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.
Payday loans and prepaid cards
Wondering whether you can get a payday loan added to your prepaid card? It's possible - but there are good reasons to think twice.
First off, while this is technically possible, borrowing money to top up a prepaid card goes against the original purpose of prepaid cards. This was to allow those who couldn’t get a credit or debit card, or perhaps even a bank account (because of credit problems in the past), to make card payments rather than relying on cash. Pretty crucial in an increasingly cashless world.
Adding borrowed money to a card designed to help people spend only the money that they already have, so that they always live within their means, could lead to further debt problems for anyone who has struggled with this in the past.
Some people use prepaid cards just because they help with budgeting, but because many of these cards have a monthly fee (typically £5 – £10), it’s those who aren’t eligible for a credit or debit card who have benefitted most from the arrival of prepaid cards.
Payday loans are a way to get your hands on some cash fast, to tide you over until your next payday. However, borrowers can sometimes struggle to repay these higher interest loans on time and they rack up interest fast, leaving some owing up to twice as much as the original amount they borrowed.
- Quick source of money. If you need money in a hurry then payday loans could be a good option. Some lenders can transfer you the money within minutes after acceptance.
- You can still apply with bad credit. Most direct payday loan lenders focus on your ability to make repayments rather than just on your credit rating.
- High interest rates. Payday lenders charge considerably higher interest rates than your typical personal loan. If you don’t repay your loan on time it’ll be very costly as well as damaging to your credit record.
- Not a long term solution. Payday loans don’t provide a long term financial solution due to the high interest rates that come with them.
Compare payday/short term loans
Will a payday lender transfer a loan directly to my prepaid card account?
There’s nothing to stop you asking a payday lender to pay a loan straight to your prepaid card account, and it doesn’t break any rules. However, you may struggle to find a lender willing to do this. When we contacted 2 of the biggest names in payday loans in the UK, both said they do not currently offer this facility.
If you depend on prepaid cards because you can’t get a bank account with a debit card, or a credit card, it’s unlikely that you will be granted a payday loan in the first place.
Some loan companies, known as doorstep lenders, offer cash direct to your door, usually at an extortionate interest rate. These lenders can be regulated (but many are unregulated) and are currently the subject of an investigation by the Financial Conduct Authority (FCA).
How can I transfer money from a payday loan to a prepaid card?
If you receive cash from a doorstep lender, and you want to add it to your prepaid card, then you would do so in the way you usually add cash to your prepaid card – by taking it to a PayPoint or the Post Office.
If you are required to give a lender account details, then you can give your prepaid account details. This might or might not be acceptable to the payday lender.
The bottom line is that if you take out any kind of high interest loan, whatever you do with the cash, you need to ensure you pay it back as quickly as you can.
Should I be taking out a payday loan if I use a prepaid card?
If you have a poor credit history that prevents you from getting a credit or bank account with a debit card, then the chances are that you might struggle to repay a payday loan, because of the typically high interest rates.
If you’re using a prepaid card, it’s safest not to take out a payday loan until your credit history improves and you’re in a position to use cheaper forms of credit.
Can I take out a doorstep loan and add this cash to a prepaid card?
Taking a loan from a doorstep lender puts you in a vulnerable position. Interest rates are high and these lenders can be unscrupulous. Many are operating without submitting to regulation by the FCA, despite the fact this is breaking the law.
If you’ve already taken out a doorstep loan, it’s important to repay it as quickly as possible, whatever you do with the cash – whether you add it to a prepaid card or use it for spending.
Are there options besides prepaid cards?
Basic bank accounts do not charge fees, don’t let you go overdrawn and come with a debit card. Applications for these are credit checked (which they aren’t for a prepaid card), but those with a poor credit record can still be accepted.
This could be a good option if you don’t want to pay the charges for prepaid cards.
A payday lender has refused to pay money to a prepaid card. What can I do?
If this happens, consider how to improve your credit record to get a regular bank account with a debit card. You can get on the electoral roll, seek debt management advice from a charity such as Step Change, and try a credit-builder credit card to get you started. It may take a few months from when you start to take steps to improve your credit until you can open a bank account.
Simon, aged 35, lost his job and had no salary coming in for several months, during which time he took out credit cards, but could not keep up with the repayments. He then got a job but sometimes struggled to pay his monthly debt repayments and meet living costs. He had a prepaid card for all of his spending and needed to buy a new oven. A few weeks before his next paycheque was due he was approved for a payday loan. Simon gave the lender the details of his prepaid card and it transferred £200 to him. He bought the oven and repaid the lender the money plus a hefty £48 in interest, when he was paid.
* This is a fictional, but realistic, example.
If you depend on a prepaid card and need a payday loan, it may be possible to have the money transferred directly to the card, depending on the individual lender’s policy. But do this only if you know you can pay the lender back – don’t be tempted to use that cash for general spending. If you need to borrow to meet basic outgoings, seek advice from the MoneyHelper.
Frequently asked questions
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