from being stolen.

  • Contact the police. Your police should have a non-emergency number that you can call when you know you’ve been scammed. File a police report in order to legitimise the situation. Your bank and credit bureaus will want to see that you’ve taken this action, so it’s an important first step.
  • Contact your bank. Since even legit lenders will ask for your bank account information, you may have given this to a scammer. Even if they haven’t stolen anything from your account yet, putting your bank on alert will help them track your account for any unusual activity.
  • Contact Cifas. If you have identified fraudulent activity you can instruct Cifas, the UK’s fraud prevention service, to put a fraud alert your credit report. This will alert credit reference agencies of the increased possibility of a scammer trying to obtain credit in your name. While the fraud alert is on your account, the credit reference agencies will put extra security steps in place to stop scammers successfully obtaining credit.

These steps might not be able to get you your money back, but they will make a dent in the ability for scam artists to function in the future while helping you protect your identity. The best way to prevent a scam is to know what one looks like, so familiarise yourself with this page in order to know what to avoid in the future.

The bottom line

There are reputable payday loan lenders, but there are also many disreputable companies in the industry as well. Be sure to do your research and thoroughly compare your options for a short term loan before applying.

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