Many people will assume that when they are picking between direct payday lenders, that the interest rate is the best way to compare the cost of them. Therefore if they want to find the cheapest direct payday lenders, they will need to just approach the one with the lowest interest rate. It would be really simple if this was the way to compare them, but there are other things that need to be considered, that will affect the price, that you need to think about.
Representative Example: £400 borrowed for 90 days. Total amount repayable is £561.92 in 3 monthly instalments of £187.31. Interest charged is £161.92, interest rate 161.9% (variable). Representative 305.9% APR. We are a broker not a lender. We don't charge fees. We don't sell your personal information.
The amount of repayments may not seem that relevant, but it can actually be a really big factor. Often a payday loan will have just one repayment which is due on the day that the borrower gets paid, but there are now payday loans available where you can pay in instalments.
Often when you pay a loan back in instalments it will be dearer, the more instalments that you have. This is because the lender will charge you for the period that you have the loan and so the longer that you have it, the more expensive it will be. This could very well be the case with a payday loan, however, in some circumstances it may still be cheaper.
This is not so much because some lenders are just cheaper than other regardless of the length of the loan, but to do with the borrower managing the repayments better. If you have one large repayment, then you may struggle to have enough money to cover it. This could mean that you do not pay it all back on time and get charged fees for not doing so. The longer you take to repay; the more fees you will have to pay.
Another possibility with a lump sum payment is that once it is paid back, you no longer have enough money left to pay your regular bills. This could mean that you will be forced to get another loan to pay for these and it could lead to you getting loan after loan. These two situations could be very expensive compared to paying off a loan in smaller instalments and paying the extra cost associated with that.
It is really important that when you are comparing the costs of a payday loan that you take into account the setup and administration charges as well as the interest that you will be charged. It is wise to find out exactly what you will be repaying as a cash amount, as the percentages and things like that can be confusing. If you know how many pounds it will cost you, then you can do a fair comparison between loans. It is also easy to deal with figures in a real cash amount rather than a percentage, especially if the loans differ in how many repayments have to be made and you have to make calculations to work it all out.
Every loan will have a charge if you do not pay it back on time. All borrowers will be aware of this and know how important it is to repay on time. However, just knowing the importance does not always help to have the money available when needed. This means that there will be some of us who do not manage to repay the loan on time. Late repayment always has a cost and it is always good to find out what this cost is, just in case you ever need to pay it. There could be quite a difference between the late repayment fees between the different lenders.
It is also good to just find out whether there are any other fees or charges for anything else. You should be able to find out all of the fees in the terms and conditions of the loan, but if you find that too difficult to look through, then it can be a good idea to contact their customer services department and speak to them about it. They should be able to give you all of the information that you need.