Payday loans are one of the most expensive ways to borrow, so if you’re planning to get one, it’s important to compare lenders. While this type of borrowing is meant to tide you over for a short time, choosing the wrong loan could just create more financial strain.
But, frustratingly, choosing a loan isn’t always as straightforward as just scanning through annual percentage rates (APRs) to see which is lowest – with the apparent “lowest” rate not always the best deal.
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
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.
The annual percentage rate (APR) is designed to provide a summary of the annual cost of borrowing, taking into account the interest and any mandatory charges. All companies issuing loans or other credit-based products like credit cards, mortgages and overdrafts have to calculate the APR for their product in the same way. The watchdog – the Financial Conduct Authority (FCA) – says that lenders must tell you the APR before you sign a loan agreement.
First off, it’s crucial to appreciate that these loans are eye-wateringly expensive, no matter how much lenders try to justify their rates. That said, the APR can be misleading when used in relation to payday loans, for the following reasons.
If you can’t trust the APR, what do you do? Fortunately the answer is actually quite simple.
When comparing lenders, you should first consider how much money you really need to borrow. Once you know how much you need, compare different lenders by focusing on the overall cost, also sometimes referred to as the “total payable”. Aim to keep this figure as low as possible, while ensuring you can comfortably afford the repayment schedule.
The repayment period you opt for will normally depend on the affordability of repayments. While you’ll want to pay off your loan as soon as possible, make sure the repayments are realistic for your budget so you don’t end up with further financial pressure. Many lenders charge late payment fees of up to £15, which could dramatically increase your overall bill.
When comparing short term loans, the APR can be pretty useless, and shouldn’t be your guiding factor when looking for the best deal. Focus on the total repayment amount to guide your decision, which can vary depending on the loan amount, the size and frequency of the repayments, and your credit history.
A payday loan should always be considered your last option when you’ve explored all other alternatives. It remains one of the most expensive ways to borrow, despite an FCA crackdown a few years ago.
If you do decide to apply, make sure the repayment plan and costs are realistic to your financial status.
Browse a list of lenders, like Fund Ourselves, offering flexible short-term loans.
These awards recognise innovation in the areas of credit cards, loans, mortgages and BNPL. We reveal this year’s winners.
Polar Credit is the new short term lender on the block, offering an ongoing line of credit to cover unexpected shortfalls. Discover other companies like Polar Credit, offering innovative short term borrowing facilities.
A list of lenders which, like Tappily, are shaking up the UK short term lending market with innovative credit lines, instalment loans and membership plans
These awards recognise innovation in the areas of credit cards, loans, mortgages and BNPL. We reveal this year’s winners.
We find out how often Brits are going overdrawn in the UK and how new regulations are set to shake up the industry.
Credio was a popular source of short-term credit online until the lender stopped issuing loans in 2018.
If you need to cash a cheque, it can take three days to clear it with a bank. Cheque cashing services give you immediate access to your money.
If you’re looking for a quick financial fix, payday loans aren’t your only option.
Bamboo offers fixed-rate unsecured personal loans up to £8,000 without a guarantor.