What’s the best way to compare payday loans?

There are so many payday loan companies on the market that finding the best one can be difficult. Not only are you looking for the best payday lender, but you’re also looking for a lender who provides a loan service that suits you. So, what is the best way to compare payday loans? We will discuss:

  • the features of a payday loan
  • the main payday loan comparison points
  • using a loan comparison site

What are the features of a payday loan?

Payday loans and short term instalment loans are most commonly found online. The application process is simple, quick, and usually you receive the funds the same day, if your application is approved. Increasingly, people are opting for instalment loans over single-date payday loans, as the individual repayments are smaller and therefore more manageable for most people. Payday loans have a high interest rate but can be a good way to borrow a small amount of money for a short period of time, especially if you have a bad credit history.

Payday Loan Comparison Points

There are a few things to consider when comparing payday loans:

  • APR (annual percentage rate)
  • Interest rate
  • Late or missed payment fees
  • Repayment frequency
  • Early repayment charges
  • Customer reviews

These points are not only applicable to payday loans. Whenever you are comparing credit products, make sure you research all of the key features so that you have a clear understanding of the service and what it will cost you.

Annual Percentage Rate

The annual percentage rate is often what shocks people the most about payday loans as it’s usually over 1000%. However, APR can be misleading because you will never borrow a payday loan for more than a year, so seeing the interest rate as an expression of 12 months of borrowing is a little confusing. The better way to compare payday loans is by the interest rate, often noted as pa.

Interest Rate

The daily interest rate is the amount of interest that is charged for your borrowing per day. Currently, the FCA have capped the interest rate at 0.8% per day, which works out to 80p per day for each £100 borrowed. Most high-cost creditors lend at this rate, but some payday lenders are slightly cheaper (and every penny counts!) which is why the per annum (pa) interest rate is a clear way to see which lenders are the cheapest.

Late or missed payment fees

On the unfortunate occasion you do miss a payment, it’s worth knowing what each lender charges for defaulting on your repayments. Some lenders may not charge a missed payment fee at all, but in any case, the maximum fee they can charge is £15. Ideally, you don’t want to be missing your repayments, and if you do think you won’t meet the scheduled date, get in touch with your creditor first! They may be able to adjust the repayment dates without incurring the late fees.

Repayment frequency

Repayment frequency is an important factor to compare as it can impact whether you make your repayments on time. Ideally, all of your loan repayment dates should fall on your paydays, so that you can be sure your repayments will be collected on time. It might not always be possible, but it’s worth checking the lender’s website, or contacting them directly to find out the loan repayment frequency options if it’s not obvious from the application form.

Early repayment conditions

When you apply for a loan, you agree to make the full repayments shown in your loan agreement, however sometimes things change so you have 14 days to withdraw from the agreement without having to give a reason. You typically have to repay the loan at the daily rate of interest from the date you applied for the loan until the date it is repaid, and it must be repaid within 30 days of the date you gave your notice to withdraw. This is helpful if you change your mind about the loan, or no longer need to borrow shortly after having your application approved. If you don’t want to withdraw from your loan agreement and you decide you want to repay your loan in advance of your agreed repayment dates, you might be entitled to a rebate, but you won’t always save loads of money by repaying early. As part of your payday loan comparison, it’s worth checking how lenders handle early repayments and if there are any charges for repaying your loan in advance of the agreement.

Customer Reviews

A lender’s customer reviews won’t help you compare the costs of a loan, but they will help you determine how a lender interacts with their customers. If something goes wrong during your loan term and you can’t make your repayments or you need to make an amendment, it can be reassuring to know that your lender will help you in any way they can. Most creditors only want to help you repay your loan but hearing directly from customers themselves about how a lender treats them might help you make the final decision when comparing short term loans.

Payday Loan Comparison Sites

If you’re looking to compare the best UK payday loans, it’s easier if you use an online loan comparison site because they will do most of the work for you. Not every lender is on every comparison website, so you may need to use 2 or 3 to find the best loan for your circumstances, but it’s worth spending a couple of minutes doing your research as it could save you a fair bit of cash. Most comparison sites have a little information about each lender they host, and links directly to the lenders’ websites so you can check their FAQs and About pages to add to your research.

Typically, it’s always suggested you use a borrowing facility with the smallest interest rate, and as payday loans have a relatively high interest rate, this type of borrowing should only be used in emergencies. If your purchase can wait, then it’s best not to apply as even if you later withdraw from the agreement, you will still need to pay interest on your borrowing. If you do need to borrow some quick cash, however, make sure you compare your loan options first!

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