How To Compare Payday Loans

How to compare payday loans

There are more than 20 lenders offering payday loans in the UK, so choosing one to use for your finances can be a challenge. Each lender will operate slightly differently, and there are many things to consider when choosing a payday loan. Short-term loans are a popular choice for those who need some money quickly. Payday loans are a type of short-term loan specifically designed to bridge the gap before your next paycheck. Other short-term loans are available, allowing repayment in instalments, which can be easier to manage than payday loans. 

With so many payday loans to choose from and so many variables between lenders, comparing your options is essential. In this guide, we explain how to compare payday loans and what to consider when choosing a lender for your short-term borrowing.

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What is a payday loan, and how can I get one?

A payday loan is usually offered by a non-bank company, like an online lender, and they let customers borrow funds for a short period of time. The duration of a payday loan is usually until your next payday or less than 30 days. All payday loan lenders operate similarly, but the process and loan terms are not always the same.

You will give your chosen lender your personal and financial information and request a certain amount of cash. They will assess your situation, if approved, deposit the funds directly into your account. The interest rates are usually very high and will depend on the payday loan you choose, how much you borrow and for how long.

Are payday loans expensive?

Payday loans can be quite costly, and most people borrow between £50 and £1,000. Payday loans generally have short durations, and APRs can be several thousand percent, so taking the time to compare your options is crucial. Repayment terms can vary but often require the borrower to repay the loan amount in full on their next payday. These repayments include fees and interest.

How do lenders decide how much money I can borrow?

Lenders use various factors to decide the amount of cash a customer can borrow, including looking at your ability to make repayments. Depending on the payday loan provider you choose, they might run a full credit check or just look at your employment and current earnings to decide if you can repay the loan. The application process for a payday loan is usually very simple but does vary between providers. Some offer instant decisions where funds are released immediately, whereas others could take 24 hours.

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Your questions, answered

What to consider when comparing payday loans

The majority of people that are considering payday loans are in a difficult financial situation. You might be looking for a payday loan to cover the cost of an emergency or an unexpected expense and need the money as quickly as possible. No matter your reasons for needing a payday loan, it is crucial you choose the right option for your situation. Despite being in an urgent situation, you should take the time to compare the payday loans available to you. Here are a few things to consider when comparing payday loans:

How much can I borrow?

Think carefully about exactly how much money you need to borrow. Ask yourself what is the money for, and is the amount you are borrowing truly justified? The size of your payday loan is probably the most important decision you need to make so be sure to take time to think it all through. Work out how much you will need to cover the outgoings you have and use this to determine your loan amount. It is a bad idea to borrow more than you really need as this will increase the amount of interest you need to pay and make it more difficult to be approved for the loan. Consider how much you can repay when your paycheck comes in and never borrow more than you can afford to pay back. Different payday loans are suited to different loan amounts. Some lenders specialise in larger payday loans of £1,000 and above, while others are more suited to small borrowers.

How long can I take to repay the loan?

Once you have determined how much you need to borrow with your payday loan, you should consider how long you need to pay it back. The loan term is the length of time you have the loan out and will depend on when you can make your repayments. Payday loans are designed to be paid off the next time you get paid, so most lenders offer up to 30 days. Some payday loan lenders will allow longer terms if you need a longer loan, but you should consider if this is really the best option. When deciding your loan term, be realistic about how much you can repay and when. It is always better to take a longer-term loan and be confident you can pay it back than take a shorter-term and end up defaulting. Once you know how long you need the loan, you can compare various payday loan providers to find the best option. Shorter-term loans will always be cheaper because you pay less interest, but you can find longer-term payday loans with competitive interest rates if you look around.

What are the interest rates?

One of the most significant deciding factors when choosing a payday loan should be the interest rate. You must compare the various rates offered by lenders so you can find the cheapest option for you. To be able to compare interest rates, you first need to understand how payday loans are priced. Payday loans use APR, or Annual Percentage Rate, to indicate their cost. APR shows the amount of interest you would pay over one year, and so, for payday loans that have much shorter terms, the APR is generally very high. It is normal to see APRs over 1,000% when comparing payday loans, but that does not mean you will pay 1,000 times what you borrowed. The APR you are offered will vary depending on your loan amount, loan term, and financial situation, so comparing various lenders is essential. Some lenders will advertise 0% APR or interest-free loans, but this needs to be considered carefully. Often these will be interest-free for a very short period of time, and the APR is sky-high. Look in detail at the exact amount of interest you will have to pay for your loan term.

Are there any extra fees and charges?

Interest rates are not the only cost that you need to consider when choosing a payday loan. Lenders may charge additional fees, such as early repayment fees, late payment charges, processing fees and more. This means that even when a payday loan might have the cheapest APR, it could work out more expensive when you have added the extra costs. Payday loan lenders are legally required to be open and upfront about additional fees, but they can still be easy to miss. When you are comparing payday loans, make sure you find out exactly what fees each lender charges so that you can determine the most appropriate option for you.

Does the FCA regulate payday loans?

Choosing a payday loan is about finding the cheapest interest rate and finding a reputable and trustworthy lender. Payday loan scams are still a common problem, and you mustn’t fall foul to one. The FCA, or Financial Conduct Authority, is there to help protect individuals and ensure that lenders are operating appropriately. When a payday loan company is authorised and registered by the FCA, they are proven to follow their lending regulations.

What is the eligibility criteria for a payday loan?

Each payday loan provider will have slightly different criteria for their borrowers. When you compare payday loans, you should make sure you are eligible for a loan from the providers you are considering. Most lenders will look at your age, income, credit score and more. While some payday loan lenders might just require you to have a permanent job, others might require you to earn over a certain amount to be eligible.

Is there a payday loan comparison site?

There are various payday loan comparison sites that make it quick and easy to compare your options. The FCA requires that all lenders list their payday loan products on comparison sites so that consumers can accurately compare them. The challenge is there is not just one comparison site for all lenders, and multiple comparison sites exist online. It is often worth spending the time to look at a couple of different comparison sites to get a complete view of what is out there.

How can I find out if I'm eligible for a payday loan?

Payday loan comparison websites sometimes have an eligibility checker, allowing you to see which lenders are most likely to accept your application. You should bear in mind that the eligibility checker is not a guarantee of approval as lenders will look at your credit score and financial history as well. However, they can quickly show you if you are eligible to apply with a particular lender or not.

How do loan comparison sites work?

These comparison sites will provide you with information on the payday loans, including the interest rate, the total cost of the loan, the repayment options and more. Most sites to compare payday loans will let you enter the loan amount and term you are looking for and display the results specifically for your unique search. This is an excellent way of quickly seeing the payday loans available to you and all the information you need to make an informed decision.

Comparison sites are excellent tools for narrowing down your search and helping you find payday loans that meet your requirements. But remember that these sites will not give you all the details you need to make an informed decision. Once you have narrowed down your search using a comparison site, it is worth looking in detail at each lender you are considering for your payday loan. Look at their terms and conditions, additional loan fees and even existing customer reviews. These are all things that comparison sites might not tell you but are critical for choosing a payday loan.

How to compare payday loans

Now that you know what to consider when comparing payday loans and where to begin your search, you are well on your way to finding the right option for you. Before you get started, make sure you have all the information you need:

Why is it important to compare payday loans?

With so many lenders providing payday loans, and so many options available, taking the time to compare them is crucial. If you do not look at various payday loan lenders, you can easily find yourself paying over the odds or even falling foul to a payday loan scam. Using payday loan comparison websites and reviewing all your options means you are sure to find a trustworthy and reasonably priced loan for your requirements.

What is a payday loan broker?

During your search for a payday loan, you will likely come across a payday loan broker. Brokers often look like payday loan lenders; however, the money being loaned is not coming directly from them. Instead, they work with other loan providers to offer short-term finance to their customers. Payday loan brokers can sometimes get better deals from loan providers than going direct because they bring large numbers of customers to them. However, payday loan brokers may also be taking a fee for their services, but they are paid by the lender most of the time. A broker will not help you out with any issues you might have with your payday loan. If you need to change your repayments or have trouble paying, you will need to deal with the lender directly instead of the broker.

How can I avoid payday loan scams?

One of the most important things to look out for when comparing payday loans is how to avoid scams. Payday loan scams are still reasonably prevalent, despite lenders having to follow strict regulations. There are some things you can do to make sure you do not fall foul to scams. Make sure you check any lender you are considering is authorised by the FCA. Never choose a lender that asks for the fees upfront and look online for reviews and feedback from customers who have used them in the past.

Is a short-term loan right for you?

If you think a short-term loan or a payday loan is the right option for you and your current financial situation, The Money Shop can help. At The Money Shop, we are aware that money challenges come in all shapes and sizes, and everyone’s need for a short-term loan is slightly different. Our broker partner can help you assess your current situation and determine if a short-term loan or payday loan is the best option.

As with all types of finance, our broker partner’s panel of lenders’ short-term loans are subject to terms and conditions. Each different finance product has its own unique terms, and you must be aware of these before applying for a loan. Remember to look carefully at the terms to understand the repayment details, interest rates, and additional charges involved before agreeing to any payday loans.

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