If you think that following the recent price caps on short-term loans, it’s not worth shopping around, think again. Let’s cut to the chase, payday loans aren’t cheap but you can find cheaper loans if you do you homework—much cheaper! Here’s our guide to finding cheap short-term loans online and saving yourself a packet in interest charges.
If you’re looking for a short-term loan online today, there’s some good news, and some bad news.
Let’s get the bad news out of the way first. Since the Financial Conduct Authority (FCA) took over the responsibility of regulating consumer credit in 2014, securing short-term loans online, isn’t as easy as it once was. Aside from the fact that there are less lenders around to service your needs, the FCA’s crack down on irresponsible lending means there’s no escaping a creditworthiness and affordability checks.
What about a ‘no-credit-check loan’? Forget it—its all marketing twaddle (unless you provide some kind of asset as a guarantee or a generous guarantor covers your loan)—I refer you back to my previous paragraph.
The good news is that there’s still plenty of top-notch lenders out there who can help you out – providing you can prove you are able to make the necessary repayments of course. One of the main benefits of short-term loans, is the unique way they work—a quick online application, fast approval, and same day cash payout.
However, despite the need to come up with a quick fix to your money troubles, you should still do some basic homework before decide on a lender and commit to a loan—after all it could save you pounds in interest, even for small loans.
Do best buys exist out there, and does it still pay to shop around?
In 2015, the FCA introduced of a series of measures, to limit how much lenders can charge for high cost short-term credit products, such as payday loans and short-term loans. The measures include a cap on the amount of interest and fees that can be charged per day, and means that lenders can charge no more than 0.8%, or 80p, per day, per £100 borrowed.
With many lenders advertising this headline rate, it would be easy to fall into the trap of thinking that all loans cost the same and comparing loans would now be a largely redundant exercise—it’s not— and you can still make good savings if you’re willing to put in a little effort. Whilst I would stop short of describing any form of short-term credit as ‘best buys’, there could be better buys for your circumstances.
In the world of short-term loans, not all loans are equal
In order to prove our headline bore some credibility, we conducted an experiment to prove the point.
We examined a typical £250 short-term loan, taken out over 90 days, with an interest of 0.8% per day and no additional fees. Our loan will be repaid in 3 instalments, made on 30 days, 60 days and 90 days.
To help with our experiment we utiltised the services of 3 of the UK’s best known short-term lenders – all of whom are able to offer the exact loan we need.
- Mr Lender
- Peachy Loans
- Quick Quid
We then calculated the exact cost of our loan, across each of the 3 lender websites.
Okay, so who’s the cheapest? They’re all the same right? No they’re not—would it surprise you if I told you there was £60 difference between the interest payable?
Don’t think it’s possible? You need to read on…
Want a cheaper Loan? You need to take an interest
Mr Lender – Total Cost of Loan: £370
Why this amount?
For each period, you repay the interest accrued plus an equal share of the amount borrowed.
This means that the instalments are higher at the start and get lower towards the end of the loan—this results in a repayment schedule like this:
Payment 1: £143.33
Payment 2: £123.33
Payment 3: £103.34
Total cost of loan: £370
Instalment variance: £103.34 – £143.33 (£39.99 difference)
Peachy Loans – Total Cost of Loan: £378.54
Why this amount?
For each period, you repay an equal amount, consisting of part interest and part capital (the amount borrowed).
This means that the instalments remain the same throughout the whole of the loan—this results in a repayment schedule like this:
Payment 1: £126.18
Payment 2: £126.18
Payment 3: £126.18
Total cost of loan: £378.54
Instalment variance: £126.18 – £126.18 (£0 difference)
Quick Quid – Total Cost of Loan: £430
Why this amount?
You repay the only interest accrued at the end of period 1 and 2, then interest accrued plus the total amount borrowed in period 3.
This means that the instalments are much lower at the start and very high at the end of the term—this results in an example repayment schedule like this:
Payment 1: £60.00
Payment 2: £60.00
Payment 3: £310.00
Total cost of loan: £430
Instalment variance: £60.00–£310 (£250 difference)
Get your online loan search started – bag a better buy in under an hour
Want to follow our steps and bag yourself a better buy? Here’s how you can find a cheaper loan online in under an hour.
Step 1: build a short list
Make a shortlist of lenders who may be able to fulfill your needs. The easiest method, and the one we recommend is to use 2 or more comparison sites to build your initial list. Ensure you use at least 2 sites – more will provide you with a broader range of lenders.
Here’s some comparison sites to get you started:
If you want to find your own comparison sites, simply Google ‘compare short-term loans’.
Loan comparison websites – proceed with caution
Don’t be tempted to cut your search short and just plump for the website heavily promoted at the top of the page. The comparison site will usually receive some kind of financial incentive for introducing you to a lender, and the amount each lender pays them varies, so don’t assume that the list of results is presented in the order that represents the best value to you, or that it includes all of the available lenders in the marketplace. Chances are, the top result is the lender that’s making them the most money.
Adjacent to each result, you’ll find an ‘Apply Now’, or ‘Visit Website’ button, which will direct you through to the lenders site—this will almost always take you directly through to the application page, which is certainly not where you should be starting your application.
Instead, make a list of what look like the best deals on the comparison site (maybe 3 or 4). Repeat for each of your comparison sites.
Step 2: check out the lenders
Once you have your shortlist, you can click-through to the lenders websites yourself. You’ll usually find a ‘slider’ or other calculator on the home page of the website—use it to calculate exactly what a loan will cost, and just as important, what the cost of each of the instalments will be.
If you can’t find the information you need, or struggle make sense of the figures yourself, get in touch with the lender and ask them to provide a personalised quote that details the payment schedule as well as the total cost of the loan.
Short-term loans are never going to be bargains, but you can find better buys if you look
So, there you have it. Comparing short-term loans yourself doesn’t take much time and you could save yourself a packet just by following a few simple steps.
- DO shop around – there are better buys out there;
- DO use comparison sites for assistance, but DON’t rely on them;
- DO explore lender sites and use your own judgement;
- DO Ensure you know the individual instalment costs upfront—not just the total cost of the loan.
The potential saving between our lowest/highest priced loans is a hefty £60 (over 42%) for what is a relatively small amount borrowed. The cost of the 9 instalments also varies significantly between £60 and £310.
Short-term instalment loans will never be considered cheap loans, and you won’t find bargains, but by following our simple steps you’ll almost always find better buys. Not only could you reap the reward of headline savings, you’ll find out whether your budget can stretch to make each of the instalments, in full and on time—and as we all know, peace of mind is priceless.