Which payday loan is cheapest?

Which payday loan is cheapest?
September 22, 2016 Lauren Howells
Cheapest payday loan

When borrowing money, it makes sense to know which is the cheapest UK payday loan online.

Nobody wants to pay more than they should and everybody wants a good deal.

Finding the cheapest payday loan may not be as straightforward as you think. This is largely due to positive moves by the Financial Conduct Authority.

The FCA and payday loan price caps

Whilst all payday loan companies are different, the total amount that they charge will not vary as much as you might expect.

The Financial Conduct Authority, which regulates the payday loan industry has many price caps in place.

No lender can:

  • Charge more than 0.8% per day (80p per £100 per day) in interest.
  • and charge more than £15 for a default.
  • also, charge you a total of more than double what you originally borrowed.

This means that if you borrow £100, you will get charged a total of £124 for your first month of borrowing (assuming you paid the entire loan back in 30 days)

Even if you experienced extreme financial difficulty and really struggled to pay back what you borrowed. You would not end up with more than £200 of total debt.

All FCA authorised payday loan companies have to abide by these rules.

Most companies follow them exactly, meaning that two lenders, compared side by side, may not seem all that different.

Comparing to find the cheapest payday loan

Cheapest payday loan

You may have researched typical payday loan offerings and discovered they all seem similar. Yet it is worth making sure that you have covered all your options.

Most lenders provide a small loan that you can repay with either a one-off payment or many instalments. However, some take a slightly more unique approach to their lending.

Compare just three of these lenders, each a little different from the others. You can then start to understand how you really go about finding the cheapest payday loan.

The Money Shop

The Money Shop is one of the UK’s most well-known lenders.

As well as offering payday loans online they have a physical presence with (in their own words) “hundreds of high-street stores”.

How much you can borrow:

With The Money Shop, you borrow between £100 and £2,000.

How long you will have to repay your loan:

The Money Shop offers loans for between 3 and 12 months.

The loan APR:

Money Shop publishes a representative APR of 709% for their short term loans. Their largest APR is 885.1%.

Loan fees:

The Money Shop advertises a fee-free service. You will pay interest on your loan, but will not get charged setup or late payment fees.

If you repay your loan early, you may be able to reduce the amount that you pay. There are no early repayment charges.

How a loan from The Money Shop works:

You can apply for a loan online, in-store or by phone.

Online applications receive an instant decision. This will likely be the quickest way to get approved for a loan if you are not close to one of their branches.

If you apply in-store, you will need to have identification documents and your debit card to hand.

The Money Shop offers short-term instalment loans. Which, can be more flexible than traditional payday loans.

As the borrower, you can choose how long you need to pay back what you owe.

As is the case with all loans, credit checks and identification checks will get carried out.

SafetyNet Credit

SafetyNet Credit promotes itself as the “smart credit facility”.

Unlike traditional payday lenders, SafetyNet Credit offers a revolving credit agreement.

This means that you are not restricted to borrowing just once – in essence, the loan works more like a credit card.

How much you can borrow:

With SafetyNet Credit, you will receive a credit limit of up to £500. You can pay back and borrow money as often as you like.

How long you will have to repay your loan:

There are no deadlines for SafetyNet Credit repayments.

The loan APR:

SafetyNet Credit publishes a representative APR of 68.7%.

Loan fees:

There are no fees attached to credit from SafetyNet.

You will get charged interest on anything that you borrow, over the full length of time that the money gets borrowed for. You can repay within a day, or over the course of a few months.

Like other lenders, SafetyNet Credit charges 0.8% interest per day.

How a loan from SafetyNet Credit works:

You can apply for funds online, or using the mobile phone app.

You will also need to give SafetyNet Credit secure read-only access to your bank account.

Information about your income and outgoings create a picture of your financial situation and spending.Cheapest payday loan

This information will get used to decide how much you can borrow.

With SafetyNet Credit you get approved for a credit limit, up to £500, rather than specifying how much you would like to borrow.

Once your credit limit gets approved, you can transfer funds straight to your bank account.

Or, you can use an automatic service that transfers money into your account whenever the balance is getting low. So you are never subjected to unauthorised overdraft charges.

SafetyNet Credit monitors your bank account daily.

This ensures that any issues or periods of financial difficulty can get flagged up quickly so that they do not get out of hand.

Repayments will only get taken from your account if it is in a strong enough position.

This means that repayments will not take you into an unauthorised overdraft.

Money that gets paid back returns to your available credit limit so that it can get borrowed again.

Cashfloat

Cashfloat are more in line with traditional payday loan offerings.

You apply for your loan online and will get access to a customer control panel if your application gets approved.

Loans get managed online from start to finish.

How much you can borrow:

With Cashfloat, you can borrow between £200 and £500 as a new customer.

Existing customers may get approved for loans up to £1,100.

How long you will have to repay your loan:

The largest loans can be repaid up to 4 months.

The amount of time that you have to repay your loan will get based on how much you have borrowed.

A £200 loan can get paid back over 1 or 2 months.

A £300 loan could get paid back over 1, 2 or 3 months.

The 4-month repayment term option opens up for loans of £500 or more.

The loan APR:

Cashfloat publishes a representative APR of 1116%.

Loan fees:

There are no fees attached to credit from Cashfloat.

Interest gets charged daily. Flexible repayments are an option.

Remember, if you choose to repay your loan early, you may save money.

How a loan from Cashfloat works:

Apply for your Cashfloat loan online.

You will need to select the amount that you would like to borrow and how long you would like to be repaying your loan for.

You can always choose to repay early if you have the money available.

To be a responsible lender, Cashfloat will only provide funds to customers aged 23 or over and earn at least £1,000 per month (net). You also need to be in full-time employment.

These requirements are stricter than some other short-term lenders, but help to ensure affordability.

Finding the cheapest payday loan

Cheapest payday loan

There was a time when lenders had different fees and charges. Now the FCA caps and regulations have brought them all closer together.

Lenders have to differentiate themselves from their competitors. Something they are doing by finding their own unique selling point.

There are so many different options for short-term borrowing. Finding out which would be the cheapest payday loan is not simply a case of comparing interest rates.

SafetyNet Credit has a much lower representative APR than Cashfloat or The Money Shop. Yet, you would need to feel confident that you would not get tempted by the revolving credit offering.

If that is the case, you might find that visiting a branch of The Money Shop and speaking to someone in person will give you better information.

The APR of a loan is a useful tool for comparing like for like, but may not help you to visualize the cost of your loan.

APR calculations take monthly interest, plus any charges and fees and scale everything up to a total over a full 12 months into account.

Remember that a short-term loan APR is not the best indicator when assessing payday loan charges and interest rates. This is because the products are not designed for annual, longer-term borrowings.

Keeping this in mind can help you to keep perspective when you see the APR listed.