Since the Financial Conduct Authority introduced a series of price capping measures in 2015, companies who provide payday loans and short term loans in the UK have been subject to limits on the amounts they can charge. The measures extend to daily interest, default fees and the lifetime cost of the loan.
For daily charges, this means that lenders can charge no more than 0.8% of the amount borrowed per day (80p per £100). This includes fees as well as interest. As a result, most lenders have stopped charging admin fees, and instead charge a simple flat daily percentage rate.
With the majority of lenders charging the maximum 0.8%, it would be easy to draw a conclusion that all short term loans would now cost the same, and that price would no longer be a factor when comparing loans. So, is this actually the case? We decided to conduct an experiment to find out for ourselves.
Short term loan comparison: the ground rules
In order for our experiment to be representative, we decided to use a loan amount and duration that was widely available from lenders, and popular with borrowers. We discounted payday loans and high street lenders, and instead focused on online lenders and longer term, installmentloans.
We settled on a £250 loan over 3 months (90 days), with the assumption that repayments would be made on 30 days, 60 days, and 90 days.
We then set about choosing lenders for our experiment – lenders that could offer the loan we needed and charged a combined rate of 0.8% per day.
Short term loan comparison: the competitors
With many lenders meeting our criteria, we picked out three of the UK’s best known short term lenders – brands that many people would search for by name in addition to discovering them high up in Google’s rankings – who offered the similar short term, same day loans online.
- Mr Lender (mr-lender.com)
- Peachy Loans (peachy.co.uk)
- Quick Quid (quickquid.co.uk)
So, now armed with our requirements and our lenders, we set about conducting our experiment.
How the competitors loans work
Mr Lender Loans
Mr Lender requires you to repay an equal part of the amount borrowed, plus any interest due on each repayment date.
This means that repayment amounts are higher at the beginning and steadily reduce throughout the term of the loan.
Peachy.co.uk requires you to pay an equal part of the amount borrowed, plus an equal part of the overall interest.
This means that repayment amounts remain the same throughout the whole term of the loan.
Quick Quid Loans
QuickQuick.co.uk requires you to repay only the interest due at the end of periods 1 and 2, then interest due, plus the total amount borrowed, on the final repayment date.
This means that repayments are much lower at the beginning, and stay that way until the last payment date, when the amount becomes significantly higher.
Short term loan comparison: the results
- First Installment: £143.33
- Second Installment: £123.33
- Third Installment: £103.34
Total cost of loan: £370
- First Installment: £126.18
- Second Installment: £126.18
- Third Installment: £126.18
Total cost of loan: £378.54
- First Installment: £60
- Second Installment: £60
- Third Installment: £310
Total cost of loan: £430
Despite all of our lenders charging the same amount over the same period, the total cost difference between our loans (the saving) amounted to a hefty £60 (42%). Bear in mind that loans for higher amounts or longer terms would result in even bigger savings.
However, just as significant, was the difference between the installment amounts to repay – the lowest was £60 and the highest £310. While it may sound nice to have a bit of a payment holiday, the impact of a £310 installment could land you in deeper financial trouble if you don’t budget properly for it.
Short term loans are never going to be bargains, however, what we have proved is that there are better buys out there – and it does pay (literally) to do some homework rather than commit to the first lender presented in Google’s listing. Given that most people take out one of these quick loans because of cash flow troubles, it does make sense to try and get the best deal available if you need one.
If you find yourself in need of a fast cash injection and don’t relish the task of searching out a deal yourself – you can use the services of a loan broker like InstantLolly.co.uk. Instant Lolly are experts in finding short term loans for customers who need urgent, short term financial help.