Payday Loans Comparison Guide

Welcome to your complete payday loan comparison guide! Here, you will learn what to look out for when comparing your payday loan options. We’ll present all the information you need to get the best deal when applying for any loan online. We discuss financial concepts, such as principal and interest, in easy and simple terms. We also share with you the shocking results from our loan comparison site review.



Any product or service that is important to you, warrants some comparison to make sure you get the best deal. Payday loans are no different. Before you take a payday loan, you need to compare all the options available to you to ensure you are getting the product that is best for you.



1

Why Should I Compare Payday Loans?

Despite the strong presence of short term loan regulators, we still experience a lot of misleading statements and paid-to-rank priorities on many websites that compare payday loans. It is therefore vital to compare payday loans when considering taking one out. In this article, we present tips and guidance about the different types of loans available. We also discuss how to compare payday loans and various credit offers.

But remember, the best payday loan in the UK is one not taken. This means that before you take out a loan, you should carefully examine whether it is even necessary in the first place.

Before you take out a loan, you should make sure that the price of the loan, its interest rates, and its psychological element – like the concept of a future pledge – are truly justified. For example, it may be justified to take out a loan to buy a comfortable and safe family car. On the other hand, you can not justify taking a loan to buy a new Ferrari with turbo acceleration that makes a jet plane look like Noddy’s red and yellow car.

2

When is a payday loan necessary?

There are instances where taking out a loan or finding some other option may be preferable to using spare cash, even if you do have enough money for something.

Here is an example to put things in perspective:
Let’s say a company needs to purchase a new vehicle. The business may have enough money to buy the car. Nevertheless, it is possible that this is not the best option. If the company does purchase the vehicle with its liquid assets, it may deplete its cash reserves. The business might then find itself facing a cash shortage in the future. It is important to know that no matter how profitable a business is, many companies go bankrupt because they ‘temporarily’ ran out of money to pay current expenses. Therefore, in this case, it may be best that the business lease the vehicle and keep the spare cash in their reserves accessible.

Before applying for payday loans online, you should consider the following options:
  • Family and Friends – It’s always best to request a loan from someone you know well – a good friend or a family member. That way, you can get an easy, interest-free loan. However, the involvement of friends and family with money issues could prove explosive. Often, it’s better to pay interest to a lender who is a stranger rather than jeopardize a close friendship or family relationship.
  • The Bank – Without a doubt, this is one of the best options there is, but! To get a bank loan, you usually need to prove that you don’t need one. In other words, the fact that you need a loan can be a reason for the bank to deny you the request. Like Groucho Marx, the famous comedian once said: “I refuse to join any club that would have me as a member.”
  • Credit Cards – Although a viable option, there is a very real risk of becoming addicted to credit, which has grave consequences on a person’s lifestyle. You also normally have to pay back interest on top of what you borrowed. A person can slip into deep financial trouble without realising they were doing anything wrong
  • Non-Profit Organisations – Another, but more difficult solution, is to find a non-profit organization to give you a loan with a good rate. The problem with such institutions is that they are only happy to give loans when the purpose of the loan is relevant to the agenda that they are promoting.
3

Loan Parameters Explained

Having given up on family, the bank and unsuitable institutions lending to you, there is not much choice other than to turn to the high street market. The high street market is a real jungle, from money changing corner shops, down to the black market institutions. The online market is no small jungle either. Just search Google for the word ‘loan’, and it will return thousands of results, all claiming to be the best.

Even if we assume that all companies are responsible, honest and treat every client fairly, the diversity is so great that it’s hard to compare what is more suitable for our needs and what is less. What makes it even more challenging is that the conditions advertised are not standardized. Therefore, there is no choice but to investigate thoroughly just to know how to compare, and what exactly to look for. We’ll get to that shortly.

Before getting down to the nitty-gritty details, it is important first to understand one of the most important parameters, which is the decision maker when considering a loan. This parameter is the interest rate.

What is the definition of an interest rate? The answer is simple. When we take out a loan, we actually ‘buy money’. This means that we receive money, which is not ours, and return it with an additional amount. This amount is the profit earned by the organization that gave us the loan. Without this profit, nobody would be interested in giving us money (other than those discussed: friends, family or philanthropic non-profit organizations). This profit is called interest.

The amount of interest that you pay depends on three factors:

  • Loan amount – Interest depends on different factors. One of these is the loan amount. For example, a loan of £100 will only cost a little interest, whereas a loan of £10,000 will cost you much more interest.
  • Time period – Interest rates depend not just on the size of the amount borrowed, but also on the time period of the loan. Again, a one month loan will cost you little, whereas a ten-year loan will cost you much more. The loan amount and duration of the loan are not factors controlled by the lender, but by us. We determine how much money we will need, and for how long. When we compare different loan offers, it is important to compare short term loans of the same amount and for the same time period.
  • Interest rate – Besides the loan amount and the duration of the loan, the last factor that determines how much interest we will pay is the interest rate. This element is controlled by the lender. The interest rate is one of the most important factors we want to consider before taking out a loan.

Payday Loans and Petrol Stations

It is possible to illustrate the importance of the interest rate in all sorts of ways. For example, we can think about what happens when we buy petrol. The size of the tank in the car has nothing to do with which petrol is cheaper. But imagine what would happen if one petrol station was selling petrol per liter, the second per kilo, the third per gallon and the fourth per barrel. How would we ever compare which is cheaper?! When it comes to the fuel economy, however, we already know what the solution is: Each country sets a single standard, and all dealers advertise according to this standard. It does not matter what that standard is. The main thing is that it is consistent. Later in the article, we’ll see the UK’s solution for standardizing comparison data for loans and related interest.


Interest is perhaps one of the most important parameters when comparing different loan offers, but it is not always the only one. One of the methods of raising the profitability of a loan is to add extra charges for taking out the loan. These are called ‘origination fees’. They might also be called ‘credit allocation charges.’ A company may charge commission just for transferring the money to you and are also quick to charge for attorney fees for inconveniences. This is much like paying ‘entry fees’ to enter a petrol station before refueling. Some stations call it a ‘bunkering fee’ – the possibilities are endless.

Paying origination fees on a payday loan is like paying entrance fees to get into a petrol station”

When comparing money-lending institutions, one should pay attention to the loan expenses. It could be that an institution, which charges high-interest rates but doesn’t charge origination fees, is preferable to a place with cheap interest but high loan charges.

Understanding risk

After understanding what an interest rate is, the question is; how are interest rates set? Why are bank interest rates low, whereas limited companies charge high-interest rates? Is everyone just doing what pleases them?

Here is an example to put things in perspective:
Let’s say a company needs to purchase a new vehicle. The business may have enough money to buy the car. Nevertheless, it is possible that this is not the best option. If the company does purchase the vehicle with its liquid assets, it may deplete its cash reserves. The business might then find itself facing a cash shortage in the future. It is important to know that no matter how profitable a business is, many companies go bankrupt because they ‘temporarily’ ran out of money to pay current expenses. Therefore, in this case, it may be best that the business lease the vehicle and keep the spare cash in their reserves accessible.

To answer this question, it is important to discuss an important economic element called ‘risk’. It’s amazing how the pair ‘risk/reward’ go together in almost all walks of life. Generally, the greater the risk, the greater the reward. However, one can lose big-time if the risk materializes.

Examples of risk in real life

Let’s consider a real-life example: You want to go on vacation in Italy, see the landscape, eat good Italian food and enjoy life during the summer holidays in about a month’s time. You compare ticket prices online, and find moderately priced tickets – not expensive, but not a bargain. Now you face two choices: If you want to play it safe, you can buy tickets at the price offered to you and seal the deal. Alternatively, you can wait to book last minute, with the hope that the prices will drop.This happens when airlines see the flight date approaching with many seats still not sold. If we know this will be the case, then if we wait, we can save a lot on tickets. But there is also a risk. If there is suddenly high demand for this flight, the airline will raise the prices.

People who hate taking risks avoid investing in speculative markets. They prefer to invest their money in a safe savings plan, where they know in advance that they will receive only a little, but it is guaranteed. In contrast, risk-taking people can invest in a huge variety of things. It can be some risky property, or it can be in oil price. Their reward is potentially huge profits, but it also comes with high risk. If they lose, they can lose a lot.

The risk faced by different lenders

How does this relate to interest rates on loans? Simple. A company lending money to someone they don’t know, who they found over the internet, needs to compensate for the risk with a high-interest rate. The company derives more profit than a company that meets their customers face to face. But, they will have to invest time and effort in reclaiming unpaid debts. This substantially lowers profits.

A different example is a bank. The bank, a conservative institution, hates risk. They prefer to lend money to a familiar and safe customer at low-interest rates. Therefore, although the bank only earns a little bit, its profit is a lot safer.

One method to reduce the risk of granting a loan, is by having cosigners. A cosigner is a different person than the one who took out the loan. In a case of a repayment issue, the lender can demand money from the cosigner. The fact that there are two people responsible for the money reduces the risk.

Another method is using guarantees and collateral. This is very common for car loans. The bank gives a loan a good rate for buying a new car because the vehicle is mortgaged to the bank. This means that if the borrower does not return the money, the bank can take the car, sell it, and use the proceeds to repay the loan. Guarantees and collaterals reduce the risk of a loss massively, resulting in cheaper interest rates.

4

APR Explained

There are all sorts of mathematical factors in this parameter. But, in simple terms, it means the following:

Suppose a consumer takes out a loan and does not repay the loan for one calendar year. This parameter is the percentage of the interest paid for the year, including all expenses. For example, suppose we took a loan of £100 from an institution giving a loan with a 20% APR. After a year, we will have a debt of £120, including all related costs. It does not matter if you call them ‘Credit Allocation Fees’ or ‘fee for the bank manager’s hair appointment’ – everything is included in it.

In most European countries, Britain in particular, the duty of the private banking institutions that provide loans is to publish its ‘Representative APR.’ This will be an average APR (for it is impossible to know if the person reading the publication is a good customer or a dangerous one).

As we wrote earlier, to compare the prices of petrol at petrol stations, the conditions and measurements of sale must be uniform. When it comes to loans, APR is the accepted parameter – it stands for ‘Annual Percentage Rate’.

Problems with APR

The APR can still provide a distorted picture, and one should pay attention to this. In principle, a loan with a 1000% APR will be ten times more expensive than a loan with a 100% APR. However, this is only true if you take the loan for a full year. For short-term loans, the difference between the APR for one month, and an APR for a few months is far less than tenfold. For example, the difference in interest rates between a 1-month loan and a 4-month loan is about four times only. This means that a company boasting an APR of 100% but with poor service might compare unfavorably with a competing APR of 200%, but with excellent service.

Another topic that can be confusing when you compare APR, is whether the loan is a compound loan or a non-compound loan. Non-compound loans use simple interest, which is calculated only on the principal amount of a loan. Compound loans are calculated on the principal amount and also on the accumulated interest of previous periods. Compound interest can also be called ‘interest on interest’. APR cannot compare the two different types of loans.

5

How To Identify ‘Good’ Direct Lenders

There are all sorts of mathematical factors in this parameter. But, in simple terms, it means the following:

Suppose a consumer takes out a loan and does not repay the loan for one calendar year. This parameter is the percentage of the interest paid for the year, including all expenses. For example, suppose we took a loan of £100 from an institution giving a loan with a 20% APR. After a year, we will have a debt of £120, including all related costs. It does not matter if you call them ‘Credit Allocation Fees’ or ‘fee for the bank manager’s hair appointment’ – everything is included in it.

In most European countries, Britain in particular, the duty of the private banking institutions that provide loans is to publish its ‘Representative APR.’ This will be an average APR (for it is impossible to know if the person reading the publication is a good customer or a dangerous one).

As we wrote earlier, to compare the prices of petrol at petrol stations, the conditions and measurements of sale must be uniform. When it comes to loans, APR is the accepted parameter – it stands for ‘Annual Percentage Rate’.

Let’s discuss some ways to decide whether the direct lender under consideration is a good one you should do business with.

How is it possible, in the digital world of today, to know who is on the other side of the screen? It turns out that even in the digital world, good companies have a ‘seal’ worth looking out for. All you need to do is check.

Here are the points you should look for:
  • Website looks professional and approachable.
  • Full contact address including postcode.
  • Check that the names of the people behind the company appear in the “About Us” page, including the CEO.
  • Phone number that works.
  • FCA license number

To help you identify a safe lender’s website, we have published a full infographic here.

How do you know you are dealing with a good lender?

  • Transparent Information:
    Is customer information presented clearly? Is all the information easily available without having to dig for it throughout the site? A good sign is if they let you see all the loan terms (interest, fees, etc.) before you have to fill out a form and identify yourself. This shows that the company isn’t trying to ‘grab’ customers by force. It gives the customer the option to view, evaluate and decide for himself. Only if the customer decides to move forward do they fill out a form and continue the process.
  • Test Calling:
    Don’t be ashamed to call the company and speak to the service personnel on the other side. See their levels of courtesy, professionalism, patience and concern for the customer’s needs. Are they willing to explain how things work, and so on? Sometimes there’s nothing better than a conversation with actual people – even in today’s digital world.
  • Fair:
    Do they treat customers fairly? Perhaps first we should explain what we mean by ‘fair’: Well, transparency, transparency and again, transparency. All the information that the customer needs to know should be available. It should be obvious where the risks are, what you should and should not do and how the loan process works. Look for a general guide that you can download in advance. Companies that publish these guides show that they are taking care of their customers.
  • Loan Calculator:
    Transparency also means, that the lender provides a method to ‘play’ with the loan options, before submitting any application. One of the best available tools is an online loan calculator. A loan calculator is a tool that allows you to see the details of your loan precisely. Beginning with the full payment table (dates of the payments and the sum of each installment) and ending with the total cost of the loan. A loan calculator allows you to play with loan details enabling you to ensure that the loan you intend to take matches your needs. Loan calculators seem like a small detail, but it is an important one.
  • Complaints Procedure:
    Check out whether the company has an orderly ‘complaints’ procedure. Is there anywhere or anyone to complain to, and how can you contact them.
  • Recommendation Sites:
    Make sure to be very careful, as this industry’s standards are far from fair, such as those found on giants such as Amazon or eBay. Therefore, the recommendations should be taken with a grain of salt – to inform our opinion, not to determine it.

For more information on staying safe when borrowing online, check out our free online safety guide.

6

Loan Comparison Sites: How They Work

We are familiar with price comparison sites for many types of goods. These sites can help us find the best available offer, ranging from laptops to kitchen utensils. In finance, some sites make comparisons and claim to recommend the best lender for us. In our study, we examined the various loan comparison websites to see if the results obtained help us to accurately compare the different loan offers available on the market.

Before we continue to the research results, it is important to note what exactly we expect websites that compare payday loans to do. It doesn’t matter if it’s a comparison of cargo ships or baby diapers. We expect comparisons to be fair, not biased as a result of unrelated economic considerations. If a source is not objective, it may distort the truth and produce biased results that do not reflect the reality.

Our shocking results

Unfortunately, one can say that the comparison sites examined by us did not pass the basic test of fairness. In fact, they were all loaded with biased results. For all sites that compare payday loans, there is an incentive that for every referral they make, they get paid. This is similar to asking a salesman for a recommendation on a TV he is selling. Of course, he will recommend the TV that will bring him the greatest profit, not necessarily the one that best fits the needs of the consumer. Ditto a waiter at a restaurant receiving instructions from his boss to ‘push’ customers primarily to the cheese platter, which will make him the largest profit. During the study, we approached some of the sites, introducing ourselves as a lender who wants to participate in the comparisons they host on their site. We mentioned that we would be very happy to be in the first place, should a suitable customer arise. Sales representatives were eager to arrange this for us if we agree to pay the appropriate price.

Loan comparison sites: Exposed!

You would think this is the behaviour we would expect on loan comparison sites. Unfortunately, this is not so. And to illustrate this, we present some concrete examples.

Comparison Sites that Charge per Click

One site we looked at, charges money to be displayed on ‘the good guys’ part of the page. Their economic model is called CPC, meaning ‘Cost per Click’. When a customer clicks on a link of any lender, the site gets paid for the very reference. To be in slots 1-5, the lender must agree to pay £8.50 per-click. Do you see the figures? A potential customer clicks a button, and £8.50 gets paid by the lender to the website. Awesome, is it not?

A second site we looked at charges £1.75 for the lower places, £3 for the higher places and the prices rise steadily from there. Of course, the lenders who win the top positions are not those who give the customer the best loan, but those who agreed to pay the highest amount. Cheese platter, remember?

Comparison Sites that Charge per Ranking

Other sites use a different model. Each ranking place has a cost, and that’s it. For example, for third place, you pay £500 a month. Fourth place costs ‘only’ £450. They do not bother actually to compare payday loans. It’s much easier and simpler to spin a wheel of fortune, so why bother? All advertisers appear in all places. (This is very unfair to the customer, who instead of getting real information, gets a random result).

One larger, international comparison site charges £75 simply to appear on the site. On top of that they get paid when a potential customer fills out a loan request and another fee if the lender actually completes the loan. If a lender does not want to surrender to this extortive system, they will not appear on the site at all, even if their loans feature the best features.

Summary of Findings

In summary, we could not find a single company that compares payday loans working with integrity. The definition of integrity, in this case, is the search results are objective and fees are charged only for referring clients. (Banner charges are legitimate, as long as these are not part of the comparison itself). So the bad news to customers at the moment is that it’s no use wasting your time on these sites. You have to compare payday loans yourself.

Disclaimer: This research was conducted in 2015. Details may have changed since.

7

Tips for applying for a Cashfloat payday loan

When you apply for a loan, you want to do it in a way that will make it easier and faster for the lender to process your loan application, so that you get an answer quickly. More importantly, you want the lender to approve your loan.

Here are 6 tips that will help you when applying for your loans online:

Loan companies often rely on third-party companies, licensed databases, and rating agencies to get complete details about the client. Therefore, the most important tip is to always write the truth.
Use the online loan calculator to play with the sum and the number of installments. Keep in mind that too few installments might be hard to repay, but a longer repayment period raises the total price of the loan.
Your lender does not know you and needs to make decisions based on the information you provide. Therefore, to help the lender reach a positive result for you – which is providing the loan – you should pay attention to the details.
Be careful to write the correct full name, correct address and any other details on the form. If there is a contradiction between your information and the information from various information agencies, the lender may take this as an issue alone, and not grant you the loan.
If, for example, you report expenses for food as £10 a week, it will not make sense. No one can reasonably live off £10 a week spent on food. Reliable communication from the customer adds to reliability and security from the lender.
If approved, you will need to ‘sign’ a contract via email. Keep in mind that this is an enforceable contract like any other. You must sign it as though you are signing a paper contract. Skim through the contract to make sure that it all looks ok before you sign.

A final note on this topic: If there is anything that a company loves, it’s good customers coming back. If the lender has had a good experience with a particular customer, chances are they will give him a larger loan the second time round. Therefore, if you need another loan, you should always contact the lender you worked with in the past. Make sure to repay the loan on time to increase your chances of obtaining a larger loan than before, if necessary.

We hope that this article has been useful to you. You can find more articles on our website to help you find your way through the tangled world of finance. The articles dissect many important issues, all in simple and easy terms.


Written by: Kelly R
Last modified:


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