How to Compare Payday Lenders

Any important product or service that you’re considering paying for warrants some scrutiny to make sure you’re getting a good deal. Payday loans are no different. Before you apply for a loan from a payday loan lender in the UK, you need to know that the loan you’re applying for is the best one for you.

Unfortunately, payday loan comparison sites are unreliable. Despite the presence of regulators that monitor activity, payday loan comparison sites still feature misleading statements and instances of lenders paying for ranking positions. It is vital, therefore, that you know for yourself how to compare lenders if you’re considering taking out a payday loan.

In this article, we’ll discuss the ways in which you can directly identify a good lender so you can make sure you get the best loan. Our advice will help you make a choice from all of the different online loan options available to you.

Things to Consider Before You Take Out a Loan

First, there are a few things you should think about before you decide to take out a payday loan. Before you apply for a loan, make sure that you really need one. Borrowing money always needs to be justified, so you need to think about your reasons for taking out a loan.

Payday loans should only be used in an emergency. It might be justified to take out a loan to repair the family car if it breaks down at a difficult time. However, taking out a loan to get a new one when you don’t really need to wouldn’t be justified.

As well as it being possible that you don’t need a loan at all, it might be better to think about alternatives to using a payday loan.

Before applying for a payday loan, you should consider the following alternatives:

  • Family and Friends – It might be better to borrow money from someone you know personally. Usually, this means a family member or a good friend. This way, you can get an easy, interest-free loan. This isn’t the best choice for everyone, though. Involving friends and family in money issues can prove to be very problematic in some instances. Sometimes it’s better to pay to borrow money from a stranger rather than jeopardise a family relationship or close friendship.
  • The Bank – Borrowing from a bank is a very good option. Bank loans, however, are difficult to get accepted for. People who are in need of emergency funds from a payday loan usually can’t meet the requirements for a bank loan. That’s because banks don’t usually deal with emergency lending like payday lending. Specialist companies, like Cashfloat, are better for this type of borrowing.
  • Credit Cards – Borrowing money on a credit card could be a viable alternative, and credit cards are usually cheaper than payday loans. However, there are various disadvantages to credit cards. If you don’t have one already, you’ll need to apply and wait to get one. Payday loans are instant and have a high acceptance rate. You might not even be accepted for a credit card. As well as this, credit cards often come with lower overall borrowing limits, limits to the amount of cash you can withdraw and high fees for withdrawing cash. They’re also a long term commitment, with users sometimes getting addicted to living on credit. Finally, it still costs money to borrow on a credit card.
  • Non-Profit Organisations – Another solution, but often a more difficult one, is to find a non-profit organisation that will give you a loan with a good rate. Credit unions are one such organisation. These institutions offer loans at low rates, and they provide loans for emergency situations. You will need to be eligible to join, though, and not everyone is eligible for a loan if they can join. Credit union loans may come with conditions as well.

Comparing payday lenders

Let’s get into the details of how to compare payday lenders.

Some basic things to check first

The first thing to know, when it comes to comparing lenders, is that there are some lenders you definitely shouldn’t borrow money from.

When you come across a payday lender, there are some basic things that you can check to see if they are trustworthy. In the modern digital world it’s not always easy to tell if the person on the other side of the screen is legitimate and trustworthy.

There are, however, certain things that you can look for:

  • The company should be FCA registered – you can search the FCA register for the company, and they should display their license number to help you do so. Always check the number if they do display it. Do not use a company that isn’t FCA registered. The FCA also publish a warning list of firms and individuals they are concerned may be operating without authorisation.
  • The company should be easy to contact – they should provide full contact information, including an address that can be verified and a telephone number. The phone number should also be a landline, and you should be able to contact the company through it without any difficulty. Do not use a company that doesn’t have a concrete location and can’t be easily contacted. At Cashfloat, we even provide the names, pictures and email contact details of key company figures on our about page.
  • The company should have reviews from previous customers – reviews can help you establish how a company operates. You should not use a company that appears to have fake reviews or has reviews that suggest it’s not a responsible lender.
  • Check the quality of the website – fake websites can be difficult to spot nowadays. However, scam websites often feature typos, spelling mistakes or missing information, such as terms and conditions or a company registration number. You should also check that a website is secure by looking for https:// in the url and for the padlock or key symbol that indicates the site is secure. Do not use a website if there’s any reason to be suspiscious about it.

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

Compare APRs to compare cost

The basic way to compare costs between lenders is to look at the different annual percentage rates (APRs) that are on offer. The higher the APR, the more it costs to borrow.

An APR tells you the total cost of borrowing money over one year, and it should include the interest and any standard fees that you’ll need to pay. The percentage in an APR shows the percentage of an amount that is borrowed that will need to be paid if the amount is borrowed for one year.

Here’s an example:

Suppose someone in the UK takes out a short term loan for £100 at 20% APR. If they repay it in exactly one calendar year, the APR will tell us precisely how much they’ll have to pay. A fee of 20% on a £100 loan amounts to £20 in costs. They’ll have to repay a total of £120.

Simple. But the obvious problem is that’s only if you borrow the money for exactly one year. Well, yes that’s true, but APRs still allow you to easily compare loan costs. Any two loans can be compared straight away by looking at the APR even if the amount that is on offer or the time periods of the loan are different.

Representative vs personal APR

If a loan (or another financial product) is offered with a ‘representative APR’, this means that not everyone actually gets that rate. Lenders usually can’t offer the same rate to everyone, so they display a respresentative APR to give an indication of what the actual APR will be. Representative APRs do give a good indication because at least 51% of customers must receive this rate in order for it to be advertised.

A personal APR is the rate you will personally be offered by a company. Your personal APR may or may not be different to the representative APR, based on your personal circumstances.

Compare UK payday loan lender representative examples

185.39%Fixed annual interest rate
611.74% APRRepresentative
Representative example:
Borrowing amount – £700 for six months
Fixed annual interest rate – 185.39%
Representative APR – 611.74% APR
First month payment – £168.45
Four monthly payments – £224.60
Last month payment – £112.20
Total interest paid – £479.05
Total amount repayable – £1,179.05
130.21%Fixed annual interest rate
840.75% APRRepresentative
Representative example:
Borrowing amount – £300 for 8 months
Fixed annual interest rate – 130.21%
Representative APR – 840.75% APR
Monthly payments – £183.59
Total interest paid – £234.36
Total amount repayable – £734.36
292% Fixed annual interest rate
1256% APRRepresentative
Representative example:
Borrowing amount – £300 for six months
Fixed annual interest rate – 292%
Representative APR – 1256% APR
Monthly payments – £122, £110, £98, £86, £74, and £62 in the 6th month
Total interest paid – £252
Total amount repayable – £552
292% Fixed annual interest rate
1333% APRRepresentative
Representative example:
Borrowing amount – £200 for six months
Fixed annual interest rate – 292%
Representative APR – 1333% APR
Monthly payments – £64.44
Total interest paid – £186.61
Total amount repayable – £386.61
292% Fixed annual interest rate
1307% APRRepresentative
Representative example:
Borrowing amount – £200 for 4 months
Fixed annual interest rate – 292%
Representative APR – 1307% APR
Monthly payments – £83
Total interest paid – £132
Total amount repayable – £332
248.76% Fixed annual interest rate
1228.67% APRRepresentative
Representative example:
Borrowing amount – £250 for three months
Fixed annual interest rate – 248.76%
Representative APR – 1228.67% APR
Monthly payments – £133.65
Total interest paid – £150.95
Total amount repayable – £400.95
291.50% Fixed annual interest rate
1291.1% APRRepresentative
Representative example:
Borrowing amount – £400 for 6 months
Fixed annual interest rate – 291.50%
Representative APR – 1291.1% APR
Monthly payments – £133.33
Total interest paid – £399.98
Total amount repayable – £799.98
292% Fixed annual interest rate
1261% APRRepresentative
Representative example:
Borrowing amount – £300 for 3 months
Fixed annual interest rate – 292%
Representative APR – 1261% APR
Monthly payments – £152.65
Total interest paid – £157.95
Total amount repayable – £457.95

Note: Just like it’s important to compare lenders, we also recommend that you compare loans to help you find the loan option that best suits you. As well as payday loans, Cashfloat offers other loans, such as short term loans and small business loans.

Knowing whether to trust a lender – other things to look for

  • Are they transparent with information?

  • Is the information you need presented clearly? Is it all easily available without you having to dig through the site to find it?

    A good lender will tell you everything you need to know without any fuss. As well as simply telling you everything you need to know (interest rates, fees, loan amounts, repayment dates, etc), they should also let you know all this before you have to fill out any forms 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 themself before they’re drawn into the borrowing process.

  • Do they answer the phone?

  • Don’t be afraid to call a company you’re planning on borrowing money from and speak to the service personnel on the other side. Establishing their levels of courtesy, professionalism, patience and concern for their customers’ needs will tell you a bit about how they conduct themselves. Are they willing to explain how things work and so on? Sometimes there’s nothing better than a conversation with an actual person, even in the online world of today.

  • Are their conditions fair?

  • Do they treat their customers fairly? Are the conditions they offer acceptable? Are they clear about when you will need to make repayments? Are they clear about how much those repayments will be and what you should do if you’re struggling to make one? Not only should it be clear how the loan process works, but the loan process itself should also be fair. Look for a general guide that you can download in advance. Companies that publish these guides show that they take care of their customers.

  • Do they have a loan calculator?

  • As we said already, you should be able to see what your options are before you submit an application.

    One of the best tools for letting you do this is an online loan calculator. A loan calculator will allow you to see what the repayment conditions will be for the amount you want to borrow. It should also allow you to adjust the borrowing options so you can find a loan that matches your needs exactly. It should display a full payment table, detailing the dates on which repayments will need to be paid, the amount of each repayment installment, the overall total cost of the loan and the amount you’ll pay in interest.

  • Do they display their complaints procedure?

  • Check out whether the company has an easily accessible complaints procedure. Any FCA regulated business should have a clear and effective complaints handling procedure in place, and they should follow it. You can read about Cashfloat’s complaints procedure here.

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

Here at cashfloat, we offer a great alternative to some other well-known, trustworthy lenders that have gone into administration.

Click on any of the lenders below to find out what we can do instead.

Wage day AdvancePiggy Bank

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